Pulling the future forward: The entertainment and media industry reconfigures amid recoveryFindings and analysis from China’s perspective
Now in its 21st year, this year’s Outlook takes into account the effects of COVID-19 on the entertainment and media industry. As in previous years, we’ve taken a deep dive into our wealth of detailed data, forecasts and analyses, and created new perspectives and insights to help you shape your strategies for years ahead.
Total entertainment and media revenue in China is expected to increase at a compound annual growth rates (CAGR) of 5.2% during the forecast period of 2020-2024, which is higher than the global average of 5.1%. Digitalisation has continued its growth momentum. However, digital revenues experienced a drop in 2020 but are expected to grow at 5.4% by 2024. By industry segment, digitally-driven segments will see the most vigorous growth. Virtual reality (VR), OTT, video games and eSports will take the lead in China.
Due to the pandemic, the transition from conventional models to digital models boosted the demand for home entertainment, and created a new live streaming model, a hugely popular and profitable integration of e-commerce and entertainment platforms. 5G optimises the video experiences, which led to the rise of live streaming, and stimulates continued rapid development of China’s entertainment and media industry.
The China summary captures the data and insights from Mainland China from the Outlook. In this summary, "China" refers to "Mainland China".
In terms of total OTT video revenue in 2019, China, with US$7.7bn, is the second-largest market after the US. The market continues to mature, and OTT has already become the winner against IPTV and DVB in the battle for the living room. With over 240mn smart TV devices installed nationwide, OTT has seen significant growth and been identified as the fastest-growing platform for major advertisers. Because China officially granted commercial 5G licences in 2019, OTT is likely to benefit from the technology and related services, like 4K, artificial intelligence (AI) and Internet of Things (IoT).
Over the coming years, the revenue structure is anticipated to become more diverse and organic. China’s OTT video market will become increasingly mature, with 12.2% CAGR, and annual revenue expected to reach approximately US$16.1 billion by 2024.
China has witnessed a significant shift in viewing habits in recent years, from free-to-air to premium services. Premium services have been identified as a leading force in revenue growth, aside from advertising and value-added services. In June 2019, one of China’s largest OTT platform passed the milestone of 100mn subscribers and achieved membership services revenue of US$520mn in the third quarter, accounting for half of total revenue. In contrast, the advertising revenue of the major players either halted or declined due to the challenging macroeconomic environment in China and the intensified competition in in-feed advertising. Subscription Video on Demand (SVOD) subscribers in China are the highest in the world.
It is expected that in 2020, China’s subscription video-on-demand revenue will exceed movie box office revenue for the first time. As various platforms provide users with more high-quality services and bundled membership services, China’s video-on-demand market will maintain rapid growth.
In early 2020, due to the COVID-19 outbreak, many movie theaters were forced to close, and the release of Hollywood blockbusters were postponed, significantly affecting ticket sales in China. It is estimated that in 2020, China’s movie revenue will plummet by 78.1% year-on-year to only about US$2.26 billion, and the number of movie-goers will drop from 1.8 billion in 2019 to just 400 million. During the forecast period of 2020 to 2024, China’s movie revenue will rebound rapidly to reach 37.8% CAGR, it will still take a longer time to return to levels seen before the pandemic.
Nevertheless, the epidemic has battered but not killed China’s movie industry. In order to meet consumers’ demand for home entertainment, distributors have changed their distribution models to directly release on OTT streaming media platforms, especially for low- and middle-cost movies with limited special effects. To sustain demand, distributors are exploring online premiere opportunities and partnering with technology companies to breakeven.
Domestic films continued to dominate at the box office, generating 62.2% of overall revenue in 2018. Although the Chinese market in 2018 was worth US$2.0bn in ticket sales for Hollywood films, that revenue was split in favour of the Chinese, with the US studios given only a 25% share.
Video games in China continue to grow rapidly. It is estimated that in 2020, Chinese video games will generate US$31.2 billion in revenue. The compound annual growth rate from 2020 to 2024 will be 5.4%, and revenue will reach as high as US$38.5 billion by 2024.
Among them, social/casual games have a stable market share, favoured by non-hardcore gamers and increasingly attracting female and retiree players. This was especially apparent during the pandemic period where game players established gaming social communities, which increases user stickiness and users become more inclined to play games which their friends play. This gaming habit is expected to extend for some time after the pandemic. It is estimated that the proportion of social/casual games in China will reach 70.4% by 2024.
The Chinese Government has been playing a vital role to bolster the esports market ever since the General Administration of Sport of China recognised esports as an official sport in 2003. The boom in construction of physical esports arenas will further strengthen China’s esports ecosystem.
China’s esports revenue has surpassed the United States and South Korea in 2019, becoming the world’s largest esports market. It is estimated that in 2020, China’s total esports revenue will further rise to approximately US$410 million, and at 13.1% CAGR from 2020 to 2024. Esports sponsorship and media rights revenue is the main driver in this market segment.
Internet advertising is the largest advertising segment in China. In 2020, China’s Internet advertising revenue will reach US$66.3 billion, with a 7.7% CAGR from 2020 to 2024. Among which, with the substantial increase in mobile internet access traffic, there has been a visible shift in internet advertising towards mobile devices. It is estimated that the proportion of mobile internet advertising will increase to 63% by 2024, with live-streaming e-commerce advertising becoming the new driving force.
China now accounts for 21.3% of global Internet advertising spending, dwarfing every other market bar the US. China’s revenue is vastly greater than that of all other markets in Asia Pacific combined, and is larger than total Internet advertising spend in Europe. However, this extraordinary growth will be disrupted in 2020 by the outbreak of COVID-19, which will hit the Internet advertising sector worldwide. Total Chinese Internet advertising revenue is forecast to increase at a 6.1% CAGR over the forecast period to US$89.1bn. This will represent total revenue growth of US$22.9bn over 2019 levels.
China has digitised at a faster rate than almost any other market in recent years, bringing about radical changes in media consumption patterns by Chinese consumers. China now has more fixed broadband households (397.5mn) and more mobile Internet subscribers (971.2mn) than any other market. That the world’s largest addressable market of online consumers should have generated such a large advertising market should come as no surprise.
The rapid growth of the Internet advertising market has brought about new challenges. The increasing regulatory scrutiny is a predictable growing pain for the market and one that is unlikely to seriously disrupt the continued expansion of one of the world’s fastest-growing advertising markets.
The pandemic has accelerated and amplified ongoing shifts in consumers’ behaviour, pulling forward digital disruption and forging industry tipping points that wouldn’t have been reached for many years. As a result, the entertainment and media world in 2020 has become more remote, more virtual, more streamed, more personal and – for now at least – more centred on the home. Winners and losers will emerge based on their ability to leverage enabling technology to deliver truly distinctive content and experience options, while navigating regulatory and privacy hurdles.
Understanding where consumers and advertisers are spending their time and money in the entertainment and media industry can help inform many important business decisions.
PwC’s Global Entertainment & Media Outlook provides a single comparable source of consumer and advertiser spending data and analysis. Regardless of how you influence business decisions, the Outlook can help you understand industry trends so you can capitalise on new opportunities.
Global Technology, Media and Telecommunications Industry Leader, PwC China
Tel: + (755) 8261 8886
Mainland China TMT Leader and Private Equity Group Central China Leader, PwC China
Tel: + (21) 2323 3362