PwC: Weakening mainland tourist market unlikely to impact ad spend

Brands are the lifeblood of advertising spending and mainland Chinese tourists represent a source of income for brands operating in Hong Kong, says Marcel Fenez, PwC global leader in entertainment and media.But he says that if mainland Chinese tourists were to drop by 20%, as was proposed by C Y Leung, it is unlikely to impact ad spend in Hong Kong in the next six months to a year."The relationship between inbound customers and the ability of brands to connect with them is a factor, but it's not the only factor," Fenez said."It is dangerous to correlate these types of things in the short run. It must be significant to have an overall impact and this is not proven."Fenez said Hong Kong exhibits the characteristics of a mature market, where it is less about penetration of services into the market but rather a matter of improving yield from consumers.His findings come as PWC releases its Entertainment & Media Outlook 2014-18 outlook which shows consumer spending in entertainment and media is expected to grow by a compound annual growth rate (CAGR) of 2.6%.The wide-ranging report shows while Hong Kong follows the global trend of slowing TV advertising growth, online is not expected to overtake TV.Globally, in 2009, TV advertising revenue was double that of internet advertising revenue. In contrast, PwC forecasts that by 2018, TV ad revenue will exceed internet ad spend by just 10%, with just US$20 billion more in revenue.For Hong Kong, the difference between TV and internet ad revenue in 2018 is forecast to be US$713 million, where TV ad revenue will be more than double that of internet.TV ad revenue in Hong Kong is predicted to grow by 6.1% CAGR from 2013 to 2018. The fastest growing digital advertising sub segments will be mobile advertising and online video at 36% and 29% respectively in the same period."The overall market in Hong Kong is growing much slower because it is very much a mature market. It's an important market but it's also very small," said Fenez.Hong Kong's online advertising market is forecast to grow by 4.8% each year to 2018.Unlike China, where digital will take up 55% of the advertising market by 2018, in Hong Kong, digital will only make up about 18% of the ad market.In terms of market share by platform, in 2018, TV and newspapers are predicted to take up 27% and 17% of the ad market respectively."Digital is important in Hong Kong but it's not the only story. Hong Kong is a very small market in comparison so it is relatively easy to reach consumers and traditional industries are doing very well – this is not going to change," he added."TV, print and outdoor advertising are by no means going out of business."In terms of consumer spending, growth will be modest across all entertainment and media sub segments in Hong Kong.  But three of the fastest growing sub segments in media and entertainment are home video through TV subscriptions, paid music-streaming and box office sales, which will grow by 4.8%, 3.6% and 3.5% CAGR respectively from 2013 to 2018.Consumer spending on paid TV will grow at a much slower pace, at 0.7% CAGR in the same period.Fenez points out that the slower growth of TV advertising compared to digital advertising is not simply a case of TV overtaking digital.TV has been gaining market share from other types of media, while digital receives revenue from new advertisers, which include new companies who skip traditional media altogether and SMEs who previously could not afford traditional forms of advertising."Some new advertisers are targeting mobile users straight away, leapfrogging traditional advertising and going straight to digital. So you see new dollars going straight into digital," said Fenez."Another growth area in digital is from SME businesses around the world. A few years ago, SMEs were traditionally unable to afford, say, placing print ads on the front page or in the second-best spots in a newspaper. They will migrate to digital very quickly because it’s cheap."He recognizes that the growth from SMEs doesn't have the same scale as growth in revenue coming from the big brands but that it is important to recognize new advertising as a growth driver rather than simplistically concluding that old money is being shifted into digital from TV.China, currently the third largest entertainment and media market in the world, is predicted to take over Japan to take up second place. The US will continue to be the largest market."China will have a long way to go before it takes over the US. Even if China grows at double the rate of the US, it is still going to take a number of years before the US' number one position is threatened because of maturity of the overall US market, in terms of both advertising and consumer revenue. Traditionally, the US has very strong media industry."But it is precisely a less powerful legacy of the media industry in China that has made of it one of the most mobile consumer markets in the world."A whole generation in China is brought up on mobile and they don't have the legacy holding them back. We are looking at China providing enormous opportunities for mobile advertising, and marketing," he said.On the consumer front, although the US is migrating to digital,on a percentage basis, it will look less digital than China, Fenez said.By 2018, 55% of China's advertising spending is predicted to be digital.  Within that, almost 28% of the ad spend will be in mobile.The fastest growing entertainment and media sub segment in China is film or box office sales, forecast to grow by 13.5% CAGR from 2013 to 2018, partly due to the growing middle class.The question then is how to monetize content in the entertainment and media industry."The key word here is experience.  Let’s look at the music industry for example, people would pay a lot of money to go to a live event and yet they won't pay for the music.  If that’s the consumer phenomenon, how do you create that experience so that it enriches the content?  Ultimately what people will pay for is content plus," said Fenez."This is innovating around the experience or experiential innovation."In contrast, the focus of monetizing hard news content of traditional media is to increase the value of the media as a filter of news.Fenez said, "The issue is that there is too much news and too much information so what we want to pay for is a filtering mechanism.  A good news brand is a very effective filtering mechanism.  You can pick up news anywhere but do you trust it?  Do they prioritize the news you think is important?  In the media context, it's much more about paying for filtering and convenience rather than the experience."Another way of monetizing on digital content is to offer flexible business models that gives customers multiple payment options.For example, a mobile game app might allow people to pay to get to the next level or to buy ammunition, but also to give people the opportunity to pay to play the game for those who prefer not to have a transaction in the middle of the game.  Users can also pay through micro payment, stored value or a mobile wallet."This is the same experiential innovation that will lead you to new ways of extracting money from the consumer," said Fenez.He adds that this kind of innovation will encourage businesses to collaborate and share revenue because experiential innovation is a very niche type of talent compared to M&A."Adjacent businesses working together are very relevant for experiential innovation, as well as working for adjacent channels," he said. "Specific talent is needed because they don't fit into a traditional organization."