Technological advances reshapes China’s entertainment and media industry

User experience is king

Beijing, 8 Jun 2017 - Over the next five years, China’s entertainment and media industry will grow at a compound annual growth rate (CAGR) of 8.3%, lagging behind a 9.6% growth of GDP CAGR, according to PwC’s Global entertainment and media outlook 2017-2021. To cope with the challenges of shifting consumer mind set and the consumption habit of content, companies should embrace technology as to improve product quality and user experience.

In China, Mobile Internet advertising revenue will overtake wired internet advertising in 2019, an increase from US$15.4bn in 2016 to US$38.7bn in 2021, according to PwC’s Global entertainment and media outlook 2017-2021. Total internet advertising revenue continues to grow at a 12.6% CAGR to reach US$68.0bn in 2021.  

“Mobile advertising has huge growth opportunities in China, with social media being a key driver,” said Brian Choi, PwC China Entertainment and Media Partner.  “Mobile advertising will continue to dominate internet advertising spend. The wide consumer reach makes mobile a truly valuable marketing platform but for content owners, success hinges on monetising users and content for new revenue streams, especially on social media platforms.”

China’s total E&M revenue will rise at a CAGR of 8.3% over the coming five years (global figure is 4.2%). The report indicates that the engines powering China’s E&M growth is led by internet video, internet ads, music, cinema, and video games. During the course of 2016-2021, this will rise to a CAGR of 19.7%, 12.6%, 12.6%, 11.5% and 11.2% respectively.

Commenting on key drivers powering China’s E&M growth, Wilson Chow, PwC China and Hong Kong TMT Leader noted: “In China, technology shifts will transform both the content creation and distribution model that revolve around innovating and improving the user experience. Investment in data collection and data analytics will facilitate better understanding of the behaviours and preferences of users, which helps players to identify a community of active and high value “fans” of their services/products.  The industry players can also adopt emerging technologies to improve the quality and value of their offerings to delight their fans, offering new ways to engage and build brand loyalty.”

Internet Advertising

China is comfortably the largest Internet advertising market in Asia and the second-largest market globally after the US. In 2016, China had a 19.8% share of global total revenue worth US$37.5bn.

The growing middle class continues to fuel growth in China’s online advertising market. Although China’s economy has slowed down, the market has further potential for growth over the coming years with strong local players able to deliver vast audiences to advertisers.

Within the segment, apart from rapid growth in mobile internet advertising, wired Paid search marketing, which valued at US$9.1bn in 2016, is undergoing change with several new players entering the market, where local players still dominate.

Meanwhile, wired Display Internet advertising revenue, including video, saw a year-on-year increase of 8.6% in 2016 with a revenue of US$7.1bn. By 2021, its share of total Internet advertising revenue will fall from 19.0% to 11.8% with faster growth in mobile advertising and paid search.

Video Games

With policy and financial support from the mainland government, China’s video games industry continues to grow rapidly and begin to mature. In 2016, total video games revenue was US$15.4bn, and is forecast to grow at a CAGR of 11.2% to reach US$26.2bn in 2021, making China the second-largest video games market after the US.

In 2015, social/casual gaming revenue (US$6.3bn) overtook traditional gaming (US$5.8bn) which represents 55.8% vs. 42.4% of total video games revenue. Copyright-related deals have become central to revenue and subscription growth, and contributed to building a robust ecosystem for leading video games companies in China.

Over the past two years, revenue of China-made video games in overseas market increased almost 150%, driven by the rapid growth of app-based games. The US, Japan and Korea were the three key foreign markets for Chinese video games companies in 2016. Whereas emerging markets such as India, Indonesia and Mexico will generate significant growth to the sector in the coming years.

Cinema

China’s box office revenue continues to flourish, with revenue growth estimated at an 11.6% CAGR to reach US$10.7bn by 2021; an increase from US$6.2bn recorded last year. Notably, Cinema advertising revenue is increasing rapidly and expected to be worth US$939mn by 2021, up from US$587mn in 2016.

Furthermore, cinema-building in China continues to expand at a rapid pace, and shows no signs of abating. In 2016, China’s total number of cinema screens exceeded those of the US. China had 41,056 cinema screens in 2016 compared to 40,928 in the US. This marks a significant shift, underlining the growing popularity of cinema among Chinese audiences of different ages and demographics – and especially among middle-class cinemagoers with disposable incomes.

Overall, China will rank no.1 globally in the number of IMAX 3D screens by 2021, with 575 IMAX 3D screens to be built in China by 2021, up from 296 3D screens in 2016. A figure higher than anywhere else in the world.

Internet Video

Total Internet video revenue in China reached US$1.8bn in 2016. The regulator’s policy released at the end of 2015 against the development of over-the-top (OTT) video in China led to a reshuffle in the market and will continue inhibiting the market to some degree. However, OTT still has room for growth. Total consumer spend on Internet video is forecast to reach nearly US$4.5bn in 2021.

“Over the next five years, China will witness a significant shift of viewing video content from free-to-air to paid video-on-demand service. Offering premium foreign and domestic content is key for OTT providers,” says Cecilia Yau, PwC Hong Kong Entertainment and Media Leader.

Virtual Reality

More companies are adopting emerging technologies to improve the user experience using Virtual reality (VR).  In total, across the ten key markets considered, (USA, Japan, China, South Korea, UK, France, Germany, Russia, Italy, Spain) there will be 257mn VR headsets in the market by 2021. In China, around 85.9mn VR headsets will be in use by 2021 in comparison to 68mn in the US.

Commenting on the developments, Jane Kong, PwC China Entertainment and Media Partner said: “The entire VR market is new, with increasing VR device penetration and continual investment in the industry, its potential is very promising, even if profitability is an issue at present.”

She added, “No one will get rich from hardware alone; the end game for these firms will be attempting to become the standard platform for VR and start to charge royalties or commission from content sales.”

Within the segment, VR content revenue across the ten markets is forecast to reach US$15.1bn by 2021 (US$3.6bn for China, and US$5.0bn for the US). Among which, 53.3% of revenue comes from video, 45.6% from games, and just 1.1% from other apps and utilities.As a segment that only really reached consumers in 2016 for the first time, virtually the entire virtual reality (VR) market is new.

Reflecting on the trends, Wilson Chow stated that: “As companies fight for market share, they must rethink content and distribution strategies as a growing source of competitive advantage: user experience. Companies can leverage emerging technologies to drive growth through building creative partnerships to grow and monetise their most valuable customers.”


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About the Outlook

PwC’s 18th annual edition of the Global entertainment and media outlook 2017-2021, is a comprehensive online source of global analysis for consumer and advertising spend. With like-for-like, five-year historical and five-year forecast data and commentary across 13 industry segments in 54 countries, the Outlook makes it easy to compare and contrast consumer and advertising spend across segments and countries. Find out more at www.pwc.com/outlook.

Segments covered by the Global entertainment and media outlook

Books, Business-to-business, Cinema, E-sports, Internet access, Internet advertising, Internet video, Magazines, Music, Newspaper, Out-of-home advertising, Radio, Traditional TV and home video, TV advertising, Video game, Virtual reality.

About Global entertainment and media outlook data

Much of the content in this press release is taken from data in the Global entertainment and media outlook 2017-2021. PwC continually seeks to update the online Global entertainment and media outlook data. Therefore, please note that the data in this press release may not be aligned with the data found online. The online Global entertainment and media outlook 2017-2021 is the most up-to-date source of consumer and advertising spend data.

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