South Africa’s entertainment and media market (E&M) is set to grow at a compound annual growth rate (CAGR) of 10.9% in the next five years, one of the highest growth rates in the world, according to the latest PwC report surveying trends in this industry.
The report will be closely scrutinized given the near radical reorganisation of the South African E&M market experienced in the past few months. This will include the change in ownership of major assets like Avusa (Time Media Group) and the Independent Newspapers. The television market is also promising a major shake up with entry of new players and expansion of established operations. Digital media platforms are exploding on the back of increasing internet access. And the concept of integration of different platforms is looming large while the promise of transforming the sociopolitical character of South Africa’s media remains an unfulfilled promise.
Released last week the PwC report; South African Entertainment and Media Outlook: 2013-2017; forecast that the South African E&M market will grow to generate overall revenue of R175 billion in 2017. While traditional media will remain to dominate the revenue figure much of the growth is expected to come from the exploding digital segment.
The reports notes that increased internet access will remain a significant force behind the major growth in the South African E&M industry, reflecting expanded broadband devices and more use of smart devices.
Vicki Myburgh, Entertainment & Media Industries Leader for PwC Southern Africa, says “Even though traditional, non-digital media will continue to dominate overall E&M spending in South Africa over the next five years, much of the growth will come from digital.”
Revenue from Internet access is expected to increase from R19.8 billion in 2012 to about R59.6 billion in 2017, at a CAGR of 24.7%. Mobile Internet access will form the bulk of this growth.
The report shows that advertising accounted for 31% of revenue in the E&M industry in 2012, having fallen from 32% in 2008. This proportion is expected to fall until 2017, when only 26% of revenues will come from advertising. This percentage fall will take place largely due to expansion in the entire market.
Radio is also expected to see strong growth in advertising revenue streams, rising from R3.6 billion in 2012 to R5.5 billion in 2017. “As a significant proportion of South Africans lack Internet access, the radio remains one of the few advertising platforms capable of reaching a large audience,” said Myburgh.
The report notes that since South Africa has low broadband penetration, advertising in print media has not suffered as much as in some other countries. Newspaper advertising will grow by an estimated CAGR of 6.2% over the forecast period, with rising urbanisation and improving literacy levels increasing readership. “Supplying newspapers to some rural areas is a challenge for publishers, as is finding outlets to sell them. Moreover, tablets and smartphones are extremely expensive for many South Africans, ensuring that newspapers will remain a major source of news in the medium term,” said Myburgh.
Revenue flow from advertising in consumer magazines will also benefit from rising urbanisation and low Internet penetration. Advertising spend on consumer magazines will rise from R3.1 billion in 2012 to R4.2 billion in 2017.
End-user spending, consisting of spending by consumers and other end-users on products and services produced by the entertainment and media industry, is predicted to increase by an average of 12.3% a year over the forecast period.
The report also shows that the sports market is one of the largest E&M segments for consumer spending in the country, after Internet access and television. Revenues generated by the sports market will grow from R13.9 billion in 2012 to an estimated R19.5 billion in 2017, a CAGR of 7.1% as the economy prompts larger sponsorship deals and media rights packages. Television is the second-largest segment in terms of consumer spending, with revenues projected to grow at a CAGR of 5.2% from R16.1 billion in 2012 to about R20.7 billion in 2017.
The reports argues that the slowest growing segment in the E&M industry will be consumer and educational books, with a 0.4% CAGR over the next five years. “Comparatively low literacy levels in the country (although they are rising) and the fact that books don’t cater for multiple languages in use in South Africa, continue to act as a barrier to further growth in this segment.
“Books are also subject to higher Value Added Tax (VAT) at 14% than in most other countries, which means that retail prices remain too high for the majority of South Africans. Magazines and newspapers sell at a much lower cost and are therefore more likely to be read by South Africans than books,” says Myburgh.
The report also shows that music is also a slow-growing segment (0.4% CAGR), with physical sales dropping quickly, but not yet being replaced by digital sales, despite the emergence of a number of new digital music services.
The report notes that aside from the Internet the fastest growth will also be seen in the video games segment. Growth here will be driven largely by mobile gaming, as comparatively lower levels of broadband will restrict the online gaming industry. Mobile gaming will be focused on smartphones, with tablets remaining a largely untapped market in the short-term due to their high purchase cost.
Revenue flow from the film industry is also expected to grow in the wake of increased Internet access, with electronic home video (including box office) reaching R1 544 million in 2017 and accounting for 66% of the home video market (up from R816 million in 2012 and 49% of the home video market). Over-the-top (OTT) video services, which deliver video content through the Internet, are predicted to become an important part of the filmed entertainment market in the next five years.
Myburgh concludes that “The E&M industry in South Africa is well placed to benefit from the economic growth the country will experience in the next five years. While many mature countries – such as those in Western Europe – are seeing low levels of growth, the outlook for South Africa is more positive.
“As a result, with more consumers becoming connected (typically through their mobile devices) and with more disposable income available, the opportunities for those selling products and services both digital and physical will be significant. E&M businesses must continue to raise their games in agility to change in direct response to consumers’ expectation, while understanding that digital innovation become the new license to operate.”