The media consumer will be in the driver’s seat in the coming five years, according to this year’s Price Waterhouse Coopers’ Global Entertainment & Media Outlook 2010-2014. The report predicts a slow return to growth for media of about 5% across the globe in the 11th annual edition of its report. Radioinfo analyzes the report in detail.

As companies strive to map out and navigate their routes through the fast-evolving Entertainment & Media landscape, their responses and strategies will be shaped by one factor more than any other: consumer behavior.

Despite the dramatic growth rates of online digital media, “legacy off-line revenue streams” are still significantly larger than digital revenues according to the PWC report. While the strongest growth will be in digital and online, the bulk of revenues in the next few years will still be analog and offline. The death of traditional media is a long way off yet.

But the report contains a warning to ‘head in the sand’ media operators who want to try and ignore the digital revolution:

“The Media industry needs to ensure it embraces digital not as a competitor to traditional analog services, but as a complement. This means that E&M companies must strike a fine balance between old and new, nurturing and sustaining their cash-generative traditional offerings, while using these legacy revenues to identify and seize the right role and positioning for their businesses within the emerging digital value chains.

“This balance will raise especially difficult decisions around whether to allocate further investment to support analog offerings that are still generating significant revenues but are essentially in long-term structural decline. This suggests that the industry should embrace digital not as a competitor to traditional analog services, but as a complement.”

Radio in Australia has already embraced structural change, and this country is well ahead in using online platforms and spearheading digital radio and online streaming, but there is no room for complacency. Some key areas for media businesses to watch out for are:

New platforms boosting consumption of old content

The report says, far from undermining existing and traditional content, advances in digital technology can actually re-establish and restore content’s value for consumers. It indicates that broadcast companies should be encouraging their listeners and viewers to recommend their content to friends on sites such as Facebook, Twitter, and so on.

Willingness to pay

Many users of previously free ad-funded online content services have proved ready and willing to switch to paying for an ad-free variant under what the report calls “freemium,” a business model that works by offering basic services for free while charging a premium for advanced or special features.

Pioneered by the likes of Flickr, freemium is now used by such online music services as Pandora, and through microtransactions on social games such as Farmville and Mafia Wars.

Mobile Me

Ongoing change in consumer behavior will be felt through the rising power of mobility and devices. In this context, the industry and its consumers are currently on the threshold of a major shift.

Across the world, the rising penetration of smartphones and other Internet-enabled devices, supported by advanced infrastructure and enriched by a growing array of mobile applications, means the tipping point is fast approaching at which mobile content will explode as a revenue generator.

In some markets this has already happened. In Japan, for example, more than 60 percent of total Internet access spending in 2009 was generated through mobile devices.

Structural change in the media is manifesting itself across three parallel dimensions: economic, advertising, and consumer behavior.

According to the report advertising funded businesses face slow growth, while consumer funded services (subscription based services and micropayment models) are likely to generate better growth.

“With economic confidence remaining subdued, and advertising exhibiting a clear but fragile return to stability, companies are currently in an environment where consumer feedback and consumer usage provide the only reliable guides to the commercial viability of products and services. As a result, consumer behavior will be an important driver of industry developments over the coming five years.”

The report sees the best revenue growth in video games and broadband based consumption services. Advertising growth will be slower than it has been in the past.

The key challenge for the media industry will be to find where the value is in what the digital world can deliver. Anytime-anywhere content, mobile consumption and customer loyalty to devices (not stations) will drive the consumer experience of the future according to the report. This last point will be good news for those who have pioneered the move to digital radio and all that its new multi-media enabled receivers can do.

While radio in Australia has already linked itself strongly to the internet, the report predicts television and internet will converge further and that tv will use social media “to become social again” as it was in the past when families and friends sat around one tv set.

It will be difficult to own all steps in the digital value chain, says the report, so collaboration across media platforms will be important for companies to take advantage of future consumer trends.

Web enabled phones and the National Broadband Network “will rapidly reshape the media industry” in Australia. Incumbent businesses will “need to get involved rather than be defensive,” according to PWC.

Ad recovery will be fragmented and subdued for all sectors except subscription tv, interactive games and the internet. The report makes the point that there is now “an endless supply of ad inventory for advertisers to choose from,” so advertising based businesses will have to continually prove their value for money.

Media growth in Australia is predicted to be 3.8%. One of “the main game changers” in Australia will be the fibre-to-the-home National Broadband Network, says the report.

_{Click this picture to view a general overview for Australia}

In the report, PWC defines the world wide radio market in this way:

“The radio market segment consists of advertiser spending on radio stations and radio networks, and satellite-delivered radio subscriptions in the United States and Canada. Satellite radio in the United States also includes advertising. The United States also includes Internet radio advertising. In EMEA (Europe, Middle East, Africa) and Asia Pacific the market includes public radio license fees. Advertising spending is tracked in EMEA, Asia Pacific, Latin America, and Canada, net of agency commissions. Advertising in the U.S. and Russia is customarily reported as gross spending, which is how it is reflected in our analysis.”

World numbers

• There were 12 countries in 2009 with E&M spending above US$20 billion, led by the United States at US$428 billion and Japan at US$164 billion. Of the leading countries, the People’s Republic of China (PRC) will be by far the fastest growing with a projected 12% compound annual increase, fuelled by a vibrant economy and large increases in broadband penetration that in turn propel other segments. Japan will be the slowest growing of the leading countries at 2.8% compounded annually.

• Internet access is a key driver of spending in most segments. Increased broadband penetration will boost wired access while growing smartphone penetration and wireless network upgrades will drive mobile access. Spending on wired and mobile Internet access will rise from US$228 billion in 2009 to US$351 billion in 2014.

• PWC expects a relatively flat market in aggregate global advertising and consumer/end-user spending in 2010, improved growth in 2011 and a return to mid-single-digit gains during 2014. Overall global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Overall consumer/end-user spending will rise from US$688 billion in 2009 to US$842 billion in 2014, a 4.1% compound annual increase.

• Globally, the video game market will grow from US$52.5 billion in 2009 to US$86.8 billion in 2014, growing at a compound growth rate of 10.6%. This will make it the second fastest-growing segment of E&M behind internet advertising wired and mobile, but will be the fastest-growing consumer/end user segment ahead of TV subscriptions and license fees.

• The global television subscription and license fee market will increase from $185.9 billion in 2009 to US$258.1 billion in 2014, a CAGR of 6.8%. This will outpace TV advertising, which will grow at a CAGR of 5.7%. The biggest component of this market is subscription spending and this will increase at 7.5% CAR to US$210.8 billion in 2014. Asia Pacific will be the fastest-growing region with a 10% compund annual increase rising to US$47.1 billion in 2014 from US$29.2 billion in 2009.

• Total global spending on consumer magazines fell by 10.6% in 2009. PWC projects an additional 2.7% decrease in 2010, a flat market in 2011, and modest growth during 2012–14. As a result, spending will total $74 billion in 2014, up 0.7% compounded annually from $71.5 billion in 2009.

• Electronic educational books will grow at a CAGR of 36.5% globally throughout the forecast period yet will still only account for less than 6% of global spend on educational books in 2014.

PWC sees seven critical factors for operating succesfully in the new value chain:

• Strategic flexibility
• Delivery of engagement and reationship with the customer through the consumption experience
• Economics of scale and scope
• Speed of decision-making and execution, with the appetite to experiment and fail
• Agility in talent management
• Ability to monetise brand/rights across platforms
• Strong capabilities in partnership structuring and M&A targeting and integration

The PWC report leverages the breadth and depth of one of the world’s largest professional services firms, combining local, on-the-ground expertise with a global perspective. To buy the full report, click the link below to go to PWC’s report page.

To refute any of the report’s assumptions, argue with our analysis, or offer your own views on this worldwide report, post your comments in the box below.