According to PwC’s new Global Entertainment & Media (E&M) Outlook 2017-2021, UK's E&M sector to grow at a compound annual growth rate (CAGR) of 10% over the next five years, driven by growth in VR and advertising.
"The Outlook forecasts reflect the near-term uncertainty that the upcoming Brexit negotiations have on the wider UK economy and on both business and consumer confidence. The early years of the forecasts reflect this by way of slower consumer spending and pressure on advertising growth rates," Phil Stokes, UK head of Entertainment and Media at PwC said.
The creative industries, though, remain an important engine of growth for the UK economy within the government's industrial strategy, he continued. "The Outlook assumes that the later years of the forecast do not experience a significant negative impact for the UK economy or the entertainment and media industries in particular."
The UK’s virtual reality industry is expected to grow at a faster rate than any other E&M industry from 2016-2021.
PwC forecasts a CAGR of 76% to a value of £801m in 2021 making it the fastest growing and largest virtual reality industry in EMEA.
"We forecast the number of virtual reality headsets in use in the UK will pass 16 million by 2021," said Stokes. "Around 12 million of these headsets will be portable mobile VR devices that use a smartphone at their core as these are more affordable for consumers and benefit hugely from the fast evolution and replacement rate of smartphones."
Dedicated home VR headsets are expected to account for three million consumer headsets, while portable dedicated headsets (a new category of self-contained devices), are forecast to account for a million units in 2021.
Advertising will be the biggest contributor to entertainment and media growth, accounting for a third of total revenue by 2021. Internet advertising revenues will surpass £10bn for the first time this year and are forecast to grow at 8.9% (CAGR) over the forecast period, reaching £14.4bn in 2021 keeping the UK Europe's largest advertising market.
PwC's outlook forecasts 89 million smartphones in the UK by 2021. As a result, advertising spend will be increasingly directed to mobile. At that time mobile advertising will overtake wired advertising to account for more than half of total internet advertising revenue.
"Mobile internet advertising is growing faster than any wired sub-component of total internet advertising revenue. Advertising on mobile is an attractive proposition for brands due to high smartphone penetration and relatively good connectivity across the country," Stokes said.
A challenge to growth, he continued, is ad-blocking technology. "To counter this, publishers will need to improve their user experience of ads and work with third-party platforms to ensure they receive a fair share of the revenue their content attracts."
The UK is expected to consume 41 billion gigabytes of data by 2021, more than double the 17 billion gigabytes used in 2016, due to online video and streaming services such as Netflix and Amazon Prime.
Revenue from internet video is forecast for overall growth of 9% (CAGR). By 2018, the amount consumers spend on streaming services and on-demand video will overtake physical home video, DVD and Blu-Ray, is shrinking 15% year on year. By 2021, internet video revenue will also surpass box office revenues of £1.3bn by hitting £1.4bn.
"Demand for internet video shows no signs of slowing down. While the vast back catalogue of shows is often credited as the reason for subscribing to internet video services, companies have invested heavily in producing original content. Four of the top 10 programmes watched via subscription video on demand in 2015 were original productions showing that for consumers, fresh, high quality, content is king," Stokes observed.
The UK’s video games industry is set to remain Europe’s largest market and the fifth largest globally behind the US, China, Japan and South Korea.
Revenue is forecast o grow at 6% CAGR over the five-year period and by 2021 will be worth £5.2bn. UK consumer-spend on video games is set to overtake all spending on books, which will reach £5bn by 2021.
"With the creative industry being identified as a priority area in the Government’s industrial strategy, entertainment and media, particularly digital services, will continue to innovate further and drive prosperity and culture throughout the country," concluded Stokes.