In its latest five-year forecast for the sector, PwC suggests that entertainment and media companies that previously competed and differentiated on content and distribution must focus more intensely on the user experience to build direct, sustainable relationships with consumers. The forecast figures for internet video are impressive, but traditional television will still dominate.

Global entertainment and media revenues are expected to rise from $1.8 trillion in 2016 to $2.2 trillion in 2021 at a compound annual growth rate of 4.2%, down from the 4.4% the firm forecast last year.

PwC suggests that mature segments of the entertainment and media market are in decline, while internet segments are growing at a slower rate and the next wave in areas such as e-sports and virtual reality is just beginning to ramp up.

“Accelerating change in technology, user behaviour and business models has opened up a gap between how consumers want to experience and pay for entertainment and media offerings, and how companies produce and distribute them,” said Deborah Bothun, the global entertainment and media leader for PwC. “The right user experience bridges this gap. To deliver it, companies must pursue two related strategies. First, build businesses and brands anchored by active, high-value communities of fans, united by shared passions, values, and interests. And second, capitalize on emerging technologies to delight users in new ways and provide superior user experiences.”

As companies compete to create the most desired user experiences, advances in technology are at the heart of their strategies. Combined with a great user experience, companies can harness technology and data to create a virtuous circle — one in which increasing consumer engagement and attention lead to the capture of more data and more insights into what users want. Increasingly the models used to achieve this monetization are founded on direct-to-consumer strategies, enabled by technology and characterized by greater choice and user control.

PwC suggests that in many of the largest markets, and hence in the industry as a whole, entertainment and media businesses are approaching or have reached a form of saturation. Some traditional, mature segments are in decline, while online is growing but at a slowing rate, and the next wave of growth, in areas such as e-sports and virtual reality, is just beginning to ramp up.

Internet advertising now generates more revenue than television advertising globally. Revenue from global internet advertising for the first time exceeded that generated by television advertising in 2016, a year earlier than previously predicted.

Internet video revenues will overtake physical home video for the first time in 2017 and will increase at a compound annual growth rate of 11.6% to be worth more than two-and-a-half times that of the terminally declining market for video on discs by 2021.

The United States is by far the largest and most established market for internet video in the world, accounting for 47% of global revenue in 2016. That share is expected to fall to 43% by 2021, as internet video becomes more established in others regions, although international growth will be driven by the expansion of American companies overseas. Internet video will grow at a 9.6% compound annual growth rate.

Global internet video revenue forecast to 2021. Source: PwC.

Globally, internet video revenues are forecast to reach over $20 billion in 2021, without double counting revenues from other television services. The internet video market is expected to be worth over $36 billion a year, of which nearly $28 billion is forecast to come from subscription video on demand. That represents around a tenth the value of the traditional television sector.

By 2021, the global traditional television market is expected to expand at a compound annual growth rate of just 1.3% to over $277 billion. This is mainly attributable to television subscription revenue, which continues to account for the majority of global revenue, rising from 80% in 2016 to 84% in 2021. Mature markets in North America and Western Europe will struggle to find organic growth, while the Asia Pacific region will grow at 6.8% to nearly $60 billion by 2021.

The Global Entertainment and Media Outlook 2017-2021 is published online by PwC, allowing subscribers drill down access to the data set by industry segment and region.