Shenzhen, 5 June 2019 - According to PwC’s Global Entertainment & Media Outlook 2019-2023, total entertainment and media revenue in China is expected to increase at a compound annual growth rates (CAGR) of 5.6% over the next five years, only trailing India and Indonesia. China will remain the world’s second largest market, where revenues will grow from US$103.6bn to US$434.7bn by 2023. Digitalisation has continued its growth momentum. Digital revenues accounted for more than 70% of all China entertainment & media revenue in 2018, and by 2023, the percentage is expected to reach 75.4%, above the global average of 61.6%.
By industry segment, digitally-driven segments will see the most vigorous growth. Despite narrowing gaps, virtual reality (VR) and OTT video will continue to lead the way with CAGRs of 35.9% and 20.5%, respectively, over the next five years. In addition, podcasts and e-sports will show strong growth momentum, with respective CAGRs of 34.6% and 21%. Data consumption is on the rise and will grow rapidly at a rate of 33%.
Wilson Chow, PwC Global, Mainland China and Hong Kong TMT Leader, said: “The arrival of 5G will optimise video experiences, allowing consumers to start seeing mobile internet with comparable speed to the fastest fixed broadband. Heavy investment in 5G will change internet consumption patterns, increase the market share of videos in the industry, and stimulate continued rapid development of China’s entertainment and media industry.”
China’s internet advertising has continued its path of rapid growth, as media platforms and advertisers place a greater focus on online promotion. In 2018, China was again the second largest market globally for internet advertising with revenues worth US$56.7bn. Internet advertising revenues in China are expected to grow at a CAGR of 14% over the next five years, reaching US$109.2bn by 2023.
Due to increasing smartphone penetration, mobile advertising growth exceeded that of wired display advertising in 2018. In China, the share of mobile advertising revenue in internet advertising revenue is estimated to rise from 52% in 2018 to 68% in 2023, making mobile advertising the dominant driver of growth in China’s internet advertising industry. The importance of mobile video internet advertising is steadily growing because of a continued focus on videos by mobile social platforms, coupled with a speedier, more reliable mobile connection, drives the growth of mobile video consumption. Since 2018, many short video apps have emerged, such as Douyin, Meipai, Kuaishou and WeSing. Increasingly, marketers are using mobile videos as advertising media, reflecting the changes in people’s lifestyle.
Continued improvement in broadband speed and popularity has driven rapid growth in the demand for OTT videos. In 2018, China’s OTT video market achieved significant growth with revenues of US$5.8bn, making OTT the newest and fastest growing platform for major advertisers. We expect that the market will maintain a CAGR of 20% in the next five years, with revenues doubling by 2021 and reaching US$14.7bn by 2023.
Baidu’s iQiyi, Tencent Video and Alibaba’s Youku Tudou together have a more than 70% market share of China’s online video industry. Chinese audiences have experienced a significant shift in viewing habits from free-to-air to premium services. Premium services have been identified as an important driver of revenue, aside from advertising value-added services.
5G technology enables OTT video users to increase daily consumption and enjoy higher-quality video entertainment on mobile devices, accelerating the trend of user customisation. With OTT video companies trying to expend the base of “subscription on-demand” users, the competition is intensifying among leading players, and the investment in content is experiencing explosive growth.
Video games and e-sports
China has become the world’s largest video games market and is expected to continue. In 2018, total number of video gamers in China reached 626mn and created revenue of US$24.8bn in 2018. Over the next five year, this trend is foreseen to persist, and the CAGR will be maintained at 7.3%. By 2023, revenues will reach US$35.2bn.
Tencent and NetEase remain giants in the Chinese market, with a combined market share of nearly 70%. With the popularity of mobile devices, PC gamers are migrating towards mobile screens every year. It is estimated that China’s mobile game revenue will exceed US$22bn by 2023. Helped by the continued growth of app-based games and social/casual games, Tencent’s mini-games platform has become a new, promising games platform. Its WeChat app has over 1bn active users, and had more than 2,000 games available in 2018.
E-sports is the fastest growing sector of the video games market in China. In 2018, there were about 300mn e-sports enthusiasts in China, with US$151mn in revenues generated. China is forecast to overtake South Korea as the second largest e-sports market globally after the US by 2020. Growing at a 21% CAGR over the next five years, revenues will reach US$392mn by 2023. Sponsorship income and media rights income will become a major driver of growth in China’s e-sports market.
Frank Cai, PwC China Media Leader, said: “China is at the centre of the global boom in e-sports. Shanghai is working to become the world’s capital of e-sports, it is not only the host city of a number of biggest e-sports competitions, but also the home to top professional teams like Invictus Gaming and Bilibili Gaming. China’s ability to successfully host high-profile events reflects a growing core audience.”
China’s cinema segment is still growing at a very brisk rate. In 2018, China’s box office revenue grew by 9.1% and number of screens increased by 9,303 to 60,079. China is expected to become the largest market in the world by 2020, with a CAGR of 9.4% over the next five years. Revenues will reach US$15.5bn by 2023.
In China’s cinema market, the “80/20 rule” is at work. In 2018, 33 movies raked in more than Rmb500mn each, accounting for 72% of total box office. The competitiveness of domestic films has enhanced. “Content is the king” again - quality content is the core driver of the market. The celebrity effect is in decline, while the word of mouth effect is on the rise.
The internet is influencing the film market in many ways, intensifying the competition among cinemas. In 2018, 84.5% of the movie ticket purchases in China were made online. The popularity of online ticket purchases increased transparency in box office numbers. Online marketing channels were concentrated in ticketing platforms, social media and video websites, to indicate the importance of short video platforms to increasing movie marketing.
Smart speakers, podcasts & VR
In terms of new trends, the smart speaker market is booming, and smart speakers are expected to be the central smart home device. Global smart speaker ownership will grow at a CAGR of 38.1% over the next five years, reaching 440mn by 2023. It is estimated that in 2021, China will become the largest smart speaker market in the world. By 2023, there will be more than 150mn smart speakers in the country.
Smartphone usage and smart speakers are driving consumption podcasts. Chinese podcast monthly audience averaged 152.1mn, and podcast advertising revenue reached US$128mn in 2018, making China the largest market in the world. On the back of expanding listener numbers, revenue is set to rise strongly at a 34.6% CAGR over the forecast period to total US$565mn in 2023.
VR is the fastest-growing segment in China’s media and entertainment industry. China was the world’s second largest VR market with revenues of US$364mn in 2018. In the next five years, China is anticipated to have a CAGR of 35.9%, the fastest in the world. By 2023, revenues will reach US$1.14bn. China has the world’s largest ownership of VR devices. In 2018, there were 21.1mn VR devices in China. The number is expected to rise to 39.7mn by 2023.
Cecilia Yau, PwC Mainland China and Hong Kong Media Leader, noted: “We estimate that in the next five years, VR will remain the fastest growing segment in China’s media and entertainment industry. Video games will drive revenue from VR content, while mobile VR devices will be key to growth in VR videos. Additionally, we see a rosy outlook for podcast revenue growth, given the growing demand for podcast subscription services, the continued expansion of broadcast content, and the entry of leading domestic podcast platforms such as XimalayaFM into paid specialised content.”
Visit China Entertainment & Media Outlook 2019-2023 for more findings and analysis from local perspective.