12. What’s Next: A Global Snapshot

In the last 11 chapters, we have primarily focused on the United States, both in terms of entertainment consumption and creation. But entertainment is a global phenomenon, driven by changes in economies and technology. New opportunities for entertainment marketing are opening up around the globe.

An in-depth investigation into the state of entertainment marketing in each country of the world would fill the entire shelf of the local library. In this chapter, we take a 50,000-foot view of how these growing entertainment economies are shaping up: what the trends are and where we see continuing opportunities, paying attention to the influences of government control, the development of content, and the rapidly changing access to conduit.

U.S. entertainment can now be found in over 150 countries, translated into 16 major languages and hundreds of local dialects. The advent of new technologies and the appearance of a middle class in once-under-developed regions have created huge new audiences—and some backlash. After years of being fed large quantities of U.S. pop music, television, film, and other entertainment products, global entrepreneurs are beginning to develop their own content, using local talent. The success of these ventures has generated film schools and arts programs in nearly every entertainment-consuming country, paving the way for even more local growth in the coming years.

The entertainment economy is on the move.

¹ “PwC Global Entertainment and Media Outlook: 2012–2016, www.pwc.com/outlook

North America: 2012, $335.5 billion. Projected 2016, $339.4 billion.

EMEA (Europe, Middle East, Africa): 2012, $431.8 billion. Projected 2016, $509.5 billion.

Asia Pacific: 2012, $386.8 billion. Projected 2016, $494.3 billion.

Latin America: 2012, $66.9 billion. Projected 2016, $97.4 billion.

This adds up to a whopping $1.2 trillion in 2012, with a 2016 projection of $1.5 trillion. Keep in mind that these figures do not include anything but the basics: no licensing (except for television), product placement, or extended profits from merchandising and retail—all of the very important revenue sources that make up the entertainment economy as a whole. We estimate that total to be nearly $760 billion in 2012, taking us tantalizingly close to $2 trillion.

Now that’s a market.

2012 global entertainment content breaks down by platform as follows²:

² Ibid

Internet access: $351 billion

Cinema (Box Office Only): $87.8 billion

TV Subscription and Licensing: $229.1 billion

Music: $51.1 billion

Consumer Magazines: $75.3 billion

Video Games: $62.3 billion

Newspaper Publishing: $168.6 billion

Radio: $49.6 billion

Out-of-Home: $33.8 billion

Consumer and Educational Book Publishing: $112.2 billion

Note who the champ is in these revenue figures: Internet access. As we’ve discussed throughout the book, the Internet is a crucial development in emerging business models.

Had you studied the projections for entertainment revenue even as recently as five years ago and then compared them to the charts we present now, you would see a fairly hefty change to the negative. The gloomy economy of the post-crash years has certainly played a part in this, but so has the rise of digital media. Traditional platforms have suffered as they’ve struggled to find ways to charge for online content, while new forms of delivery slashed old profit margins. After all, selling 10,000 e-books at $3.99 is vastly different than selling 10,000 hardcovers at $22.95. Music was nearly brought to its knees by piracy and a generation that believes that sharing is not stealing. Millions of movies are downloaded illegally.

However, there now seems to be greater clarity. With digital the new normal, entertainment and media companies are beginning to right the ship, stabilizing and growing revenue. A good thing, because with the huge shift to mobile consumption, digital delivery is going to keep right on growing. PwC estimates total 2012 global Internet Access revenue at $351 billion, growing to $493.4 billion in the next four years.³

³ Ibid

The increase in digital spending could ramp up even faster, especially in the United States, where the federal government has recently proposed making a large portion of high-frequency spectrum available for unlicensed use, which could increase the download rates of Wi-Fi devices by up to one hundred times their current speed.⁴ This not only bodes well for mobile; it opens the door for technology that we haven’t even seen yet. In other words, look for another widely divergent set of revenue results five years from now.

⁴ “F.C.C. Moves to Ease Wireless Congestion,” New York Times, February 20, 2013.

For now, let’s start with a baseline. We begin with the United States and Canada.

Canadians feel strongly about establishing and maintaining a separate identity from the U.S., even though the Canadian economy is closely integrated with that of its neighbor to the south. The technology of Canadian media and entertainment is similar to that found in the U.S. The Canadian Broadcasting Corporation (CBC) is Canada’s national public broadcaster. It was created in 1936 through an Act of Parliament, brought on by about the growing American influence in radio. The CBC operates both English-language and French-language national television networks. Both languages are broadcast on two separate channels: one with regular programming and one with all-news programming. There are also two private national television networks: CTV and Global Television.

Currently, the CBC reaches its international markets via five avenues:

Radio Canada International

Sale of television programs

CBC websites

Newsworld International

The fifth avenue, TV5, is a globally distributed, French-language general interest network, created in 1985. TV5’s region-specific programming reaches 120 million homes via six satellites, reaching Europe; Quebec, Canada; Africa; Latin America and the Caribbean; the Orient; the United States; and Asia.

Canada’s largest piracy problem has been in the area of software. Finally on the decline, estimates of lost revenue were running as high as $450 million per year.

Moving to the south, let’s look at Latin America.

Televisa has interests in the following businesses:

Television production and broadcasting

Pay television programming

Direct-to-home satellite services

Cable television

International distribution of television programming

Feature film production and distribution

Publishing and publishing distribution

Music recording and distribution

Radio production and broadcasting

Professional sports and show business promotions

An Internet portal, EsMas.com. An equity interest in Univision Com, Inc., a U.S. Spanish-language television broadcaster that commands an 84% share of Spanish broadcasting within the United States

A 51% stake in a cable joint venture with Cablevision and a 60% stake in Innova, which operates the SKY direct-to-home satellite, known as Sky Latin America

Televisa is the heavyweight in Spanish-language television: It produces, broadcasts, and distributes Spanish language television programs to 85 countries throughout North and South America and Europe, with its main international outlets being the U.S., Spain, and other Latin American countries.

Copyright piracy remains a major problem in Mexico, with U.S. industry loss estimates remaining high. Pirated sound recordings and videocassettes are widely available throughout Mexico. The International Intellectual Property Alliance (IIPA) estimated that trade losses due to copyright piracy in Mexico totaled over $500 million in 2011. The Business Software Alliance, a trade association representing the packaged software industry, estimates that the Mexican piracy rate in 2010/11 was 60%, which resulted in losses of approximately $264 million. The International Federation of the Phonographic Industry, a music trade association, estimates the piracy rate for music in Mexico to be approximately 40% and growing particularly among the youth.⁵

⁵ www.ustr.gov/html/2001_mexico.pdf, Office of the United States Trade Representative, Foreign Trade Barriers: Mexico, p. 310.

Cinemex, the first Mexican screen ownership group to modernize the country’s theaters, began as a college business plan. Adolfo Fastlicht, Miguel Angel Dávila Guzmán, and Matthew Heyman, Harvard classmates, saw an opportunity in Mexico and followed up on it, finding venture capital to modernize seating, increase screen size, introduce digital-ready screens, enhance sound quality, and provide restaurants within the Cinemex theaters. In addition, they exploited the potential for screen advertising to local and global marketers and soon added $20 million a year in additional revenue. In 2002, Cinemex was sold to Onex Corporation and Oaktree Capital for $300 million. Two years after that, the new owners sold Cinemex to the Carlyle Group, Bain Capital, and Spectrum.

Of special note in Latin America is Brazil, one of the economic powerhouses in what is now known globally as the BRIC nations: Brazil, Russia, India, and China.

Globo Cabo, a holding company based in Sao Paulo, is the largest operator of cable television in Brazil, serving 3.5 million subscribers with over 8.5 million homes passed in 67 cities of Brazil.

Globo Cabo acquired VICOM, a privately held company with over 3,000 ground-based satellite transponders in Brazil, early in this past decade. The company explored ways to exploit synergies between its extensive urban cable network and VICOM’s vast satellite network. The company also collaborated with Microsoft to develop a broadband Internet platform in Brazil. Microsoft bought a 9.6% stake in the company and together they launched Virtua, a high-speed residential broadband service. Virtua is available exclusively to its cable TV subscribers. The company is also investigating broadband offerings to facilitate the convergence of interactive and digital TV.

Globo also has an edge in the area of content. The parent holding company has interests in newspapers, magazines, and TV; this provides a cornucopia of content to be leveraged across the board. Additionally, the Globo network, through Globo TV International, is beamed from Brazil to a myriad of countries. Household penetration is split into two groups of nations: the United States, Australia, and most South and Central American countries are home to numerous Brazilian expatriates; the second group of nations, such as Portugal, Angola, and Mozambique, share Portuguese as its its common language and is equally receptive to the programming.

Video piracy continues to be the main source of piracy in Latin America. Brazil, the largest market in the region, also has one of the highest piracy rates, with piracy losses topping $250 million in 2011. It is the position of the MPA that the Brazilian Government has, to date, demonstrated inadequate commitment and attention toward protection of Intellectual Property rights.⁶

⁶ www.mpaa.org/anti-piracy/, The Motion Picture Association of America.

In many countries in the region, piracy is linked to organized crime, thus complicating both investigation and enforcement. Signal theft is also common in the region, while Internet piracy has not yet posed a real threat due to lack of bandwidth in the region.

Despite all this, the entertainment and media sectors are doing very well. With a population of 37 million, the entertainment industry in 2011 exceeded $37 billion with over 50% spent on cable and network television. Magazines and newspapers represent another 40%, and the remaining 10% is in radio and the Internet. There is a healthy business in book sales both online and in very large and attractive stores throughout the major cities, primarily directed at women. Theater and events thrive because there is a Broadway style street called Corrientes, where talented and well-connected producers stage a mix of locally developed shows as well as touring shows from the U.S., London, and Canada. In this sector there is effective collaboration between the theatrical producers in Argentina and Brazil. Triple play from the cable and the telephony companies offer broadband, Internet, speedy connections, with access to chat rooms, shopping, and online games. Four out of 10 Argentines rent movies from existing stores, and over 40% visit movie theaters over a three-month period.

The largest media conglomerate is Clarin, with ownership in network TV (Telefe), cable, (Klaxon), newspapers, (Clarin), popular women’s magazines, growing online book publishing, and movie production. This has become another political issue as the president, Christine Kerchner, who was also the wife of the deceased former president has begun to chafe under the constant criticism by the Clarin organization on her political party and the running of the country. As a reaction, she has passed legislation restricting the growth of media conglomerates and is actively pursuing passing legislation that will force Clarin to sell off their cable holdings and restrict their potential growth and political leverage.

Moving across the Atlantic, let’s examine the area known as EMEA: Europe, the Middle East, and Africa.

Western Europe has contributed greatly to the growth of the entertainment economy, acting as the earliest importing countries of American entertainment content. Western Europe now regularly exports its own talent, throughout the European Union and beyond.

Bertelsmann is a leader in Europe in the publication of major consumer and business magazines; has major holdings in the television industry with RTL; and has become the pre-eminent direct marketing company with direct-to-the-consumer book clubs, record clubs, and direct sales of DVD products. Although it made some forays to launch a U.S. version of its very successful magazine division Gunnar & Jahr, it failed and closed the operation.

The most notable contribution to Germany’s film making industry is the renaissance of Studio Babelsberg, once the home of the revolutionary German cinema, a prime mover in the early motion-picture industry. Studio Babelsberg came under the control of the Nazis during the war years. Hundreds of propaganda films were churned out, including Leni Riefenstahl’s The Power of the Will. It is now the home of all major German, and some international, film productions. Located a short distance outside of Berlin, in Potsdam, it is close to the World War II museum.

Piracy control in Germany has been through better enforcement of existing German legislation. It has led to a decline in piracy in all areas except the Internet.

Recently the major television system has also licensed children’s programming from RGB, an experienced production company in Argentina and RTL, the private network in Germany.

According to the Israel Broadcasting Authority Law, the Authority’s responsibilities rest in three main areas:

To broadcast television (and radio) as a public service

To broadcast educational and entertainment programs, as well as information in the areas of social, economic, monetary, cultural, scientific, and arts policy

To ensure that the broadcast gives suitable expression to various opinions and transmits reliable information

Today, Channel One is divided into two divisions. The first, the News Division, directs news, sports, special local and overseas broadcasts, and current affairs magazines. The second, the Program Division, is made up of five departments. They include the documentary department, entertainment department, drama department, children’s and youth department, and Israel heritage department.

Channel Two was created in 1993. Unlike Channel One, Channel Two is funded by the sale of on-air advertising. Channel Two is not entirely separate from the government, however. Educational TV, a branch of the Ministry of Education, has been incorporated into Channel Two and is supported by government funds.

Israel’s Arab population is not neglected. Channel Three, which is also government-owned, is a satellite/cable-only channel that broadcasts news and entertainment in Arabic or with Arabic subtitles. The content includes cultural and sports programs, news features, and “open studio” live broadcasts. Channel Three can be picked up in all Middle Eastern countries, North Africa, the Persian Gulf, and some southern European nations.

On the cable front, Israel has three major operators: Golden Channels, Matav, and Tevel. In the areas of music and film, though Israel has some domestic production, most content is imported from the United States.

Both advertisers and most consumers still prefer imported content from satellite. They are now buying a great deal of children’s programming from Argentina and Brazil and always fill the channels with American top films and television series.

Over the past decade the government has supported the Israeli Film Festival in the U.S., now presented on both coasts. This has enhanced the prestige of Israeli film makers and contributed to greater quality of content, increasing viewership of Israeli film in the home country as well as in the U.S. and abroad.

Israel’s lack of transnational development in entertainment may offer a monstrous opportunity for the Israeli entertainment industry. However, the opportunity for marketers remains to be seen, both from a cultural and a political perspective. Middle East unrest continues to depress the opportunities available in the entertainment marketing sector. Additionally, the Middle East has not been known for strict sentencing for copyright violations.

In 2012, The UAE was ranked 114^th out of 195 countries in the world press freedom index, falling in the group of countries that are “Not Free.” Topics such as homosexuality, drugs, prostitution, abortion, and religion are taboo in Media in the UAE. Even discussion of lifestyles, such as dating, is sensitive in a country that outlaws kissing in public. Economic news can be deemed sensitive, such as when Dubai World announced it was $40 billion in debt. Violations of media laws can lead to jail or swift deportation.

Few media outlets offer pan-Arab marketers true regional coverage. Satellite TV is currently the only advertising medium that reaches the whole MENA region.

The digital platform is creating a unique opportunity for local media players to expand regionally both in terms of audience and relevance to advertisers. The biggest recent news regarding Arab media was the purchase of Al Gore’s Content cable television channel by the government of Qatar for $500 million to expand the footprint of Al Jazeera in the U.S.

India and China have led the conversation over the last decade, but we start our discussion with Japan, a big story since the end of World War II, but now a mature market.

On the cable front, Japan’s notoriously rigid isolationist practices have worked against the full development of cable TV. Between the fact that the government has limited the number of channels, and the practice of limiting foreign ownership of stations to 33% (just recently increased from 20%), there are hurdles facing MSOs in this market. Additionally, Japanese consumers are still in a mindset similar to that of American consumers in the early days of cable; they believe there is enough programming available for free and that cable is too expensive.

From a piracy perspective, the Japanese market suffered from an influx of pirated films emanating from Vietnam. Vietnam’s government-owned film distributor routinely distributed illegal copies of foreign films; however, action by the MPA and the Japanese government has slowed this problem.

Indian cinema has produced over 27,000 feature films and thousands of documentary short films, produced in 52 different languages; today, India makes more than 800 feature films every year, making it the largest film-producing country in the world. These films are distributed worldwide to an audience that eagerly awaits each new release featuring a raft of popular stars.

On the TV scene, the big player in today’s India is ZEE TV. The channel turned India’s mostly staid TV industry on its head with its forward-looking philosophy. ZEE TV provides viewers with innovative programs: talk shows, game shows, discussion, situation comedies, and dramas—broadcast in Hindi, created by Indians for Indians. ZEE TV also continues to serve the needs of India’s myriad linguistic groups (there are 15 major languages spoken in India) by producing a variety of shows in different languages.

STAR TV, which pioneered satellite television in Asia, became ZEE’s partner in India on December 1993, when STAR purchased 50% of Asia Today LTD, the Hong Kong-based broadcaster of ZEE TV. ZEE TV is now watched daily by an average of 180 million viewers across the world, and meets the prime time requirements of both the Eastern and Pacific time zones. Aimed at serving the needs of South Asians living abroad, the channel airs 24 hours a day.

On the cable TV scene, a government effort to clean up private broadcasters has resulted in the banning of tobacco and alcohol advertisements, “adult shows,” and advertisements containing references that might offend religious sentiments. The government-controlled channel Doordarshan does not broadcast such advertisements.

According to a report prepared by PricewaterhouseCoopers for the Confederation of Indian Industry, the Indian entertainment and media industry is expected to exceed revenues of 805 billion INR (17.2 billion USD) in 2013. Robust growth is expected as a result of steady macro-economic growth, rising spending power, and positive demographic indicators. Industry revenues are expected to reach 1,764 billion INR (37.6 billion USD) by 2016. The same report states that India is only the 14th largest E&M market in the world with industry revenues contributing about 1% of its GDP.⁷

⁷ http://cii.in/WebCMS/Upload/em%20version%202_low%20res.PDF, India Entertainment and Media Outlook 2012, PwC, 2012

Early in the prior decade, the Chinese government announced it would permit foreign companies to collaborate with domestic companies to make movies and manufacture moviemaking and recording equipment. In 2011, the total box office in China reached over US$2.67 billion, with at least two-thirds of the revenue coming from foreign imports, including U.S. films. However, the protection afforded local content production for the last decade resulted in domestic productions making up 60% of the total movies shown in China—lots of viewings but not as much revenue.

This government interaction had an impact upon both the production of movies and the content. Violence and sex have long been targets of censorship in Chinese-made movies. Although that is slowly changing as foreign sensibilities become involved in the process, the government remains active in policing how China is represented in film. Movie makers are now allowing Chinese censors to view their work early in the process or risk being blackballed. Paramount recently submitted a 3D version of Top Gun for review. The film fell into a black hole. When Paramount learned that it was being rejected, it realized that showing MIG fighter planes as the enemy aircraft was a very large no-no.⁸

⁸ “To Get Movies into China, Hollywood Gives Censors a Preview,” New York Times, January 14, 2013.

However, piracy has been a problem in China—and continues to be. At times, the figure released by the government has suggested that the piracy rate was running as high as 90%. There were large-scale imports of pirated products from surrounding areas, and the number of production lines in-country had also increased. However, the government has been obliged to take more determined enforcement actions against pirates after the official WTO accession of China.

The Chinese cable industry is big—100 million cable-TV users—but supposedly totally homegrown. Because many foreigners have struck deals with China’s local cable operators, who have merrily ignored the central government’s ban on same, it appears that a crackdown may be on its way. In any case, foreign entertainment marketers have yet to see what the outcome will be and who will be able to take advantage of any opportunities that present themselves.