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Despite challenges, the global media and entertainment market grew in 2022, although at a slower pace than in 2021, with gains projected in the coming years. Subscription streaming video growth “stuttered” though last year and will slow over the next five years, even though the global streaming market will expand further to nearly $175.0 billion.
Global TV subscription revenue will fall to $173.6 billion in 2027, from nearly $200 billion just a decade earlier, declining at a 0.9 percent compound annual rate between 2022 and 2027. And the number of U.S. pay-TV homes will further drop to 49.9 million homes in 2027 amid continued cord-cutting, reducing pay-TV’s presence to just 38 percent of U.S. households.
Those are some of the stark takeaways from PwC’s latest annual “Global Entertainment & Media Outlook,” which covers 2022 and predictions for 2023-2027.
With 2022 having been a challenging year for Hollywood and media giants, including a softer advertising market amid macroeconomic concerns, a reset of video streaming strategies and layoffs, it found a 5.7 percent increase in global industry revenue to approximately $2.47 trillion, down from the 10.8 percent growth rate that had brought 2021 revenue to around $2.34 billion.
In addition to forecasts for the growth of the overall industry, the study also provides deeper dives into its various sectors, from cinema, “traditional TV” and “OTT video,” aka streaming, to audio, video games/esports, print media, internet advertising, as well as such emerging businesses as VR/AR, NFTs and the metaverse. Here are some highlights of PwC’s forecasts for streaming video, as well as TV subscription and advertising revenue.
Streaming video
“The subscription video-on-demand (SVOD) boom triggered by Netflix, which sparked streaming wars on a global and national scale, has dominated the OTT market over the past decade but stuttered in 2022,” PwC’s latest Outlook finds. “As record subscriber uptake during the COVID-19 pandemic slowed dramatically – or, in the case of Netflix, declined for two quarters – a new commercial reality has set. Some OTT players have been forced to reassess the growth-at-any-cost mentality strategy, which created an unsustainable global content arms race. With that said, there’s clearly more room for growth overall – it’s just that this growth will be less concentrated in the hands of one or two major players.”
The report forecasts global streaming video revenue rising from $116.5 billion in 2022 to $133.0 billion in 2023 and $174.6 billion in 2027 for a compound annual growth rate, or CAGR, of 8.4 percent. The gains will be led by a 13.8 percent CAGR in advertising VOD, followed by 7.0 percent growth in subscription VOD. In the U.S., the forecast calls for gains from $49.4 billion last year to $57.1 this year and $75.5 billion in 2027 for a CAGR of 15.9 percent, thanks to 24.6 percent ad gains and a 14.2 percent subscription increase. Transactional VOD will add nearly $11 billion in revenue.
In the U.S., the forecast calls for gains from $49.4 billion last year to $57.1 this year and $75.5 billion in 2027 for a compound annual growth rate of 8.8 percent, led by 14.2 percent in the ad area and 6.1 percent in subscriptions.
PwC’s takeaway: “AVOD is the next growth driver. As the new straitened economic reality of prospects for SVOD businesses has set in, the advertising-supported video-on-demand (AVOD) market, which has not been exploited in many territories or by some of the biggest streaming players, will become the biggest growth driver.”
That also fits in with the pressure on consumers due to higher product prices across the board. “Consumers are struggling with soaring inflation and rising bills,” the Outlook study notes. “Cuts include spending on telecoms and entertainment services, considered in the digital era to be as essential as utilities like water and electricity, as consumers pare the number of OTT services they consider a must-have in an overcrowded market. AVOD provides a way for some operators to launch cheaper ad-supported, paid-for subscription packages with the aim of attracting new cost-conscious consumers, countering piracy or reducing churn by giving existing customers the opportunity to spin down instead of leaving.”
Despite the AVOD gains, subscription VOD will remain the biggest part of the streaming space. It will pass the $100 billion milestone in 2025 and account for $109.1 billion, or 62.5 percent, of the global streaming market in 2027.
Overall, streaming growth will slow though in the coming years. In 2027, total global streaming video revenue will climb by just 4.6 percent, which PwC calls “a far cry from the double-digit annual rates experienced in the years of early growth.” This rate, “one more akin to the traditional TV sector, illustrates the transition to maturity and the gravity of the change in revenue growth profile that the OTT market will experience,” the company highlights.
The U.S. will remain the biggest streaming market in the world by far with revenue of $49.4 billion in 2022 growing to $75.5 billion in 2027, dwarfing the next-biggest market, China, at $25.9 billion,” according go PwC.
Sector giants are going back to using such long-established practices as windowing content and licensing it to third parties, in some cases, in the streaming age and making fewer, more selective programming bets, as well as bundling offerings.
“The new OTT model mirrors the old,” notes PwC. “Content remains king. Hit TV and film franchises and ‘must-watch’ live sport are set to see their value soar, even as overall budgets tighten, as OTT operators focus on the programming most likely to win customers.” The firm’s conclusion: “A decade on from the start of the streaming era, the business models of the players in the OTT market are beginning to look increasingly like those of the traditional pay-TV, free-to-air and cable operators that they have disrupted. Streaming services are increasingly forming new pay bundles, whether that be with pay-TV partner offerings as part of distribution deals or multiple services from one operator combined at a discount. Then there are relative newcomers such as Apple, which will bundle other services with its OTT offering.”
“Traditional TV“
The category of “traditional TV” includes advertising and subscription revenue, and PwC is ringing the alarm bells on the later amid cord-cutting. “By 2027, global TV subscription revenue will have fallen to $173.6 billion – having been nearly a $200.0 billion market just a decade earlier, declining at a 0.9% CAGR between 2022 and 2027,” the firm notes. “In comparison, the total TV advertising market will increase at a 0.5 percent CAGR to $160.1 billion across the forecast period. The steady, if unspectacular, growth of the TV advertising market has seen the medium move gradually closer to parity with subscription TV revenue, which by contrast is seeing inexorable long-term decline as consumers continue to cord-cut in the streaming era.”
As recently as 2018, global subscription TV revenue was $37.6 billion bigger than TV advertising revenue, but by 2027 the gap is forecast to narrow to just $13.5 billion.
Companies in the U.S., the world’s biggest market, have experienced much pain here. By 2027, they will derive $30.0 billion less in revenue from traditional TV subscription and advertising revenue than they did a decade earlier, according to PwC’s forecasts. “The perennial issue of cord-cutting remains the biggest threat to the viability of the traditional U.S. pay-TV industry, with the rate of subscriber decline hitting an all-time high in the third quarter of 2022,” it highlights, also noting “a milestone in 2022 when the number of pay-TV households fell below half the total number of U.S. homes for the first time.”
By 2027 more than 14 million U.S. homes will have quit pay-TV, more than a fifth of the 64 million recorded in 2022, reducing total penetration to 49.9 million homes. “This total is down from almost 100 million as recently as 2016, with pay-TV set to be present in just 38 percent of total U.S. homes by 2027,” PwC says.
What are companies around the world doing to try and stem the subscription decline and boost their ad fortunes? “The industry is focusing on attracting viewers across a variety of platforms at different price points to maximize subscription revenue and attract advertisers with new monetization formats,” the PwC Outlook report notes. “But with the rate of the exodus from pay-TV hitting an all-time high in some markets, a renewed focus on experimenting with new business models has become imperative.”
This is particularly important given what PwC calls “the demographic split in traditional TV audiences.” It explained that “older, wealthier consumers” are “more loyal to content of this kind than younger generations.” The result: “Some traditional TV players are finding ways to incorporate influencers and content creators into their offerings to expand their reach.”
Of course, the cost of producing TV shows and films has increased “significantly,” emphasized PwC before concluding: “With fiscal responsibility now the accepted truth among broadcasters, there’s now a focus on the content budgets that remain crucial to winning, and retaining, customers.”
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