Ernst & Young digital media platform saturation index
Index is based on the household penetration rates of broadband and 3G mobile devices. Index of 1.00 means all households have both technologies.
Source: “Projections of Households by Type: 1995 to 2010,” US Bureau of the Census website, www.census.gov/population/projections/nation/hh-fam/table1n.txt, accessed 13 September 2010; “Broadband forecast: 2010–15,” Ovum, August 2010; “Mobile regional and country forecast pack: 2010–15,” Ovum, May 2010; “Mobile regional and country forecast pack: 2009–14,” Ovum, June 2009; “3G Subscription Penetration in Select Countries Worldwide, 2005 & 2006,” eMarketer, 12 December 2007, citing data from Office of Communications (Ofcom) – UK; S.G. Cowen, “Wireless Equipment,” 28 March 2006.
We expect interactive media companies to have the highest EBITDA dollar growth rate for the 2006-2010E period.
Summary: The interactive media and electronic game sectors will have strong EBITDA growth in the future. The outlook for conglomerates isn’t as optimistic, but they will benefit from the rebound in advertising dollars.
Interactive media
Companies in this sector have benefitted from the ongoing shift of consumers and advertisers away from traditional to new media platforms. As a result, EBITDA dollar growth has grown.
The sector is not immune to economic forces. Internet advertising fell by 3.4% in 2009¹, causing interactive media EBITDA dollar growth to slow from 19% in 2008 to 6% in 2009. However, this setback didn’t make a huge impact. Interactive media has among the highest growth rates of the M&E sectors.
Going forward, growth in revenue and EBITDA dollars will be driven by:
- Increasing personal computer affordability and use
- Greater broadband penetration
- More online content
The growth of other technologies, such as broadband and 3G mobile devices, will also help the interactive media market grow. Below is a closer look at those trends.
Ernst & Young digital media platform
saturation index
Electronic games
The electronic game market will grow rapidly over the next few years.
Changes to this market include:
- Casual games: Casual games, played on social networks, have grown rapidly in recent years. Casual game players build their own virtual communities and characters that they use to interact with friends. Traditional game companies are accelerating their efforts in casual games space.
- Microtransactions: Publishers use small purchases of virtual goods or services - or microtransactions - to earn revenue throughout a game’s lifecycle and to increase user loyalty.
- Mobile games: The rise of smartphones help to spread the popularity of mobile games.
However, the downturn hurt the electronic games industry because consumers view games as nonessential and have cut back on buying them.Even before the economic downturn, electronic games’ EBITDA dollar growth had weakened, falling by 7% in 2008, then by a further 16% in 2009.
But the future looks bright. Over the 2006-2010E period, the electronic games sector is expected to have the second-highest EBITDA dollar growth rate of all the M&E sectors.
Conglomerates
These companies were hit hard by the decline in advertising revenue. There was more bad news for the conglomerates that own movie studies because the DVD market is shrinking.
The good news is that advertising is increasing, especially in the broadcast and cable network arena. The industry has also initiated cost controls to help EBITDA margins. Additionally, conglomerates are expanding into global markets.
Although conglomerates’ EBITDA dollars fell by 12% in 2009, EBITDA dollar growth and margins will grow in 2010, according to analysts.
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1David Hallerman, "US ad spending, how big is the bounceback," eMarketer, June 2010.
