Emerging markets show increasing promise for digital earnings potential

EY LLC, Kyiv, Ukraine, 
Tue, March 31, 2015

►  EY index ranks countries based onpotential earnings from digital media

►  China, India, Russia and Mexico arehighest-ranked emerging markets

►  Mature markets still lead indigital earnings potential

KYIV, 31 MARCH, 2015. While the United States has the highestdigital earnings potential of any country, emerging markets are rapidly growing,according to a recent study conducted by EY to show which countriesoffer media and entertainment companies the greatest opportunities for earningsfrom digital media. The study, Riding the new wave: Are you ready foraccelerated digital media adoption?, shows that while mature markets still lead the way, emergingmarkets, led by China, offer significant digital growth opportunities.

The attractiveness index reflectedin the study uses data from more than 36 sources to provide a structuredcost-benefit analysis that assesses both the benefits and costs inherit in ofeach country. Among the factors on the benefits side are Internet penetration,bandwidth speed, smartphone adoption, content consumption levels, e-commerceand digital ad sales, consumer population and spending. The cost-attractivenessfactors include digital piracy, political and regulatory risk and digital taxcosts.

·        The top five countries with the highest net digital earnings potential, combiningboth cost attractiveness and benefits, are the United States, Japan, Germany,the UK and China.

·        When looking strictly at benefits, the United States takes the numberone 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 foraccelerated digital media adoption. Many of these markets have a large numberof young, tech-savvy consumers with rising earnings potential. They are also“mobile first” with cheap smartphones and the rollout of 3G and 4Ginfrastructure rapidly coming together to democratize online access. The numberof broadband connections in emerging markets listed in the index will be 2billion by 2016, nearly twice that of the mature markets, and smartphoneshipments to emerging markets are expected to double between 2014 and 2018.”

The four emerging marketcountries that top the index for digital earnings potential are:

►  China: By 2016, it is expected that China willhave more than 500 million wireless broadband connections. The country boastsvoracious digital media consumption, however, regulations may limit growthopportunities for foreign companies. China has apopulation of 534 million people aged between 15 and 39 and growing Internetpenetration has created a surge in the adoption of digital content — in threeyears, China has added 3.5 times as many digital video viewers as the US.

►  India:  By2016, it is expected that India will have more than 300 million wirelessbroadband connections. By 2020, with an average age of 29,India will be the world’s youngest country. Among other countries in thereport, India ranks fourth for content consumption; it has the largest boxoffice attendance, 160 million pay TV households and publishes 94,000newspapers. Whiledigital content consumption is tempered by low smartphone and broadbandpenetration, a surge in broadband adoption is expected with the rollout of 4Gservices. However, the ubiquity of media consumption has not yet translatedinto significant industry revenue. Both advertising revenue and consumerspending levels are relatively low. By 2016, India’s internet advertisingmarket is forecast to be a little more than US$1b; the forecast for China is inexcess of US$23b.

►  Russia: Russia has a large urbanpopulation and strong consumer spending. With 87% broadband and 50% smartphonepenetration, Russia is a digitally active market. Media consumption is alsohigh, both across traditional and digital media. However Russia ranks lowest inpolitical stability and has the highest level of digital piracy in the study.While the country offers a favorable tax environment for foreign investment indigital media, it recently introduced significant restrictions on foreignownership of mass media, forcing many media and entertainment companies torethink their presence in the market. As a result of the new law, the country’smedia foreign direct investment (FDI) restrictiveness ranking dropped from 8thto 14th place.

►  Mexico: While it doesn’t deliver thescale of India or China, Mexico’s consumer spending levels and stable politicaland regulatory environment are enticing. It places third in cost attractivenessamong the emerging markets in the index. At nearly US$11,000, the country’s percapita consumer spending is the highest among the emerging markets in the study.Digital media consumption, however, has yet to accelerate. At 21%, Mexico hassurprisingly low smartphone penetration and lags behind its South Americancounterparts Argentina and Brazil, primarily due to high-priced plans and aless competitive market. Media and entertainment companies also face a greaterrisk of fraud, with the country having a higher perception of bribery andcorrupt practices.