June 20, 2008

BRIC countries to drive the future growth of the global media industry

This week PricewaterhouseCoopers came out with a comprehensive report on the five-year outlook of the global media industry. The growth in the booming BRIC nations (Brazi, Russia, India and China) will outpace the growth in mature U.S. and Western European markets by more than 2x. PwC forecasts that media sector in the BRIC countries will grow at an average annual rate of 13.5% from 2008 through 2012, compared to just 4.8% in the U.S. and 5.5% in Western Europe.

In terms of the total size, the worldwide media industry will reach $2.2 trillion by 2012. The size of the industry in BRIC countries will grow to about $250 billion, while it’ll be $760B in the U.S., $630B in Western Europe, and $165B in Japan.

Digital media will be the fastest growing segment within the media industry. Worldwide consumer spending on online and mobile is expected to reach $234 billion by 2012, growing at a huge rate of 21.8% annually. In the U.S., digital media spending will grow at an impressive 16.1% annual rate, reaching $75 billion by 2012. India and China will provide the best opportunities for Internet and mobile growth because people in these countries would use phones as a primary source of entertainment. Media companies will benefit from the proliferation of smartphones (iPhone, BlackBerry, etc.), which are essentially mini-computers. Already, a big portion of current traffic on most major digital properties (Facebook, Google, Yahoo, etc.) comes from emerging markets. As business models developed in mature U.S. and Western European markets get implemented in emerging markets, and new local models emerge, dollars in emerging markets will follow the eyeballs.

I believe traditional media firms stand a good chance of winning the digital media led future world too, but there will be pain during the transition phase. And they will need to do three things right:

1. First, as discussed before, traditional media firms need to accept the reality that their total revenue will decline during the transition phase, because online and mobile advertising will not fully compensate for declines in traditional advertising (broadcast, print, etc). Numbers over the past couple of years already reflect this harsh reality.

2. Second, they will need to continue their investment in the future, and experiment with new technologies and business models during the transition phase. This is not easy for most traditional media firms, as being public enterprises, they are under constant pressure from Wall Street to perform quarter after quarter, and have to keep their costs in check to protect margins as their revenue flattens/declines.

3. And third, their attitude towards technology, arguably the most important component of the digital future of the media industry, will need to change drastically. Building more bridges between Hollywood and Silicon Valley on an equal footing, and greater appreciation by each party for the value the other brings to the table will be paramount. Both come from very different cultures, but despite their traditional differences, they need each other more than ever before. Some early partnerships that I’ve seen between Hollywood and Silicon Valley bode well for the future, but the pace of change is still slow in my opinion.

Now a word about the BRIC nations in general. The term was coined in 2003 by Jim O'Neill, the global economist at Goldman Sachs, when he laid out his future world view. He believed that BRIC countries possessed the potential to become the world's four most dominant economies by 2050, and together could be larger than the combined economy of the U.S. and Western Europe. Considered until recently as the developing countries of the Third World, Brazil, Russia, India and China have quickly become the most dominant emerging economies of the next world. These are four markets with unique characteristics. They are tied together by their inherent economic potential resulting from positive changes in their political systems which unleashed the untapped demand from their huge domestic consumer market, constituting 43% of the world's population.

An interesting yardstick would be to check out the growing wealth in these countries. Last year, India and China showed the highest global growth rate in their population of millionaires. The number of millionaires in India rose by 22.7% to 123,000 people, the fastest growth in the world. Meanwhile, China grew at 20.7% in 2007 to end with 415,000 millionaires - it displaced France as the home of the fifth largest millionaire population in the world. Already, five of the world’s top ten cities, which can be classified as the centers of wealth generation for consumers climbing the economic ladder, are located in the burgeoning BRIC countries.

Finally, let’s evaluate BRIC from a leading marketer’s perspective, given that growth in demand for new products & services and resulting expenditure on advertising is a key indicator for an economy's growth. Sir Martin Sorrell, the CEO of the WPP Group, one of the largest media agencies in the world, identified the potential of BRIC markets even before the term BRIC was coined. WPP agencies are now at the top of the agency food chain in the BRIC countries. They command the lion's share of media buying in populous giants India and China. Today, continental Europe, U.K. and U.S. generate 82% of WPP's total global revenue, and rest of the world contributes the remaining 18%. The company believes that by 2015, 40% of its global revenue will come from Asia alone .

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