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Digital Video And Social Media Will Drive Entertainment Industry Growth In 2019

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As industry executives and consumers start to ponder on what’s coming in media and entertainment in 2019, Pepperdine’s Institute for Entertainment, Media, Sports, and Culture has set out to identify industry trends in the U.S. market in a study to be published in 2019.

Our preliminary findings show resilience in the industry in the last few years to the digital disruption underway. In a nutshell, the main thrust of entertainment growth has been and will continue to be digital video, fueled by social media.

Recent industry growth trends

You would think that what digital distribution did to music would cast a spell for other media and entertainment industry sectors. Music revenues in the US shrunk by more than half between 2000 and 2015 (from $14.6 billion to $6.7 billion), as the internet enabled cheap distribution and (legal and illegal) sharing of music.

This makes sense: As content creators distribute their products electronically and as pirate copies proliferate, both unit prices and sales volume are bound to decrease. We have seen it happen in other industries too. So, are all other media and entertainment sectors bound to the same gloomy future as digital distribution expands its footprint in the industry?

Measured by revenues, gross profit, and employment, the general answer for the industry is "no". From 2013 to 2017, revenues from original content have seen a healthy 5% annual growth.

Still, some sectors have been affected. In particular, traditional print sectors like books, newspapers, magazines, and periodicals have seen their revenues decrease during that period, albeit by only single-digit percentages.

The sectors driving growth and compensating for other sectors' losses are film, television, video games, internet-only publishers like YouTube and Amazon, and social media (see below). Film and television revenues grew around 5% annually, while video games and internet-only publishers grew more than twice as fast, close to 11%. Music, on the other hand, is rebounding from its 2015 low thanks to a growing streaming business.

The impact of digital distribution

Zooming into this growth story provides further insight. According to PWC's Global Entertainment & Media Outlook 2018-2022, revenues via traditional channels (like physical distribution; cable for film and television) are down 1%, while consumption via the internet and mobile has more than compensated for these losses, with a healthy 18% growth.

One might expect the losses in traditional channels to be higher, in line with what happened to music. But traditional print sectors have been able to weather the storm by increasing their online presence and monetizing content through digital advertising, although digital channels have not fully compensated for their losses in traditional channels. Also, pay-TV channels like cable are stable and have only started to decrease gradually since 2016. This means television consumers still value the convenience of very high quality, reliable delivery of video.

Media and entertainment are increasingly social

Another important phenomenon is the fact that the proliferation of user-generated content online is fueling new forms of production beyond the professional content production of traditional film studios. Social media is compounding this growth, and it is the fastest growing sector. Between 2013 and 2017, social media revenues have grown at an astounding 37% annually. Social media companies are starting to make inroads into licensing and production of original content, but still, their business model is about monetizing users’ information and content, including how they share existing media and entertainment. Also, increasingly, copyrighted material is illegally streamed live in social media platforms.

We analyzed the gross profit margin of each sector between 2013 and 2017 (using IBISWorld’s contribution to GDP stats), and found that the only ones with double-digit margin growth are internet publishing at 11% and social media at 56%. That just shows the strength of a business model where you monetize other people’s content. After recovering tech infrastructure costs, profits from advertising for popular social media platforms like Facebook is bound to increase exponentially.

What to expect in 2019 and beyond

With a ramp up in deployment of 5G networks, which will make content delivery up to 100 times faster, the trends above will only be compounded. In 2019, revenues from video content will continue to grow and social media will fuel the industry's growth. Consumers will continue in their love affair with video, whether it’s film, television, video games, or viral amateur content. Demand for mobile video consumption will increase as download speeds and streaming quality improve, including for virtual reality content and for new tech mobile settings like self-driving cars.

The battle for consumers’ dollars will intensify, as 5G providers and social media companies develop or acquire original content, and as existing media companies and incumbent streaming services like Netflix fight back. For example, top media companies like Disney and Warner Media (owned by AT&T) will introduce their own streaming services in 2019. For consumers, it will be a fun year with new and enhanced choices for video entertainment.

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