UK entertainment and media companies hold their nerve despite economic headwinds

Tuesday, September 27th, 2022 
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UK entertainment and media companies hold their nerve despite the economic headwinds

  • Robust long-term growth forecast for the UK E&M industry over the next four years – with market expected to reach £97bn by 2026
  • Consumer behaviour remains digital first with structural changes now evident
  • Investor confidence softening slightly in the face of economic headwinds, but high deal volumes are still expected after a 72% rise in 2021

UK entertainment and media companies are holding their nerve despite the worsening economic outlook, and putting their trust in their digital investment strategies, according to a new report from PwC.

The ‘UK Entertainment and Media Outlook (E&M) 2022-26: Trusting the digital path ahead’ says that while there is short-term uncertainty in the market, confidence and growth can be seen in the long-term direction of the E&M industry.

This is reflected by the return of investor appetite last year, with data from PwC’s Global M&A Industry Trends* showing deal activity in the sector was up 72% in 2021 compared to the previous year.

Overall, PwC’s report forecasts the UK E&M industry to grow at a compound annual growth rate of 4% over the next four years with revenues reaching £97bn by 2026. The UK’s mature digital ecosystem and accessible high speed internet puts it in a good position to benefit from consumers’ shift towards digital and mobile.

Dan Bunyan, Strategy& partner, said: “Despite the economic headwinds, the UK’s entertainment and media industry has yet to take cover. That’s because while there’s no denying the short-term uncertainty in the market, there is greater confidence in the long-term direction of the industry.

“This is reflected in the record numbers of deals that took place last year. While investor confidence has slightly softened in the face of economic headwinds, we still expect high deal volumes in the years ahead. Platforms that can help brands discover and engage with customers in new environments will become increasingly valuable. Investors will remain keen to support companies that can help facilitate ‘buy and build’ strategies to bring together complementary specialist capabilities to serve brands and content owners in a more compelling way.”

Drivers of growth

With consumers spending more time online, a habit they have stuck with post pandemic, the report shows advertising spend will follow this trend. Internet advertising revenue is expected to grow at a CAGR of 6% over the next four years with the lion’s share of revenue coming from mobile. Video advertising will account for a significant portion too, almost £9bn by 2026 and by the end of the forecast period internet advertising will make up a third of the UK’s overall E&M revenue.

The change in consumer behaviour means digital channels and platforms will cement their position as key drivers of growth for the E&M market across advertising, content, video and commerce. To keep consumers engaged, brands are investing in ways to give consumers newer immersive experiences though the gaming universe and making different online environments shoppable leading to greater innovation and creating more opportunities for digital advertising.

Dan Bunyan, Strategy& partner, said: “It’s clear that the global shift in consumer behaviour is pushing companies to accelerate new digital revenue streams, collaborate, or make acquisitions to fuel growth.

“While the current economic headwinds may cause some businesses to rein in spending in the short term, I believe brands who take a long-term view and keep investing in marketing during this down period will be in a prime position for growth when macroeconomic conditions improve.”

Impact of inflation

According to our July 2022 report**, more than a fifth of UK consumers (22%) plan to spend less over the next 12 months on digital TV and streaming subscriptions. Elsewhere, a fifth of consumers plan to spend less on their satellite tv subscription (20%) and mobile phone contract (20%) with over a third (34%) planning to spend less on going to the cinema. Overall, 78% of consumers have already made some form of spending cutback in response to the cost of living crisis.

For businesses in the entertainment and media sector, rising inflation is set to impact both content providers and advertising businesses. The possibility of consumers switching down subscriptions, coupled with rising production costs, is expected to impact content businesses. If inflation leads to reduced consumer demand then this may have a knock-in impact on marketing effectiveness in the short-term. Depending on how brands react, this may soften advertising prices in some channels.

Dan Bunyan, Strategy& partner, said: “While some advertising budgets may come under pressure in the current economic climate, it will also mean advertising will represent good value for those that continue to invest in their brand and use advertising to drive new sales. Media owners should help marketers make the case to chief financial officers, boards, analysts and investors of the importance of protecting marketing during an economic downturn. While it’s always wise to be cost-conscious, there is good reason to retain a growth mindset even in the face of economic headwinds.”

Challenges beyond the economic outlook

As companies shift their business models to meet the consumer, they face three stand out challenges, beyond the short-term economic outlook: (i) the need to build trust through ESG-led commitments; (ii) recruitment and retention of talent; and (iii) preparation for the post-cookie world.

Sam Tomlinson, UK entertainment and media sector leader at PwC, said: “The entertainment and media industry has gone through enormous change to adapt to consumer demands. Now, as the challenge grows to recruit and retain top talent, it needs to apply similar creativity and decisiveness in its offers to employees – to combine reward, opportunity and flexibility with trust and purpose.

“With ESG in particular, companies have some way to go in gaining confidence, with our research showing just 45% of employees are confident their employer is transparent on issues such as sustainability.”***

For the E&M industry, both environmental and social factors are becoming increasingly important metrics for investors, while annual employee churn of around 30% has become commonplace within parts of the industry.

Meanwhile, the deprecation of third-party cookies in the Chrome browser may have been deferred to 2024, but regulatory scrutiny of digital advertising is still likely to increase, pointing the way towards a post-cookie world.

Sam Tomlinson added: “The ultimate direction of travel is clear – the use of third-party data will become more challenging, and first-party data use will rise. Media owners should assess the current state of their customer/audience data, their technology (martech/adtech), and operationally how they drive value from that data and tech. Many will see the need to improve their first party data strategy – what to collect, how to collect and use it, and when to delete it. This allows businesses to understand, attract and retain customers and create more relevant and differentiated products, services, experiences and communications. Well-prepared premium media owners should thrive in a post-cookie world.”

Strategy& is PwC’s consulting arm

About UK Entertainment & Media Outlook data

The annual UK forecast figures in this press release are taken from the Global Entertainment & Media Outlook 2022–2026 which was released in June. Other data released in this report has been updated and therefore may not align with the data listed under the UK section of the Global Entertainment & Media Outlook. The online Global Entertainment & Media Outlook 2022–2026 is the most up-to-date source of globally comparable consumer and advertising spend data.

About the Global Entertainment & Media Outlook

The PwC Global Entertainment & Media Outlook provides in-depth analysis of global E&M consumer and advertising spending. The Outlook includes five-year historical and five-year forecast data and commentary for 14 industry segments across 52 territories. Segments include advertising (TV, internet, out-of-home); books; business-to-business; cinema; data consumption; internet access; music, radio and podcasts; newspapers and consumer magazines; OTT video; TV and home video; as well as Metaverse and NFT included for the first time this year.

* Research taken from PwC’s Global M&A Trends Report
** Data on consumer spend was taken from PwC’s latest Consumer Sentiment Survey which includes responses from a nationally representative sample of 2,104 adults that were surveyed in June 2022
*** Research taken from PwC’s Hopes and Fears Survey

Links: PwC