Even though the bad news is piling up, entertainment and media companies in the country are holding their nerve despite the worsening economic outlook and are putting their trust in their digital investment strategies says a report from PwC.
The UK Entertainment and Media Outlook (E&M) 2022-26: Trusting the digital path ahead noted that while there is short-term uncertainty in the market, confidence and growth can be seen in the long-term direction of the E&M industry. Among the top-line findings was what was described as “robust” long-term growth forecast for the UK E&M industry over the next four years with the market expected to reach £97 billion by 2026. Moreover, consumer behaviour was set to remain digital first with structural changes now evident and even though investor confidence was softening slightly in the face of economic headwinds, high deal volumes were still expected after a 72% rise in 2021.
Overall, PwC's report forecasts the UK E&M industry to grow at a compound annual growth rate of 4% over the next four years with the UK’s mature digital ecosystem and accessible high speed internet cited as putting it in a good position to benefit from consumers’ shift towards digital and mobile.
“Despite the economic headwinds, the UK's entertainment and media industry has yet to take cover. That's because while there's no denying the short-term uncertainty in the market, there is greater confidence in the long-term direction of the industry,” said PwC Strategy& partner Dan Bunyan.
“This is reflected in the record numbers of deals that took place last year. While investor confidence has slightly softened in the face of economic headwinds, we still expect high deal volumes in the years ahead. Platforms that can help brands discover and engage with customers in new environments will become increasingly valuable. Investors will remain keen to support companies that can help facilitate 'buy and build' strategies to bring together complementary specialist capabilities to serve brands and content owners in a more compelling way.”
With consumers spending more time online, the report showed advertising spend will follow this trend. Internet advertising revenue is expected to grow at a CAGR of 6% over the next four years with the lion's share of revenue coming from mobile. Video advertising is projected to account for a significant portion too, almost £billion by 2026 and by the end of the forecast period internet advertising will make up a third of the UK’s overall E&M revenue.
PwC also observed that the change in consumer behaviour means digital channels and platforms will cement their position as key drivers of growth for the E&M market across advertising, content, video and commerce. To keep consumers engaged, brands are investing in ways to give consumers newer immersive experiences though the gaming universe and making different online environments shoppable leading to greater innovation and creating more opportunities for digital advertising.
Yet the market is set to show signs of being impacted by rising inflation. PwC pointed out that in a survey it undertook in July 2022, more than a fifth of UK consumers (22%) plan to spend less over the next 12 months on digital TV and streaming subscriptions. Elsewhere, a fifth of consumers plan to spend less on their satellite tv subscription (20%) and mobile phone contract (20%) with over a third (34%) planning to spend less on going to the cinema. Overall, 78% of consumers have already made some form of spending cutback in response to the cost of living crisis.
In addition, the study reported that for businesses in the entertainment and media sector, rising inflation is set to impact both content providers and advertising businesses. The possibility of consumers switching down subscriptions, coupled with rising production costs, is expected to impact content businesses. If inflation leads to reduced consumer demand then this may have a knock-in impact on marketing effectiveness in the short-term. Depending on how brands react, PwC cautioned that this may soften advertising prices in some channels.
“While some advertising budgets may come under pressure in the current economic climate, it will also mean advertising will represent good value for those that continue to invest in their brand and use advertising to drive new sales,” Bunyan added. “Media owners should help marketers make the case to chief financial officers, boards, analysts and investors of the importance of protecting marketing during an economic downturn. While it’s always wise to be cost-conscious, there is good reason to retain a growth mindset even in the face of economic headwinds.”
Overall, PwC's report forecasts the UK E&M industry to grow at a compound annual growth rate of 4% over the next four years with the UK’s mature digital ecosystem and accessible high speed internet cited as putting it in a good position to benefit from consumers’ shift towards digital and mobile.
“Despite the economic headwinds, the UK's entertainment and media industry has yet to take cover. That's because while there's no denying the short-term uncertainty in the market, there is greater confidence in the long-term direction of the industry,” said PwC Strategy& partner Dan Bunyan.
“This is reflected in the record numbers of deals that took place last year. While investor confidence has slightly softened in the face of economic headwinds, we still expect high deal volumes in the years ahead. Platforms that can help brands discover and engage with customers in new environments will become increasingly valuable. Investors will remain keen to support companies that can help facilitate 'buy and build' strategies to bring together complementary specialist capabilities to serve brands and content owners in a more compelling way.”
With consumers spending more time online, the report showed advertising spend will follow this trend. Internet advertising revenue is expected to grow at a CAGR of 6% over the next four years with the lion's share of revenue coming from mobile. Video advertising is projected to account for a significant portion too, almost £billion by 2026 and by the end of the forecast period internet advertising will make up a third of the UK’s overall E&M revenue.
PwC also observed that the change in consumer behaviour means digital channels and platforms will cement their position as key drivers of growth for the E&M market across advertising, content, video and commerce. To keep consumers engaged, brands are investing in ways to give consumers newer immersive experiences though the gaming universe and making different online environments shoppable leading to greater innovation and creating more opportunities for digital advertising.
Yet the market is set to show signs of being impacted by rising inflation. PwC pointed out that in a survey it undertook in July 2022, more than a fifth of UK consumers (22%) plan to spend less over the next 12 months on digital TV and streaming subscriptions. Elsewhere, a fifth of consumers plan to spend less on their satellite tv subscription (20%) and mobile phone contract (20%) with over a third (34%) planning to spend less on going to the cinema. Overall, 78% of consumers have already made some form of spending cutback in response to the cost of living crisis.
In addition, the study reported that for businesses in the entertainment and media sector, rising inflation is set to impact both content providers and advertising businesses. The possibility of consumers switching down subscriptions, coupled with rising production costs, is expected to impact content businesses. If inflation leads to reduced consumer demand then this may have a knock-in impact on marketing effectiveness in the short-term. Depending on how brands react, PwC cautioned that this may soften advertising prices in some channels.
“While some advertising budgets may come under pressure in the current economic climate, it will also mean advertising will represent good value for those that continue to invest in their brand and use advertising to drive new sales,” Bunyan added. “Media owners should help marketers make the case to chief financial officers, boards, analysts and investors of the importance of protecting marketing during an economic downturn. While it’s always wise to be cost-conscious, there is good reason to retain a growth mindset even in the face of economic headwinds.”
