Internet advertising will exceed half of the total Australian paid advertising market within five years, PricewaterhouseCoopers predicts.
The annual PwC Australian Entertainment and Media Outlook projects that by 2019 the local ad spend on media will be $16bn and that internet advertising, in its various forms such as display, search, video and classified, will represent $8.2bn – or 51 per cent of paid marketing spend.
The report’s authors urged the media, marketers and their agencies to push innovation in the face of this major looming disruption.
“Frankly in Australia we have not been as innovative as we need to be,” said Megan Brownlow, editor of the Outlook. “This is born out by the data.”
Source: PWC Entertainment and Media Outlook report
The report breaks down the Australian advertising market by media and shows that in the next five years the big winners will be digital, which is projected to grow by 13 per cent, followed by the much smaller interactive games market which will grow by 59.4 per cent, from $37m to $59m.
In the television market free-to-air revenue growth is expected to flatline, amid the shift from terrestrial to IPTV, with revenue growing just 1.0 per cent, from $3.795bn to $3.835bn by 2019.
In contrast, pay-TV is projected to grow from $572m in 2015 to $746m by 2019 on the back of an expected surge in household penetration by Foxtel, from 23.8 per cent to 37.4 per cent.
PwC paints a more gloomy picture for the print sector. Newspapers are projected to continue their declines, with the report estimating that newspaper ad revenue will fall from $1.93bn this year to $1.47bn in five years, a decline of 23.8 per cent. Consumer magazines are expected to face a lesser revenue decline, falling from $503m to $461m, a decline of 8.7 per cent.
Radio and the out of home sectors are both projected to post positive results with radio growing from $1.17bn to $1.33bn, a rise of 13.8 per cent over five years, while out of home is expected to grow from $746m to $856m, a rise of 14.7 per cent.
PwC warns media that many are facing major disruption to their traditional business models in the coming years, citing the example of newspapers which have seen their revenue go from $2.8bn in 2010 to $1.7bn 2014, and warning: “untargeted media supported only by traditional attribution model is likely to lose value.”
PwC’s Megan Brownlow
However, the report also warns marketers and their agencies that they need to be clearer about what impacts these shifts will have on them. PwC urges marketing departments to look more at “identity-chains, person-based marketing (which) is the step beyond segmentation, where targeting is based on the individual… “.
For agencies, the report notes recent controversies over rebates and so-called “value banks” and warns media agencies that as many traditional media find their revenues squeezed or flatlining they are unlikely to give rebates.
“When you look at the cycle of disruption for media it is speeding up,” say Brownlow. “There is trouble everywhere… and the advice we are focused on delivering is ‘have a go’ and try and bring your stakeholders, shareholders and boards with you when you ask for investment dollars.
“Look at what the traditional television and radio companies are doing with streaming services, or the agencies with brand-funded content – all of these are digitally supported but they represent much more fundamental shifts in business model.”
Here is a summary of some of the key findings across the 10 sectors studies by PwC:
- Consumer and educational books are tipped to “buck the trend” of print growing from $1.97bn to $2.16bn in 2019
- PwC projects that while growth in digital books will continue, print will remain the dominant format
- The report warns of a potential “e-book plateau” with Australia seeing digital sales represent about 20 per cent of sales. In the US it is 30 per cent.
- Authors are increasingly self-publishing, with PwC noting the existence of digital self-publishing platforms like Tablo
- PwC notes the growing importance of Amazon in the space, and expects innovators like Tablo, Allen & Unwin and the Co-Op to gain prominence
- PwC projects circulation revenues to stablise “as digital compensates for print reductions”
- However, it warns that increased digital advertising revenues will not be able to offset the fall in print
- Recognising effort being made by publishers to follow readers online
- Argues that “digital reproductions of print magazines have not become the panacea that some publishers had hoped”
- Notes brand alignment occurring where magazines are “repositioning their top quality content under their iconic mastheads while offering generic or time-sensitive content under online channels to compete with free online counterparts”
- Australian advertising spend on cinema will grow to $115m by 2019 from $100m today
- Cinema admissions are forecast to grow driving growth in box office revenues to more than $90m by 2019
- Physical sell through is a significant piece of the pie but will continue to decline with the importance of box office revenue rising as a result
- In store rental market will decline from $70m today to $51m by 2019
- Video on demand through streaming services and OTT will more than double in five years from $125m to $270m
- Advertising revenues are forecast to stagnate through to 2019
- In a static market with a fragmenting audience TV networks are innovating or looking to other markets for new revenue streams
- Viewers now watch TV shows on a number of different platforms and is increasingly defined as video
- Argues that “in the longer term, an industry standard ratings system, with a common panel across TV and online is required”
- Regulatory reform around anti-siphoning and reach rules stalled amid lack of consensus
- Sports rights remain big business but PwC notes how “sports bodies are allowing sports to be delivered directly to a viewer digitally”
- Mobile gaming will reach the same size as the console gaming market by 2019
- Digital games are the dominant game format for PCs and will exceed physical games within five years
- Virtual reality headsets will enter the mainstream market in 2015 offering opportunities for training in industries such as education and health
- PwC notes the role of social networks and the growth in chat apps such as Viber, LINE and WeChat
- Mobile internet access revenue became larger than wire in 2014 and is forecast to continue growing
- The penetration of mobiles is predicted to go from 80 per cent to 90 per cent by 2015 while tablet penetration will go from 40 per cent to 70 per cent
- Search will continue to be the dominant form of internet advertising rising from $2.4bn today to $3.9bn by 2019
- Display advertising is projected to grow from $1.4bn to $2.2bn and classifieds will grow from $929m to $1.363bn
- Video advertising will be the star performer and will triple in five years from $176m to $608m
- The decline in physical sales continues, falling from $245m today to $131m by 2019, however, digital sales have largely plateaued
- Streaming music is forecast to increase to almost a third of digital music revenues by 2019
- The live music market will grow from $807m today to $820m in five years
- Circulation revenue is projected to halve in the next five years from $1.218bn to $612m and digital revenue will not fully replace it despite rising from $76m to $372m.
- It will be a similar experience on the advertising side, with print advertising falling from $1.66bn to $833m while digital advertising will rise from $435m to $637m
- Digital circulation revenues are expected to become 38 per cent of total circulation numbers by 2019
- The report notes the challenges some publishers are having in developing a pricing model for the digital world when consumers are used to receiving news free
- PwC questions whether Australian publishers can diversify their business model to “make them less reliant on the decreasing pool of paying readers”
Out of Home
- Despite digital growth, physical panel revenue is forecast to comprise the majority of the market in 2019
- By 2019 physical panels will represent $560m (down from $609m) while digital panels will be $296m (up from $101m)
- PwC notes that challenges for the industry include regulation with “very few new large-format sites approved in recent years”
- Subscribers will grow alongside IPTV growth with consumer spend in the space rising from $2.6bn to $2.9bn
- Foxtel’s penetration through cable is tipped to surge from 23.8 per cent last year to 37.4 by 2019 while IPTV connections will go from 2.6 per cent to 18.5 per cent
- PwC argues Foxtel’s triple play move will “pay off” with the move to bundle bolstering Foxtel’s subscriber base against competition from SVOD players
- Notes the intense competition in the SVOD space and argues that the multiple players will be whittled down over time
You can find last year’s report on the PwC Outlook report here.