PwC: UK M&E to grow despite economic downward trend

The UK media and entertainment sector can expect robust long-term growth forecast over the next four years, with market expected to be valued at £97 billion by 2026, despite the economic problems the country faces, according to PwC’s latest report.

According to the UK Entertainment and Media Outlook (E&M) 2022-26: Trusting the digital path ahead, that while there is short-term uncertainty in the market, confidence and growth can be seen in the long-term direction of the E&M industry.

PwC says that while investor confidence softening slightly in the face of economic headwinds, high M&A deal volumes are also still expected after the 72% rise recorded in 2021.

Overall, PwC’s report forecasts the UK E&M industry to grow at a compound annual growth rate of 4% over the next four years with revenues reaching £97 billionn by 2026. The UK’s mature digital ecosystem and accessible high speed internet puts it in a good position to benefit from consumers’ shift towards digital and mobile, according to the company.

Internet advertising revenue is expected to grow at a CAGR of 6% over the next four years with the lion’s share of revenue coming from mobile.  Video advertising will account for a significant portion too, almost £9 billion by 2026 and by the end of the forecast period internet advertising will make up a third of the UK’s overall E&M revenue, according to the report.

Changing patterns of consumer behaviour means digital channels and platforms will cement their position as key drivers of growth for the E&M market across advertising, content, video and commerce, according to PwC.

However, subscription spending is set to drop. Over a fifth of UK consumers – 22% – plan to spend less over the next 12 months on digital TV and streaming subscriptions. Elsewhere, 20% consumers plan to spend less on their satellite TV subscription and mobile phone contract, with 34% planning to spend less on going to the cinema. Overall, 78% of consumers have already made some form of spending cutback in response to the cost-of-living crisis.

For businesses in the entertainment and media sector, rising inflation is set to impact both content providers and advertising businesses. The possibility of consumers switching down subscriptions, coupled with rising production costs, is expected to impact content businesses. If inflation leads to reduced consumer demand then this may have a knock-in impact on marketing effectiveness in the short-term. Depending on how brands react, this may soften advertising prices in some channels, says PwC.

Other challenges facing M&E firms include the need to build trust through ESG-led commitments; recruitment and retention of talent; and preparation for the post-cookie world.

While the deprecation of third-party cookies in the Chrome browser may have been deferred to 2024, regulatory scrutiny of digital advertising is still likely to increase, pointing the way towards a post-cookie world, says PwC. This will lead companies to focus on first-party data as the use of third-party data becomes more challenging.

“Despite the economic headwinds, the UK’s entertainment and media industry has yet to take cover. That’s because while there’s no denying the short-term uncertainty in the market, there is greater confidence in the long-term direction of the industry,” said Dan Bunyan, strategy partner.

“This is reflected in the record numbers of deals that took place last year. While investor confidence has slightly softened in the face of economic headwinds, we still expect high deal volumes in the years ahead. Platforms that can help brands discover and engage with customers in new environments will become increasingly valuable. Investors will remain keen to support companies that can help facilitate ‘buy and build’ strategies to bring together complementary specialist capabilities to serve brands and content owners in a more compelling way.”