Price Waterhouse Coopers PWC

Vicki Myburgh, PwC

Increased Internet access will generate more consumer spend than any other media product or service in the next five years in the South African entertainment and media industry, according to a report issued by PwC today. South Africa’s entertainment and media market is expected to grow by 10.2% compounded annually (CAGR) from 2014 – 2018 to a value of R190.4bn. By far the largest segment will be the Internet. Combined revenues from Internet access and Internet advertising will account for an estimated R71.6bn in 2018, accounting for 37.6% of total revenues, according to PwC’s South African Entertainment and Media Outlook: 2014-2018 (‘The Outlook’).

Vicki Myburgh, Entertainment & Media Industries Leader for PwC South Africa, says: “Growth in the South African entertainment and media industry is largely being driven by the Internet and by consumers’ love of new technology, in particular mobile technology, such as smartphones and tablets, as well as applications powered by data analytics and cloud services. Technology is increasingly being driven by consumers’ needs and expectations.”

The fifth edition of PwC’s ‘South African Entertainment and Media Outlook’ presents annual historical data for 2009-2013 and provides annual forecasts for 2014-2018 in 12 entertainment and media segments.

The Outlook includes historical and forecast data on the Internet, television, filmed entertainment, radio, recorded music, consumer magazine publishing, newspaper publishing, consumer and educational book publishing, business-to-business publishing, out-of-home advertising, video games, and sports. It gives a detailed breakdown of these sectors.

The Outlook also includes detailed information for South Africa, Nigeria and Kenya in each of the 12 industry segments.

Aside from the Internet, The Outlook predicts that the fastest growth will be seen in video games and radio, which will enjoy growth rates at 9% and 8.2% respectively. “Video games has made the greatest transition to digital, largely due to the popularity of mobile gaming, but also because of the increased potential for digital distribution of console games,” adds Myburgh. The study projects that 27% of console revenues are forecast to be digital in 2018.

The slowest growing segment in the E&M industry will be the music industry, according to the survey. South Africa’s music market was worth R2.13bn in 2013, down from the 2009 figure of R2.41bn. Annual revenue is forecast to grow marginally by a CAGR of 0.5% to remain relatively flat at R2.18bn in 2018. “Continued growth in broadband and smartphone penetration is accelerating the shift to digital music. Digital music is cheaper, offers instant access and is more portable – these are all major advantages,” adds Myburgh.

Television is the second-largest segment, with combined revenues from TV subscriptions and advertising projected to reach R39.6bn in 2018. A growing middle class with more disposable income will lead to a rise in pay-TV households. This, alongside regular increases in the licence fee and the perennial popularity of television as a mass medium for advertisers will account for growth.

The study shows that advertising accounted for 38% of revenue in the E&M industry in 2013, although this share is expected to fall to 33% in 2018, largely due to internet access increasing its market share significantly over the same period. Despite its share decreasing, revenue generated through advertising will still increase by R18bn between 2013 and 2018, with the fastest-growing segment – Internet advertising – showing a double-digit CAGR as a result of the substantial increase in Internet access over the period.

The strongest drivers of growth in the sports segment will come from sponsorships and media rights. South Africa will see total sports revenues of an estimated R20.5bn in 2018, up from R14.8bn, and rising at a CAGR of 6.7%. Gate revenues are predicted to reach R5.1bn in 2018, up from R4.3bn in 2013. However, the 2018 figure will be well short of the exceptional year of 2010 when South Africa hosted the FIFA World Cup.

End-user spending, consisting of spending by consumers and other end-users on products and services produced by the entertainment and media industry, will rise at 12% CAGR over the next five years from R72.8bn in 2013 to reach an estimated R128.1bn. This will largely be driven by 2.7% increase in consumer spend on Internet access. Excluding spend on Internet access, consumer growth would only come in at 4.6% CAGR to 2018.

Although there is a significant change in the way consumers spend their money, digital revenues in other segments remain relatively small. Nevertheless digital is on the rise both in terms of consumers and advertising revenues. Digital consumer revenue is expected to overtake non-digital consumer revenue in 2016 and account for 55.3% of the market in 2018, assisted by substantial increases in the number of mobile Internet subscribers.

The study also shows that revenue in the film industry is expected to grow by a 7.1% CAGR over the next five years to reach R3.4 billion in 2018. Electronic home video is also catching on rapidly in the film segment. Myburgh says: “Consumers are gradually shifting their viewing patterns in filmed entertainment, spurred on by a reduction in bricks and mortar stores stocking physical video.”

Far less digital take-up is being seen in the magazine, newspaper and book segments, with digital revenues for each forecast to be under 7% of the total, even in 2018. Although consumers may be browsing newspapers and magazine-style websites online, monetising these consumers presents much more difficulty for E&M businesses.

Nigeria

Nigeria’s entertainment and media revenues will reach an estimated US$8.5bn in 2018, more than doubling from the 2013 figure of US$4.0bn at a CAGR of 16.1%. This represents one of the fastest growth rates in the world. As in South Africa, the Internet will be the key driver for Nigeria, where the number of mobile Internet subscribers is forecast to surge from 7.7 million in 2013 to 50.4 million in 2018.

Mobile Internet access revenue alone will add more than US$2.2 billion over the forecast period. Television in the form of advertising and subscriptions and licence fees, will also become a US$1 billion-plus market in 2018, while the market will grow steadily.

Kenya

Kenya recorded US$1.7bn in entertainment and media revenues in 2013, and this is forecast to rise to US$3.1bn in 2018. Once again, it is Internet access that is driving growth. Internet access revenues alone are expected to surpass US$1bn in 2018 as mobile Internet access moves from being a luxury purchase to an affordable essential for the country’s growing middle class. Television and radio will account for combined US$1 billion-plus of revenues at the end of the forecast period. Despite increasing levels of urbanisation in Kenya, radio remains the most important medium in rural areas.

PwC Africa Connectivity Index

The objective of the PwC Country Connectivity Index is to measure the state of connectivity for all markets in sub-Saharan Africa (SSA) with a population of over 10 million. The findings presented in the Index highlights those markets that offer the greatest potential for the future consumption of entertainment and media services because of their relative maturity in terms of connectivity. The Index has three dimensions – current connectivity levels, quality of connectivity and growth momentum. It also has an important place in highlighting what is needed to achieve a better-connected Africa.

As the most mature of Africa’s markets, it should be no surprise that South Africa tops the Index as it offers significant potential as a strong entertainment and media market. Although South Africa scores highly (83%) across current connectivity and quality of connectivity, there is still room for improvement, according to the report. Mobile broadband services are still expensive for consumers with almost 0.5% of a South African consumer’s average GDP per capita going towards mobile broadband services.

Kenya (75%) also performs well in the rankings with the continued rise in its international bandwidth usages. However, the country scores poorly on affordability, especially for mobile broadband services.

The surprise market in the ranking is Côte d’Ivoire (74%). The country scores particularly high in terms of the extent of international bandwidth available to its population.

Although broadband penetration may be high – as in the case of Nigeria- this does not necessarily mean that a country scores highly. At 0.6% of the average GDP per capita in Nigeria, the cost of mobile broadband services is too high. The DRC and Madagascar stand out as markets with poor bandwidth availability and very expensive broadband services. These factors will need to change if these markets are to become connected, and if the digital divide which stands between these countries is to be bridged.

Myburgh concludes: “The future may well be digital in South Africa, as with the rest of the world – many of its products and services can already be delivered in digital form. But we believe that progress in the South African E&M market will be gradual and that there are still plenty of opportunities for ‘old’ and ‘traditional’ media yet.”

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