Canadian Entertainment and Media Market Maturing at a Steady Pace

25 June 2006

Following a period of rapid growth driven by the early adoption of new technology, the Canadian entertainment and media market (E&M) is entering a more mature phase. According to PricewaterhouseCoopers' (PwC) Global Entertainment and Media Outlook: 2006-2010, the overall Canadian industry is expected to expand at a steady 5.9% compound annual rate (CAGR) to $41 billion in 2010.

The seventh annual edition of PwC's Outlook contains in-depth analyses and forecasts of 14 major industry segments across five regions of the globe-the U.S., EMEA (Europe, Middle East, Africa), Asia Pacific, Latin America, and Canada. Globally, industry spending is expected to increase from $1.3 trillion in 2005 to $1.8 trillion in 2010, a 6.6% CAGR.

Spending in Asia Pacific is forecast to average 9.2% annual growth - the highest of all of the regions - increasing from $274 billion in 2005 to $425 billion in 2010. EMEA is anticipated to increase from $430 billion in 2005 to $580 billion in 2010, growing at 6.1 % CAGR while Latin America is expected to total $60 billion in 2010, up from $40 billion in 2005 and advancing at an 8.5% CAGR. The U.S. will remain the largest E&M market region, but it is expected to grow at the slowest rate, 5.6% CAGR through 2010.

In Canada, Internet advertising, at 18.8% CAGR, continues to be the segment with the fastest projected growth, followed by video games at 12.5% CAGR and radio/out-of-home advertising at 8.3% CAGR.

"For key sectors of the entertainment and media industry the shifting from physical to digital distribution of content continues - particularly in recorded music and increasingly in filmed entertainment," says Jerry Brown, Director responsible for PwC's Canadian Entertainment and Media Advisory Practice. "Additionally, the high broadband penetration rates in Canada are creating new growth opportunities."

Other key Canadian projections from the Outlook are summarized below.

Internet advertising and access: The Canadian Internet advertising and access market will reach a combined $3.1 billion in 2010 from $2.0 billion in 2005. Globally, Internet advertising and access spending is expected to grow from $144.5 billion in 2005 to $265.6 billion in 2010.

Canadian Internet access spending, which accounts for 83% of the total, will grow at a 6.4% CAGR from $1.7 billion in 2005 to $2.3 billion by 2010. Broadband access spending will rise at a 10.2% CAGR to $2.2 billion in 2010 from $1.3 billion in 2005. The Internet advertising market will expand by 18.8 percent compounded annually, from $347 million in 2005 to $821 million in 2010.

Brown adds: "As the market matures and more people come online with broadband, the possibilities for monetizing the Internet are now becoming real with rich content material being invited into consumers' homes."

Video games: The Canadian video game market will increase from $732 million in 2005 to $1.3 billion in 2010, growing at a CAGR of 12.5%. Globally, video game spending is expected to rise from $27.1 billion in 2005 to $46.5 billion in 2010, an 11.4% CAGR.

In Canada, console/handheld games will expand at a 7.8% from $362 million in 2005 to $526 million in 2010. The PC game market will decrease from $123 million in 2005 to $114 million in 2010, reflecting the switch to newer technologies. Online games will gain in importance as they grow from $173 million in 2005 to $396 million in 2010, reflecting an 18.0% CAGR. Wireless games will increase from $74 million in 2005 to $283 million in 2010, exhibiting a 30.8% CAGR - the largest growth rate of the market.

Radio/Out-of-home: PwC expects the radio/out-of-home market in Canada will advance at an 8.3 % CAGR, rising from $1.3 billion in 2005 to $2.0 billion in 2010. Globally, the radio/out-of-home advertising segment is expected to increase from $64.3 billion in 2005 to $86.8 billion in 2010, a 6.2 % CAGR.

In Canada, radio - which consists of advertising on terrestrial stations and a newly introduced satellite radio market - will expand to $1.6 billion in 2010 from $1.0 billion in 2005, an 8.8% CAGR. Terrestrial radio advertising, including digital, will average 4.7% CAGR to $1.3 billion in 2010. Satellite radio subscriptions will generate $277 million in 2010. Out-of-home advertising will expand at a 6.6% CAGR, rising from $264 million in 2005 to $363 million in 2010.

"Terrestrial radio is still about being local, local, local and is seeing continued success by following that formula. Satellite is growing and building its own distinct market," says Brown. "For out-of-home, new technologies are providing an added attraction for advertisers who are recognizing that the 'avoidance factor' can be less than with some other media."

Casino and other regulated gaming: PwC expects Canada's casino and online gaming market to grow by 8.3% CAGR from $3.4 billion in 2005 to $5.0 billion in 2010. Globally, spending in the casino gaming market will grow at an 8.8% CAGR from $82.2 billion in 2005 to $125.0 billion in 2010.

In Canada, casino gaming revenue will expand from $2.9 billion in 2005 to $4.2 billion in 2010, a 7.2% CAGR. Online gaming will reach $825 million in 2010 from $413 million in 2005, growing at a 14.8% CAGR.

"New and upgraded casinos in the western part of the country will boost gaming revenue, offsetting lower growth in the east," says Brown. "Poker is driving online gaming, helped by a large and expanding broadband universe."

TV Distribution: The Canadian TV distribution market will expand at a 6.4% CAGR to $4.5 billion in 2010. Globally the market will reach $230.3 billion in 2010 from $154.4 billion in 2005, at an 8.3% CAGR.

In Canada, basic subscription spending will grow at a 5.0% annual rate to $3.1 billion. Premium subscriptions will rise to $794 million from $627 million in 2005, a 4.8% CAGR. Pay-per-view will increase at a 7.9% rate to $296 million. Video on Demand (VOD) will be the fastest-growing category, with a 33.8% CAGR. VOD will total $356 million in 2010.

Triple-play options will help cable operators retain subscribers, while digital satellite will continue to expand, boosting the subscription television market even as penetration approaches saturation. The transition to digital will fuel basic and premium spending, as digital subscribers are more avid consumers of programming. Buoyed by the revitalization of cable, VOD is taking off and by 2009 will generate more revenue than pay-per-view will.

Recorded music: PwC projects recorded music spending to increase at a 6.2% CAGR from $835 million in 2005 to $1.1 billion in 2010. Globally, recorded music spending will rise at 5.2% CAGR to $48 billion in 2010 from $37 billion in 2005.

In Canada, physical album sales will fall from $665 million in 2005 to $557 million in 2010, a 3.5% CAGR decline. Music videos will grow at a 2.5% CAGR to $86 million in 2010 - while the physical singles market has essentially disappeared - and spending will drop to $1 million annually during the next five years. Physical distribution as a whole will fall to $644 million in 2010 from $743 million in 2005, a 2.8 percent% CAGR decline. Digital distribution will total $253 million in 2010 from $39 million in 2005, a 45.3% annual increase. Sales of mobile music will rise by 34.1% compounded annually to $230 million in 2010 from $53 million in 2005.

"Media consumption is being driven more and more by consumers' desire to have access to the news, music, TV and videos they want, when they want it, where they want it, and in a format that suits the situation they are in at that time," says Brown.

The Outlook also includes in-depth global analyses and five-year market forecasts for eight other industry segments, including: business information, filmed entertainment, magazine publishing, newspaper publishing, book publishing, television networks, theme parks and amusement parks, and sports.

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries work collaboratively using Connected Thinking to develop fresh perspectives and practical advice. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 4,300 partners and staff in offices across the country.

(Unless otherwise indicated, "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP, Canada, an Ontario limited liability partnership. PricewaterhouseCoopers LLP, Canada, is a member firm of PricewaterhouseCoopers International Limited.)

For further information: please contact Carolyn Forest, carolyn.forest@ca.pwc.com, (416) 814-5730 or visit http://www.pwc.com/outlook.

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Canadian Entertainment and Media Market Maturing at a Steady Pace

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