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For the US Media & Entertainment industry, provide the top 10 challenges which this industry is facing now and/or in the future. What challenges are mentioned most with reference to this industry? Include a one-line summary for each challenge along with a fully-cited overview of it.
Hello! Thanks for asking Wonder to identify the top ten challenges that the US Media & Entertainment industry is facing. The short version is that the industry faces a number of challenges, including a rise in ad interaction on mobile phones, dwindling revenue from print content and radio, controversy in data privacy and personalization, as well as competition among global players. Additionally, US media companies are challenged by the need to monetize content on third-party platforms, address piracy and free streaming concerns, and cultivate a loyal fan base. Below you will find a description of our methodology and a deep dive of our findings.
METHODOLOGY
After a thorough search of recent market studies, trusted media sites, and industry reports, we took special note of the industry challenges that are mentioned with the highest frequency. As requested, we include a brief, one-line summary of each challenge along with a fully-cited overview. While a handful of our sources address the global state of the market, we made certain to hone our study on data for the US Media and Entertainment sector.
INDUSTRY OVERVIEW
PwC's most recent Outlook projects US Entertainment and Media (E&M) spending to hit $720 billion by 2020, a figure that is set to rise from $603 billion in 2015. While the sector is marred by tremendous industry disruption and heated competition for consumer attention, these tensions are also opportunities for innovation and growth. To quote PwC's Entertainment & Media Leader, Deborah Bothun: "The acceleration of digital and technology innovation is expected to continue to force companies to innovate and reimagine the industry as we know it."
To provide context for this study, the Boston Consulting Group observes some prevailing trends in the US E&M. These dynamics are mutually-influencing and have spawned a host of challenges for media players on US turf. We will observe the below trends in more depth as we dissect some major industry threats and drivers.
US ENTERTAINMENT & MEDIA INDUSTRY CHALLENGES
We have provided a list of the ten most frequently cited challenges that the Entertainment & Media industry currently faces and will undoubtedly grapple with in coming years.
A 2016 report from Reuters Institute for the Study of Journalism claimed that 46 percent of US consumers rely on social media as their source of news, while 14 percent stated that social media is their primary go-to news source. In the US, Snapchat has morphed into a leading content channel, while Alphabet and Facebook dominated the digital advertising sector, claiming 85 percent of US growth. Traditional media companies are tasked with reinventing their engagement and branding strategies to keep up with the swell in popularity of user-generated content and "new voices" in the arena.
PwC studies show that US mobile advertising claimed 34.7 percent of total online advertising revenue ($20.7 billion) in 2015 and is slated to inch up to 49.4 percent by 2020. Even more noteworthy are mobile video internet ad figures; revenue was $3.5 billion in 2015 and is forecast to hit $13.3 billion in 2020 (CAGR of 30.3 percent). Experts note that "the value of attention and the ability to monetize advertising dollars" will become increasingly tricky in the face of evasive consumer behavior and possible widespread adoption of ad-blocking technology".
In 2017, the US (and western Europe) are projected to lose about 10% of print ad revenues as advertisers and consumers gravitate towards digital media outlets. As US print readership plummets and consumer demands change, "customizable social magazines and digital-only interactive sites" are gaining traction. While many traditional publishers only pull in around 20%-30% of revenue from digital outlets, those numbers will likely grow as print newspapers and magazines "extend their product mix and optimize their pricing models". Companies would do well to experiment with "premium and custom content, live events, and marketing services such as customer analytics, creative development, and lead generation". Furthermore, the revolution surrounding mobile internet has seen a surge in tablet and e-reader sales, while these device owners show a preference for reading newspapers and magazines in digital form.
To keep pace with the unprecedented growth of digital content, the E&M industry has been forced to seek out better storage solutions by moving their data to the cloud. Enterprises often battle with "runaway costs, security problems and the inability to ensure compliance of their cloud operations at scale". US media players can establish protections against these pitfalls by employing automation software (similar to DivvyCloud) that offer cost savings and quick remediation of non-compliance in their cloud databases.
Like print media, US radio revenue is stagnating as a result of "audience fragmentation and radio companies losing market share to digital media". By 2020, the radio ad industry will rise minimally at a CAGR of 1% (excluding satellite radio). Revenue is expected to see a marginal increase from $17.8 billion in 2016 to $18.4 billion in 2020. Online radio, on the other hand, is expected to account for 9.7% share of radio revenues by 2020, up from 7.7% in 2016. Companies like Cumulus Media Inc. and iHeart Media Inc. are two US radio broadcast giants that have faced financial strain that necessitated a restructuring of their business models.
6. Data privacy restrictions could hinder content personalization.
The tension between and digital personalization and fiercely-guarded consumer privacy is a bit of a tight-rope walk for E&M players. Research from Virent, Inc. states that 80 percent of study participants crave personalized services, while 89 percent want to understand how companies safeguard their information. Furthermore, 86 percent of respondents demanded that companies explain how their information is handled and whether it is shared with third parties. According to a report from S&P Global Ratings, "new data protection frameworks and regulatory regimes will increase compliance costs, information security needs, and operational complexity", resulting in complicated marketing protocol that could hinder personalized user experience. This global sentiment is reflected in the United State's very own "National Data Privacy Day". Enacted by Congress in 2009, it serves to promote consumer control over personal data and start "dialogues among stakeholders interested in advancing data protection and privacy”.
7. The US is facing increasing international competition. The United States is relinquishing its bragging rights as the top dog in several E&M sectors. China is slated to surpass the US in the box office in 2017. By 2020, China is forecast to reach $15.1 billion, a stark contrast to the US forecast of $11.0 billion. As of 2016, Japanese Yomiuri Shimbun media group boasted $2.88 billion in media revenue and upwards of 9 million copies in circulation, representing the most widely-read daily newspaper in the world. The French company, JCDecaux, claimed $3.74 billion in media revenue and over 1 million advertising panels. The media mogul is known as the biggest outdoor advertising company on a global scale.
Despite sluggish growth, the US recording industry will see an incremental rise in revenue from $15 billion in 2015 to a possible $15.8 billion by 2019. On trend with increasing online media consumption, the on-demand streaming and live music sectors are "growing by 4.5 percent to $8.7 billion and 11.2 percent to $1.9 billion" during the same period. A "value gap" between content creators and tech players make it difficult to track and monetize consumer behavior and preference. Networks offering free content under copyright exemptions pose serious infringement concerns and may narrow revenue streams for music producers. On the other hand, some consider it as "free mass marketing", which admittedly yields an intangible return for the present.
PwC rightly asserts that publishers "are no longer destinations, but suppliers of content" as they navigate the new media landscape "where social networks are Internet on-ramps for many consumers". Publishers will soon care less about platform and more about the relevancy of their brand and content, leaning on social media and other innovative platforms to get their content in front of consumers. To remain competitive, media players will need to lower costs and get creative with content production by "maintaining fewer staff editors and content producers and instead managing networks of external contributors". This will allow US companies to scale with the evolution of consumer habits and developing technology in the E&M space.
Fans hold incredible sway in today's E&M market. Companies with the keenest insight into fan psychographic profiles have a leg up on competition. While some players are busy crunching numbers on ratings and clicks, others have learned to tap into the "functional, emotional, and social behaviors that translate into fandom for their brands". The New York Times has employed a “subscription-first” business model that focuses on growing its list of subscribers from a 3 million (present) to 10 million. This "fan first" strategy has also helped the NFL Network become a $1 billion 24/7 pay-to-watch TV network that broadcasts a constant stream of football all year long, giving fans access to special event coverage and benchmark replays. An article in Strategy+Business sums it up perfectly: "Avid fans cannot get enough of the content they love. They binge on it. They share it. They talk and post about it."
SUPPLEMENTAL READING
During the course of our research, we learned that PwC’s latest Entertainment & Media Outlook: 2017-2021 is slated to launch next month. For the most cutting-edge insights on the US entertainment industry, visit the site on June 7 to witness the live broadcast from PwC's production studio in NYC. The briefing will provide an "in-depth five-year outlook for global consumer spending and advertising revenues directly related to entertainment and media (E&M) content" and will feature conversations with industry experts that will unpack trends and themes. (To tide you over until then, you can always check out the US segment highlights from last year's report.)
CONCLUSION
To wrap it up, the industry faces a number of challenges, including a rise in ad interaction on mobile phones, dwindling revenue from print content and radio, controversy in data privacy and personalization, as well as competition among global players. Additionally, US media companies are challenged by the need to monetize content on third-party platforms, address piracy and free streaming concerns, and cultivate a loyal fan base.
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