UK set to remain Europe's largest entertainment and media market, according to report

PwC released its latest Global Entertainment & Media (E&M) Outlook 2023-2027 and it discovered that the UK is expected to retain its position as Europe's largest entertainment and media market during the next four years.

The report estimated that UK E&M revenue will exceed £85 billion this year, with a compound annual growth rate (CAGR) of four per cent expected over the next four years to reach £100 billion by 2027.

Despite overall increases, the growth rate is expected to vary from year to year due to shifting economic conditions. Sluggish consumer spending has dampened growth rates, forcing corporations to readjust expectations, turn inward, and seek strategies to reignite growth.

Mary Shelton Rose, Partner and UK Technology, Media, and Telecoms Leader at PwC, stated that the year 2022 was difficult for the UK entertainment and media industry as the economy struggled to return to normalcy. She added that the industry reconsidered its objectives and refocused on core activities in the face of ongoing change and upheaval.

According to Rose, the long-standing story in E&M for years has been a technology-inspired shift to digital and mobile. However, a new force is rapidly emerging this year: Generative AI, she said, urging leaders to examine and embrace the potential power of AI as a productivity and creative enhancer in the future.

As regards the segments generating revenue, PwC highlighted that internet access is expected to generate significant revenue, with the outlook projecting £16.7 billion this year, rising to £20 billion by 2027. Mobile internet access will drive the UK market, and a tipping point will be achieved in 2023 when mobile internet will exceed fixed broadband as the largest contributor to overall internet access revenue, PwC added. The report further revealed that mobile internet access revenue will account for 55 per cent of overall internet access revenue by 2027.

It also stated that as yearly data consumption climbs from 158,000 petabytes (PB) in 2022 to 415,000 PB in 2027, the expansion of data services will more than treble. This is mostly due to an upsurge in the use of streaming services, social video platforms, and broadcast video-on-demand services, which will account for 36 per cent of overall data use by 2027.

PwC believes that subscription video on demand (SVoD) revenue will rise from £3.6 billion this year to £4.7 billion by 2027. In terms of revenue, the accounting firm predicted that SVoD (£4.2 billion) will overtake TV subscriptions (£4.1 billion) by 2025, indicating a shift in viewership from linear to streaming.

To preserve customer popularity, the leading SVoD players continue to spend on content rights and original productions. However, the growing availability of ad-supported video on demand gives consumers the option to abandon subscription schemes.

Overall advertising income in the UK is predicted to be £35.7 billion in 2023, with digital accounting claiming the majority - assuming that the rapid structural shift that occurred during COVID-19 continues. The revenue from internet advertising is estimated to be £27.5 billion in 2023, growing to £35.5 billion by 2027 at a CAGR of 6 per cent.

While TV advertising is still a big medium, it is facing new challenges. It is predicted to fall by three per cent in 2023 as budgets tighten, then rebound with a four per cent increase in 2024 (£4.8 billion).

Dan Bunyan, partner at PwC Strategy&, stressed that the internet advertising business is still very active. As marketers reassess the most effective methods to connect consumers online, he noted that they continue to see expenditure shift towards new channels (e.g., retail media, gaming) and new data sets (e.g., cookieless solutions, contextual data). This increase in spending is supported by continuous product innovation in the sector, as well as M&A activity to enable vendors to provide these services, Bunyan added.

According to Bunyan, generative AI is expected to play an increasingly important role in the UK internet advertising market, across a variety of channels and content creation. He cited an example, saying the incorporation of Generative AI technology into search engines has been seen, beginning with the introduction of Chat GPT in Microsoft's Bing and the debut of Google's own Bard platform. More adoption and calibration of Generative AI technologies across the digital marketing ecosystem will almost certainly drive more competitive innovation, he added.

The fastest growing segment, according to PwC is the Virtual Reality market. The UK Virtual Reality market is predicted to increase steadily over the next four years, owing to the growing popularity of VR gaming and immersive video experiences. Total UK VR revenue is expected to grow at a 10 per cent CAGR from £1.3 billion in 2023 to £2 billion in 2027.

VR in video gaming remains a significant growth prospect, expanding at a rate of 22 per cent per year from 2022 to 2027, aided by new game releases. The installed base of VR headsets in the UK, PwC stated, is expected to increase from 1.7 million to 4.2 million units between 2022 and 2027.

Because of the success of the Meta Quest 2, the largest and fastest-growing headgear category is currently standalone VR, which will account for more than 80 per cent of the total installed base by 2027. Apple's recently introduced headset may possibly operate as a market stimulant, although the results are too early to tell.

PwC also highlighted other areas that are likely to expand rapidly as they return to pre-lockdown levels of revenue. For example, the film industry is expected to increase at a seven per cent CAGR over the next four years following the epidemic.

Box office income is predicted to approach pre-pandemic levels of £1.3 billion by 2025. Similarly, the post-pandemic recovery is driving the UK out-of-home (OOH) advertising sector. The market expanded by a record 31 per cent in 2022 and is predicted to grow at a 5 per cent CAGR over the next four years, returning to pre-pandemic levels in 2024, when sales will reach £1.13 billion.

This, with many other media sub-segments that have continued to have robust development (e.g. OTT Video, Video Games, Internet Advertising, etc.), illustrates the general health of the Entertainment & Media industry, which has now emerged substantially larger compared to pre-Covid.

Bunyan emphasised the media industry continues to add significant value to the UK through inbound investment, export value, new creative intellectual property, technological infrastructure, and high levels of consumer engagement.

He noted that brands and media owners should be confident in their ability to stay ahead of the curve as the economy recovers and consumer confidence returns.