Digital the “new normal” for media firms

South Africa’s entertainment and media companies have reached the “end of the digital beginning”, with digital activities now becoming the “new normal” for traditional media companies, according to a report by professional services firm, PwC.

Digital spending in the local entertainment and media industry is expected to increase at an approximate 21% compound annual rate during the next five years, according to PwC’s South African Entertainment & Media Outlook 2012-2016.

Although comprising 20.4% of overall spending in 2011, digital channels will generate 52% of the total increase in spending during the next five years, the report says.

This will largely be driven by the expanding internet market, broadband penetration as well as consumer spending on television subscriptions and video games.

Digital spending will comprise 32.6% of the total entertainment and media market in SA by 2016, the report finds.

Vicky Myburgh, entertainment and media industries leader for PwC Southern Africa, said: “We believe that the industry is at the end of the beginning of its digital journey. Entertainment and media companies have made a commitment to the delivery of digital entertainment and are now in the process of making the necessary changes to their products and organisations.”

“The PwC study confirms that digital products and delivery is moving to the hearts of many media companies and beginning to present the greatest opportunities for growth in the immediate future,” she said.

Tablet/smartphone influence

However, the report warns that newspapers and print media are being eclipsed by tablets, mobile smart phones and a raft of new digital and online communications media, led by Internet and television advertising and video games.

“Despite the recent economic uncertainty, the past year has seen global and South African sales of tablets and smart devices reach record levels, underlining the growing revenue opportunities in the digital delivery of entertainment and media content, as well as advertising to increasingly connected and mobile consumers. Companies are planning and executing their strategies to cross to the digital frontier,” said Myburgh.

The entertainment and media industry in South Africa went up 0.7 % in 2011, slowed by the absence of spending associated with the 2010 FIFA World Cup, which boosted that year’s total by 27.6%.

Advertising in 2011 increased by 7.9%, down from the 14.7% increase recorded in 2010.

According to PwC, end-user spending – consisting of spending by consumers and other end-users on products and services produced by the entertainment and media industry – fell 2.3% in 2011, also largely due to the absence of spending associated with the FIFA World Cup in 2010.

Sports declined by 39.7% and the remaining segments rose by 13.8%.

The fastest-growing sectors in 2011 were the Internet, at 27.3%, and television, at 13.4%. Out-of-home advertising, at 11.6%, was the only other category to increase by more than 10%.

Improvements in the economy also boosted radio. Advertising in print newspaper also benefited in 2011 as Gross Domestic Product (GDP) posted its largest increase since 2008.

Internet growth

Myburgh said further that the research shows that the Internet is expected to be the fastest-growing sector within the next five years ,with a projected 20.3% compound annual increase.

Broadband and mobile access growth, coupled with double-digit increases in Internet advertising, will drive this market, according to PwC.

Television is expected to be the next fastest-growing segment, with a projected 10.3% compound annual increase.

Industry growth

Spending in the industry is expected to reach a record level of R141.7 billion in 2016, a 10.2% compound annual increase from R87.4 billion in 2011.

“We anticipate that overall growth in the entertainment and media industry will closely track GDP growth over the forecast period,” said Myburgh.

“By embracing digital as the engine of their business, companies can position themselves to meet consumers’ changing demands through any channel and format – and more effectively and more profitably than ever before,” she finished.

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Digital the “new normal” for media firms