– EY index ranks countries based on potential earnings from digital media
– China, India, Russia and Mexico are highest-ranked emerging markets
– Mature markets still lead in digital earnings potential
LOS ANGELES, Feb. 11, 2015 /PRNewswire/ — While the United States has the highest digital earnings potential of any country, emerging markets are rapidly growing, according to a recent study conducted by EY to show which countries offer media and entertainment companies the greatest opportunities for earnings from digital media. The study, Riding the new wave: Are you ready for accelerated digital media adoption?, shows that while mature markets still lead the way, emerging markets, led by China, offer significant digital growth opportunities.
The attractiveness index reflected in the study uses data from more than 36 sources to provide a structured cost-benefit analysis that assesses both the benefits and costs inherit in of each country. Among the factors on the benefits side are Internet penetration, bandwidth speed, smartphone adoption, content consumption levels, e-commerce and digital ad sales, consumer population and spending. The cost-attractiveness factors include digital piracy, political and regulatory risk and digital tax costs.
The top five countries with the highest net digital earnings potential, combining both cost attractiveness and benefits, are the United States, Japan, Germany, the UK and China.
When looking strictly at benefits, the United States takes the number one spot, followed by China, Japan, India and the UK.
When ranking just cost attractiveness, Germany places number one, followed by the United States, the UK, France and Australia.
John Nendick, Global Media & Entertainment Leader at EY, says:
"Emerging markets are primed for accelerated digital media adoption. Many of these markets have a large number of young, tech-savvy consumers with rising earnings potential. They are also "mobile first" with cheap smartphones and the rollout of 3G and 4G infrastructure rapidly coming together to democratize online access. The number of broadband connections in emerging markets listed in the index will be 2 billion by 2016, nearly twice that of the mature markets, and smartphone shipments to emerging markets are expected to double between 2014 and 2018."
The four emerging market countries that top the index for digital earnings potential are:
- China: By 2016, it is expected that China will have more than 500 million wireless broadband connections. The country boasts voracious digital media consumption, however, regulations may limit growth opportunities for foreign companies. China has a population of 534 million people aged between 15 and 39 and growing Internet penetration has created a surge in the adoption of digital content — in three years, China has added 3.5 times as many digital video viewers as the US.
- India: By 2016, it is expected that India will have more than 300 million wireless broadband connections. By 2020, with an average age of 29, India will be the world’s youngest country. Among other countries in the report, India ranks fourth for content consumption; it has the largest box office attendance, 160 million pay TV households and publishes 94,000 newspapers. While digital content consumption is tempered by low smartphone and broadband penetration, a surge in broadband adoption is expected with the rollout of 4G services. However, the ubiquity of media consumption has not yet translated into significant industry revenue. Both advertising revenue and consumer spending levels are relatively low. By 2016, India’s internet advertising market is forecast to be a little more than US$1b; the forecast for China is in excess of US$23b.
- Russia: Russia has a large urban population and strong consumer spending. With 87% broadband and 50% smartphone penetration, Russia is a digitally active market. Media consumption is also high, both across traditional and digital media. However Russia ranks lowest in political stability and has the highest level of digital piracy in the study. While the country offers a favorable tax environment for foreign investment in digital media, it recently introduced significant restrictions on foreign ownership of mass media, forcing many media and entertainment companies to rethink their presence in the market. As a result of the new law, the country’s media foreign direct investment (FDI) restrictiveness ranking dropped from 8th to 14th place.
- Mexico: While it doesn’t deliver the scale of India or China, Mexico’s consumer spending levels and stable political and regulatory environment are enticing. It places third in cost attractiveness among the emerging markets in the index. At nearly US$11,000, the country’s per capita consumer spending is the highest among the emerging markets in the study. Digital media consumption, however, has yet to accelerate. At 21%, Mexico has surprisingly low smartphone penetration and lags behind its South American counterparts Argentina and Brazil, primarily due to high-priced plans and a less competitive market. Media and entertainment companies also face a greater risk of fraud, with the country having a higher perception of bribery and corrupt practices.
Tom Connolly, Global Media & Entertainment Transaction Advisory Services Leader at EY, says:
"Opportunities for media and entertainment companies from this expanding wave of digital growth are enormous, as are the costs of missing out. New and meaningful investments in all markets will be critical to the long-term growth potential, independence and success of global media and entertainment companies."
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About EY’s Digital Media Attractiveness Index
EY’s Digital Media Attractiveness Index (DiMAx) is a proprietary tool designed to help media and entertainment companies with their international growth strategies by capturing key aspects of digital market maturity, as well as other media and economic factors. It sets out to answer four questions for M&E executives considering growth in international markets related to: market potential; risks and costs associated with entry; timing of entry; and capital allocation. www.ey.com/DiMAxInteractive
About EY’s Global Media & Entertainment Center
EY’s Global Media & Entertainment Center brings together a high-performance, worldwide team of media and entertainment professionals with deep technical experience in providing assurance, tax, transaction and advisory services to the industry’s leaders. Our network of professionals collaborate and share knowledge around the world, to provide exceptional client service and leverage our leading market share position to provide you with actionable information, quickly and reliably. www.ey.com/mediaentertainment