Business

PwC Forecast: VR, OTT Video Among Major M&E Growth Segments Through 2022

Virtual reality (VR), over-the-top (OTT) video and Internet advertising are expected to be among the major growth segments within the U.S. media industry over the next five years, according to the findings of PwC’s comprehensive Entertainment & Media (E&M) Outlook for 2018-2022, released June 5.

Digital will account for greater than 50% of U.S. E&M revenue by 2020, Mark McCaffrey, PwC U.S. Technology, Media and Telecommunications (TMT) Sector Leader told the Media & Entertainment Services Alliance (MESA).

“In particular, internet advertising continues to surge,” he said, adding the U.S. continues to lead the global Internet ad market and is expected to expand at a 7.7% compound annual growth rate (CAGR) to reach $127.4 billion by 2022.

VR, video games and eSports will add almost $11 million in consumer spending through 202 he said. But he was quick to add that, “while VR has enormous potential and huge CAGR over the forecast period, that growth is tempered by the fact that the segment still remains small in terms of overall revenue.”

Newspapers and magazines are the only two U.S. media segments that are expected to decline through 2022, “indicative of traditional publishing’s challenges to capture revenue in a digital world,” he said.

VR growth is expected each year throughout the forecast period, increasing to $2.6 billion in 2018 from $1.5 billion in 2017. PwC projects total VR revenue — including gaming, non-gaming video and apps — will increase to $7.2 billion in 2022.

App revenue is by the far the weakest part of the total VR market and the gaming market has contributed by far the most revenue within the VR market so far, accounting for 61% of total VR content revenue in the U.S. last year, PwC said. But non-gaming video VR revenue is expected by PwC to slightly overtake gaming VR revenue in 2022.

“The new wave” of VR started in the U.S. when the original Oculus headset Kickstarter was launched in 2012, so it’s unsurprising that the country leads many areas of VR development, from content to hardware, PwC said in the report. The huge U.S. media industry, with its large, highly profitable home market, is also “at the forefront of VR experimentation, often supported by a keen VC ecosystem,” it said.

The VR market has “developed into an entertainment and productivity platform that will grow rapidly over the next five years,” PwC predicted. The arrival of headsets based on Microsoft’s Windows Mixed Reality (MR) platform in late-2017, to be followed in 2018 by capable, portable dedicated headsets from HTC, Oculus and other companies, “represents a second wave of hardware that is both easier to use, better supported and will ultimately be priced for the mass market,” PwC said.

The growing availability of VR content will inevitably drive hardware sales, it said, predicting there will be 55.1 million active VR headsets in the U.S. by 2022 – with 21.3 million of them being the newer, more consumer-friendly, portable dedicated units.

Interest in augmented reality (AR) is “intersecting with the VR market, nowhere more so than in Microsoft’s MR initiative which explicitly aims to link the two markets,” PwC said. Although “immersive AR headsets are still some years away,” companies including Vuzix and even Apple are “well positioned to take advantage when this market does take off,” PwC said.

OTTvideo revenue in the U.S., meanwhile, reached $20.1 billion in 2017 after 15.2% year-over-year growth. Although growth rates will “slow as the market matures, further expansion” of OTT at an 8.8% CAGR will produce revenue of $30.6 billion in revenue in 2022, helped by “ubiquitous” and high-speed internet access, PwC predicted.

The U.S. will remain, by far, the largest OTT video market globally over the forecast period, but strong growth rates in subscription video on demand (SVoD) platforms globally will reduce its dominance, it projected. Having accounted for 55.6% of total OTT video market revenue in 2017, the U.S. is expected to account for 52.4% in 2022, PwC said.

But OTT faces challenges. For instance, while increasing numbers of U.S. consumers access TV content from the internet – peaking at 90% in the 25-34 age group – they are also “increasingly overwhelmed by the sheer proliferation of available services,” PwC said, adding: “That wealth of options may inhibit growth for any one player since they cannot hope to provide all of the most desirable content at any one time. Conversely, the relative lack of choice of pay-TV is seen as a comfort, suggesting that a provider able to offer a mix of both services — in as user-friendly a format as possible, with a particular emphasis on content discovery — may ultimately have the most compelling consumer prospect.”

The U.S. subscription TV market, meanwhile, is “by far the largest globally,” and represented 47% of 2017 global subscription TV revenue, PwC said. But it projected that share of the market will decline to 2022 due to growth in other countries, along with subscriber losses in the U.S. market as the traditional pay-TV industry faces growing competition from OTT providers.

U.S. subscription TV revenue declined 1.9% in 2017 because of a “mature market and cord-cutting that has resulted from competition from streaming video platforms,” PwC said. Last year’s subscription TV revenue of $98.9 billion is expected to contract at a -1.3% CAGR to $92.7 billion in 2022, it said. Total traditional TV market revenue is expected to decline at a faster rate of 2% CAGR, “impacted by the marked disruption to the physical home video market” for DVDs and Blu-ray Discs, it said.

The “inconvenience” of organizing multiple OTT video subscriptions could “create an opportunity for traditional pay-TV to carve out a key role as aggregator,” PwC said.

Total U.S. video games revenue is expected to continue growing overall through 2022. Revenue increased to $23.4 billion in 2017 from $15.2 billion in 2013, and it’s forecast to grow by a 4.5% CAGR to reach S$29.2 billion in 2022.

However, within traditional gaming, growth is expected to slow to a 3.2% CAGR over the forecast period, from revenue of $12.5 billion in 2017 to $14.7 billion by 2022.

PC gaming is “undergoing somewhat of a resurgence – its revenue growth over the forecast period exceeds console games, in large part due to less reliance on the steeply declining physical games retail market,” PwC said. Total PC games revenue is expected to grow from $3.9 billion in 2017 to $5.3 billion in 2022, at a 6.0% CAGR. While PC-based VR is “likely to remain a small market, its influence on the wider PC gaming community can already be felt,” PwC said.

The popularity of eSports, meanwhile, is also “driving demand for better monitor technology and “pro” accessories for gamer PCs. US media rights revenue in eSports remains relatively small, but “as the scramble for attractive intellectual property intensifies, an increase at a 31.3% CAGR is anticipated through 2022, PwC said.

Although console gaming revenue growth is expected to slow, rumors of the death of consoles are “exaggerated,” as the Sony PlayStation 4, Microsoft Xbox One and Nintendo Switch continue to show some strength, according to PwC. Consoles, however, “will continue to struggle against more keenly priced alternatives for more casual gamers,” it predicted.

On the other hand, PwC predicted that the social/casual gaming category will see revenue rise from $9.4 billion in 2017 to $12.3 billion in 2022, at a 5.6% CAGR. Last year was the first in which social/casual revenue surpassed traditional console revenue, it said.

U.S. theatrical movie revenue, meanwhile, is expected to remain largely stable over the forecast period, “in spite of continuing turbulent market conditions,” PwC said. Box office revenue is expected to show only modest growth, but admissions have been falling and rising ticket prices have “concealed the drop,” it said, adding: “The underlying stability of the sector hasn’t lessened the anxiety surrounding it.”

Total U.S. theatrical revenue, including box office and cinema advertising, dipped to $11.2 billion in 2017 from $11.4 billion in 2016. But PwC projected it will grow to $11.4 billion in 2018, $11.6 billion in 2019, $11.8 billion in 2020, $12 billion in 2021 and $12.3 billion in 2022.