Traditional media revenue to be eroded as digital era gathers pace

THE digital platform is increasingly eating into the revenues of traditional entertainment and media, with physical music and books sales being the hardest hit.

A report by PwC on South Africa’s entertainment and media shows that sales of CDs and physical books will continue to fall as consumers look online for that content.

According to the report, increased internet access will remain a significant force behind the major growth in the South African entertainment and media industry, reflecting expanded broadband devices and more use of smart devices.

Vicki Myburgh, entertainment and media industries leader for PwC Southern Africa, says consumers’ access to entertainment and media content and experiences were being “democratised” by the expansion of access to the internet, and the explosive growth in smart devices.

“Even though traditional, non-digital media will continue to dominate overall E&M (entertainment and media) spending in S A over the next five years, much of the growth will come from digital,” she says.

SA’s entertainment and media market is expected to grow at a compound annual growth rate of 10.9% in the next five years, above the global average of 5.6%, as a result of increased internet access.

The entertainment and media market is expected to generate overall revenue of R175bn in 2017.

The internet has widened access to entertainment and media products and services and has created opportunities for companies.

With the increased penetration of mobile phones, including smart devices, connected consumers are driving companies to apply innovation and agility to understand and meet their needs, PwC says.

The slowest-growing segment in the industry will be consumer and educational books with a 0.4% compounded annual growth rate over the next five years.

“Comparatively low literacy levels in the country — although they are rising — and the fact that books don’t cater for multiple languages in use in South Africa, continue to act as a barrier to further growth in this segment,” Ms Myburgh said.

Books carry a 14% value added tax, which means that retail prices remain too high for the majority of South Africans. Magazines and newspapers sell at a much lower cost and are more likely to be read by South Africans than books, Ms Myburgh said.

Another drawback for growth is that most books are in English and Afrikaans. Electronic books are forecast to account for 8% of consumer market by 2017, up 1.5% last year.

The music segment will also continue to struggle, with sales dropping quickly, but not yet being replaced by digital sales, despite the emergence of a number of new digital music services, PwC says.

Spending on live music will overtake spending on physical recorded music by next year and total recorded-music spending the following year, making it the driver of revenue growth in South Africa and globally.

By 2017, live music will account for 57.1% of consumer spending on music in South Africa, the report states.

Overall music revenues would increase marginally from R2.15bn in 2012 to R2.20bn in 2017.

However, Ms Myburgh says digital growth will not be enough to make up for physical decline.

Moreover, digital music will not grow as fast as other digital sub-sectors such as books and magazines, Ms Myburgh says.

The local music sector has been slow in making a transition to the digital medium.

South Africa is also experiencing the same online piracy problems as the developed world.

However, the relatively low broadband penetration in the country compared with developed markets has limited the scale of the problem but as broadband use grows, so will online piracy, says PwC.

However, Ms Myburgh says that consumers are becoming comfortable with piracy.

Key for survival, says Ms Myburgh, is innovation and for companies to employ an agile business model.

“Constant digital innovation becomes the new licence to operate,” Ms Myburgh says.

PwC also expects television and newspapers to continue attracting a big advertising spend, however, digital will close the gap in total spend.

BY THABISO MOCHIKO – www.bdlive.co.za

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