In 2015, the media and entertainment industry, globally, generated over $1.8 trillion in revenue. Four years later, in 2019, the industry’s revenue surpassed $2.2 trillion. According to PwC’s estimates, the revenue will reach $2.6 trillion by 2023.
PwC outlined the estimates in its 20th edition of the Global Entertainment and Media Outlook. The report, outlining projections for the period 2019 to 2023, predicted a massive transformation in how the industry operates. Here is the most notable finding. In 2015, the revenue generated by digital M&E, championed by OTT platforms, accounted for 43.9% of the total global revenue. Four years later, in 2019, the digital share was up, slightly over 55% of the total. Then came the projection. By 2023, digital revenue was expected to well surpass 60%.
However, unbeknownst to the analysts—actually, pretty much the entire world—the media and entertainment industry was about to undergo an even more massive transformation. In 2020, COVID-19 happened. Arguably the most disruptive event of our lives, the pandemic upended every projection made in 2019.
How far were PwC’s estimates, you ask? Surprisingly, not much. The 2021 edition of the Outlook predicts the total revenue by 2023 to be somewhere between $2.5 trillion and $3 trillion. Compared to 2019’s estimates, the difference does not warrant headlines. What does, however, is the rate at which digital revenues are expected to rise.
Thanks to nationwide lockdowns, non-digital M&E avenues like cinemas took a hit in 2020. While vaccines have come to their aid, the staggering vaccine inequity could make for a slower recovery. On the other hand, digital has been going strong. In fact, the pandemic has accelerated the adoption of digital.
Recent trends in the media and entertainment industry were a clear sign that digital-first is inevitable. However, the industry-wide push for digital has never seemed so urgent. And no, while the pandemic has a lot to do with it, it does not explain the movement in its entirety. What gives?
The modern alchemy that is digital media and entertainment
Let us first understand why digital-first M&E has been deemed inevitable.
To be fair, it is not that complicated. Cable TV still dominates the industry. However, more and more people are now turning to digital platforms for immense convenience, yes, but mostly because the viewing experience the platforms offer is active instead of passive. What that means is, even though viewers pay for both, digital platforms, unlike traditional TV, offer choice. You choose what to watch, when, and at what pace.
Then there is personalization. Platforms such as Netflix and Disney+ not only offer choice but also curate their content to your unique taste. Digital content platforms monitor your viewing habits and predict your preferences. Based on the prediction, they suggest titles that you may want to watch next. In fact, to make the choice even easier—or remove ‘points of friction,’ in tech parlance—most platforms offer pre-made categories that go beyond simple genres. There is Comedy and Action. But also Critically Acclaimed and Bingeworthy.
Combine the element of choice with personalization, and you have a content delivery formula for maximizing engagement. No wonder over 300 platforms are vying for your attention every minute, each of which has its own algorithm to identify the best content for you. And this, even though traditional entertainment today is more lucrative. A single subscription allows an entire family to watch a title. A ticket can only be purchased by one person.
So, why is digital-first entertainment inevitable? Because more data and better data analytics are inevitable. Personalization today is far from perfect. But as the data universe expands, virtually doubling every five years, and platforms get their hands on faster, more capable technologies to process it, personalization, and hence, engagement, will reach record heights. And so will advertisement dollars.
Media and entertainment companies are turning digital to do what they were formed to do: make money.
What to expect from digital M&E in 2022
The year may not see anything big. But small, incremental breakthroughs could define what the media and entertainment industry is to become in the future.
1. More content, of course
Well, the prediction is not hard to make.
Digital technology is getting cheaper every year. Mobile devices and laptops are small and portable. But today, they are also powerful yet energy-efficient. And cheap. At least general-purpose ones. Combine that with inexpensive and widely accessible internet, and you have people comfortably consuming content on the go. Not just in their homes.
In fact, broadband access is a major focus of the infrastructure bill that Congress passed last year. Of the $1 trillion the bill will inject, $65 billion will be reserved for improving broadband access for rural America. More people will be online—connecting, shopping, working, gaming, and consuming media.
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What is interesting, however, is the increasing desire to produce content that not only earns money, but also acclaim. Platforms will, of course, continue to make bingeworthy content. That formula is tried and tested. However, platforms are also going after the big prizes. Titles like Roma, Mank, The Marvelous Mrs. Maisel, The Crown, Ted Lasso, Succession, and now The Power of the Dog are both successful and highly acclaimed, being nominated—and some also winning—in every major award category.
Many have had enough of ‘binge-worthy’ and ‘entertaining’ content. The two, instead of luring viewers, may actually deter them. More quality is on the cards.
2. The rise of D2C—and consolidation
Okay, so inexpensive yet great mobile technology plus inexpensive and wide internet equals more digital media consumption. And, of course, digital advertising will follow. Recall that by 2023, over 60% of global M&E revenue is expected to be digital. Advertising will make up a massive portion of it.
And to get their hands on those advertising dollars, instead of releasing content on existing platforms, producers are releasing it on their own. The result is an explosion of platforms. Disney did it in 2019, launching Disney+. So did Apple, with Apple TV+. That is just two. The list is long and a cause for severe anxiety for chronic patients of FOMO (Fear of Missing Out).
Although, how sustainable is this arrangement, really? Compared to Apple TV+, Netflix and Disney+ are in a league of their own. However, Apple’s pockets are deep. The same cannot be said of the other 200 or so platforms.
After a decade of outrageous growth, we have come full circle. Digital media shares traditional media’s fate: consolidation. The signs are already there. AT&T bought Time Warner for an eye-popping $85 billion in 2018. Amazon acquired MGM Studios for $8.45 billion last year. Now, Microsoft has announced its $68.7 billion acquisition of Activision Blizzard.
Read more: “It’s Going to Be Put Up or Shut Up”: OTT Consolidation Might Be Inevitable
Acquisitions make headlines not only for their high sums but also because they represent a potential threat. Competition is good for customers.
3. Curate to a T
What is success for media and entertainment? And how is it measured?
For traditional media and entertainment, we have ratings like Nielsen’s. What about digital media and entertainment? Well, it is complicated.
Actually, it is straight-up unclear. Last year, Disney released Black Widow on Disney+ and claimed that the release earned it $60 million in the opening weekend itself. Although, it is not clear how. A monthly subscription to the platform costs $7.99. Did the film win over more than 7 million people, causing them to purchase a subscription?
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At least, that seems to be the consensus for defining success: an increase in new subscriptions. For example, in 2019, Netflix lost around $17 billion in value as its shares crashed 10%. The platform had failed to deliver on its forecast of 5 million new subscribers, adding just 2.7 million in the quarter. In fact, despite last year’s extraordinary success of Netflix’s Squid Game, its shares crashed again last week in view of its slow growth. Note that the show was reportedly viewed by over 130 million worldwide.
And that is just people who purchase a subscription. What about people who cancel one? All in all, the competition right now is incredible. Digital media and entertainment is fighting tooth and nail for our attention, striving to make better and better content to compel us to subscribe. Better and better, yes, for critics. But as we also explained, better and better to maximize engagement.
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The key to being ahead will be personalization. And to make content maximally curated to our taste, platforms will become even hungrier for our data. This is true of not just Netflix, Prime and so forth, but also Spotify, TikTok, and basically every digital media platform. Of course, more capital will be helpful. Platforms will invest in increasingly advanced and expensive technologies like deep learning and AI to keep up with data-crunching demands.
The innovation here has massive rewards. Lower acquisition cost. Higher engagement and conversion of freemium accounts. And retention, among other things. Add VR and AR into the mix, and you have something spectacular to behold.
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Competition is good for us customers. It is entertaining.
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