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GLOBAL ENTERTAINMENT, MEDIA REBOUND FORECASTED

NEW YORK - Overcoming softness in the world economy, increased military and security spending, the prolonged lead-up to conflict followed by war in Iraq and the SARS epidemic, global entertainment and media industry spending will surpass $1.1 trillion in 2003, rising by 3.7% from its 2002 level, according to research services firm PricewaterhouseCoopers.

Continuing this advance, the company forecasts that global entertainment and media spending will reach a record $1.4 trillion in 2007, for a 4.8% compound annual growth rate (CAGR) over the next five years. The forecasts were published in the latest edition of the annual PricewaterhouseCoopers Entertainment and Media Outlook 2003-2007 and Global Overview.
 
According to Kevin Carton, head of PricewaterhouseCoopers' Entertainment & Media Practice, "Essentially, digital adoption both giveth and taketh away. New products and services generated by digital technology and broadband will drive market growth. However, in the near term, digitization will cannibalize existing revenues and piracy threatens new digital content business models."

Several key drivers will affect the industry worldwide during the next five years, the report said. Specifically, increased investment in defense and security will bring an end to the so-called "economic peace dividend" that has benefited advertising growth and consumer industries such as entertainment and media. New global realities will result in ad spending growing at a slower rate than Gross Domestic Product (GDP) as more financial and manpower resources are digested by defense needs.

With military costs beginning to account for a larger slice of the GDP pie, consumer costs will be driven higher throughout the global economy, and content producers will find it easier to pass along price increases. The resulting higher spending rates will boost global consumer/end-user spending on entertainment and media to nearly $1.4 trillion in 2007.

The resiliency of the entertainment and media sector, the report said, is evidenced by global advertising's rebound from recent weakness, boosted by solid category increases in television, radio and out-of-home advertising.

Also contributing to the turnaround will be: a resurgence of Internet advertising as new metrics offer "reach-and-frequency" figures that empower media buyers to increase spending; and, a significant boost in ad dollars generated by the 2004 Olympics.
 
In fact, global advertising spending in entertainment and media will soar to $375 billion in 2007, increasing at a 4.1% CAGR for the 2003-2007 period covered by the report.
 
PricewaterhouseCoopers forecasts that, spurred by broadband, next-generation technologies will significantly strengthen growth opportunities for television distribution, video games, Internet access and home video (bolstered by the DVD format). The firm sees the broadband universe experiencing unprecedented expansion -- nearing 30% compound annual growth -- as penetration more than triples during the five-year period. Globally, more than 153 million households will be broadband-enabled by 2007.

According to PricewaterhouseCoopers' Carton, "With sophisticated new video games, online movies, electronic magazines and other applications, consumers have a growing need for speed. Demand for broadband connectivity will spur subscribers to trade in their old dial-up for high-speed broadband access. And increasingly, their Internet service provider will be a cable or phone company."

The new Global Outlook also forecasts double-digit CAGR increases for video games, Internet access and satellite radio. In fact, video games will emerge as the fastest growing industry segment -- outpacing Internet advertising and access spending.

The video games market will be boosted on two fronts. Online video gaming growth will be stimulated by increased broadband access, and the wireless market will surge due to availability of new game-capable cell phones. Next-generation console hardware, which is slated to be introduced at retail later in the forecast period, also will drive the category's rapid expansion to $35.8 billion in 2007, growing at an 11% compound annual rate.

Overall, the US marketplace -- at $479 billion, representing 44% of global spending -- will continue to be the industry's largest. "The U.S. entertainment and media marketplace is poised for stronger growth. We expect rebounds from television network and radio advertising, coupled with especially strong DVD, video game and Internet advertising and access spending to lead the way," said Jim O'Shaughnessy, PricewaterhouseCoopers' US Entertainment & Media Practice Leader,

Contributing to the strength of the US marketplace are economic and technological factors that are spurring growth and shifts in several key entertainment and media categories.

For example, video games, based on a 24.6% CAGR through 2007 to reach $12 billion, will become the US market's fastest growing category. Technology will play a major role, with broadband spurring a six-fold increase in online gaming alone during the forecast period to equal $1.6 billion in 2007 via subscriptions of 13 million.

In terms of category shifts, the current economic environment favors media with a broader demographic audience reach. This factor makes broadcast television networks more attractive to advertisers who will move some resources away from cable even though collectively, cable now attracts a larger audience. However, as cable networks begin to produce more original programming, they will draw larger audiences and vie for greater advertising dollars.

By the end of the five-year period, cable operators and telephone companies will have emerged as the dominant Internet service providers (ISPs). Evolution in the Internet advertising and access spending marketplace will continue. In the US, Internet advertising will rebound from its 23% decline over the past two years and grow at an average annual rate of 8.1% through 2007.

US broadcast and cable television advertising will grow at a 5.7% average annual rate, reaching $37.4 billion by 2007. Significantly contributing to this growth, PricewaterhouseCoopers forecasts Hispanic television network advertising expanding in the US by a total of 50% to reach $1.5 billion in 2007. Growth will be driven by greater disposable income and the launch of new Spanish-language networks to serve the surging US Hispanic population, which, analysts say, will grow to 44 million by 2007.

The growth of direct broadcast satellite (DBS) households continues to be one of the biggest stories for the television distribution category. Digital cable, which grew on the strength of attracting "early adopters," has been levelling as consumers resist higher priced subscriptions. Aggressively offering lower prices, free dishes, and carriage of major market local stations, DBS is poaching cable subscribers leading to an 8.4% average annual increase in satellite TV households during the next five years.

Wide acceptance of the DVD format will not only continue to boost the home video section of the filmed entertainment category, but will lead to more and more films being released widely at the box office than ever before. The Hollywood studios, looking to quickly recoup investments and begin generating back-end revenues, are having films open on a larger number of screens in a shorter amount of time. With DVDs leading the way, total US home video spending will soar to $31 billion in 2007.

The PricewaterhouseCoopers Entertainment and Media Outlook: 2003-2007 is  available for $495; the "Global Overview" can be purchased separately for $95 on the company's website - www.pwc.com/outlook.

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