Risk averse business leaders, slowing ad spend growth and a lack of investment in marketing is a concern for the economy, according to PwC’s media expert Megan Brownlow. Low growth is being driven by low investment in paid advertising, which is painting a “grim outlook” for the economy, she says.
The latest PwC media outlook report shows growth in advertising spending and consumer spending on entertainment and media is going backwards.
Total advertising and consumer entertainment spend is slowing to 2.1% growth over the next five years – a year ago it was 4.1% and in 2015 it was 7.6%.
Even though it is forecast to grow to $43.7 billion by 2021 - last year’s report forecast that by 2020 the total market would reach $47.4 billion.
Brownlow, PwC Australia's Entertainment & Media industry leader, tells AdNews: “We have a situation where low investment in paid media is leading to low growth. It's a grim picture for the economy as a whole and it is a concern.
“If you think about how marketing investment fuels the economy and builds growth, you've got a whole bunch of ongoing cuts to marketing budgets and skill sets, and it’s an area that's going to have a negative impact on the economy overall - that's a bit terrifying.
“We have to educate a raft of business leaders that behaving in the risk averse way that they are, is actually the risk.”
There is an opportunity for businesses to capitalise on the low growth and reap the benefits of acting differently, however.
“That sounds counter-intuitive, but [marketers and CEOs] really need to assess their risk appetite and think about investing in people, in marketing and marketers and in new areas. That's the only way you can grow, you can't cut costs to greatness,” Brownlow goes on.
“It is an opportunity because there will be lots of nervous Nellies who drop by the wayside, stay quiet and hope the tide will rise, but the economy isn't going to just rise, we have to actively shift things ourselves.”
The Annual Australian Entertainment and Media Outlook report offers a five year view on the trends affecting the industry. At its core is an advertising and consumer spending forecast, but it also looks at shifting trends affecting the industry.
Advertising spending slows
Ad spend will reach $17.3 billion in 2021, growing at a compound annual growth rate (CAGR) of 1.9% over the next five years, marking a major slowdown.
The report last year forecast CAGR of 4.7% in the coming five years, and that ad spend would reach $18.7 billion by 2020.
The ad market grew 7.2% in 2016, in 2015 ad market growth was 8.7% and in 2014 it was 9.2%.
Unsurprisingly digital video and mobile are driving growth. Mobile advertising is forecast to grow at 25% annually over the next five years. Online video now represents a third of display ad spend and is forecast to grow 23.8% over the next five years.
In 2016 internet advertising reached $7.4 and will account for well over half (55%) of the total ad market by 2021.
FTA TV will continue to decline at an annual rate of 4.7% over the next five years, with newspapers’ decline projected at 8.9%.
There is some good news as PwC projects that so-called traditional players in television, print and radio will gain back some share of ad spending from digital pure plays over the next five years as they move further into online video. Currently, digital pure plays take 90% of online ad spend.
Subscription video on demand is forecast to grow at 16.4% over the next five years and, according to Brownlow, subscription services such as Netflix are educating Australian consumers “it's OK to pay for content”.
Consumer spending on entertainment and media
Growth in consumer spending is down too. This year’s report forecasts compound annual growth of 2.2% over the next five years, reaching $26.4 billion by 2021. Last year the growth rate for the next five years was 3.7% and it was forecast to reach $28.7 billion by 2020.
In 2016, consumer spending grew 1.7%, down from 5.1% the year before.
Total entertainment and media market
Looking at the total entertainment and media market, which includes consumer and advertising spend, it’s forecast to grow to $43.7 billion by 2021, at a compound annual growth rate (CAGR) of 2.1%. Last year growth was forecast to reach $47.4 billion in 2020 at a rate of 4.1%. In 2015 it was 7.6%.
Last year’s report forecast that by 2020 the total market would reach $47.4 billion - yet now a year later, it is projected to be less than that.
Trends: Blurring and collaboration
PwC has dubbed the biggest trend impacting the media sector currently as ‘blurring’, which sums up the need for collaboration.
PwC says it requires media businesses to become ‘frenemies’ with their former rivals. It’s something that is starting to happen highlighted by the show of unity from 28 media company CEOs in Canberra to lobby for media reform last week showed.
At the event in parliament several CEOs told AdNews that media owners have put their differences aside for the greater good. However it’s not an easy shift in business behaviour and Brownlow tells AdNews it requires communication and trust between partners that isn’t common in Australia.
"It means putting aside pride and partnering up, and getting used to partnering with people that aren't like you,” she says.
“You have to share data, build channels of communications that let you be fast and agile and you have to trust [each other]. These are not cultural attributes that we have in great spades in Australia.”
However, Brownlow says the appetite for collaboration was also seen in the birth of ThinkTV last year, and “the next cab off the rank [in terms of collaboration] will be in measurement”.
“Negotiation is cheaper and more effective than combat,” she says in the report, adding that new business models that require former rivals acting as each other's partners, clients and suppliers will become the norm.
“Instead of entrenching the dichotomy between traditional and digital players, this trend is forcing companies to take a different approach and has led to a blurring of business functions, business models and of industries.
“Competition is no longer a zero sum game - the new competitive landscape is underpinned by frenemies.”
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop me a line at rosiebaker@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day. Need a job? Visit adnewsjobs.com.au.