Entertainment - Industry Segment Performance

INDUSTRY SEGMENT PERFORMANCE

08/02/00
Filmed Entertainment

Veronis Suhler expects spending to grow to $53.9 billion by 2004, a 5.8% CAGR.

Filmed entertainment includes box-office, home video and television programming. These categories dominate the segment with 67.3 percent of total revenues, and posted 5.1% growth in 1999 to $40.8 billion. The CAGR for the 1994-1999 period was 6.1%. Veronis Suhler expects spending to grow to $53.9 billion by 2004, a 5.8% CAGR.

All three categories registered increases in 1999, led by box-office expenditures, which rose 7.2% to a high of $7.4 billion. Home video expenditures rose 4.4% to $19.3 billion, while television programming spending gained 4.9% to $14.0 billion.

Recorded Music

Expenditures for recorded music grew 6.8% to $14.7 billion in 1999.

Although they remain a small portion of the industry overall, DVDs, introduced in 1998 as a potential replacement for music videocassettes, grew most aggressively in 1999, up 443.4%. CDs posted the second-highest growth rate at 12.3%.

Controversial digital technologies, such as MP3 and Napster, which allow consumers to bypass retail outlets and download music over the Internet for free, are shaking up the music industry. The introduction of these technologies sparked a major backlash from the traditional music industry in 1999, but Veronis Suhler believes, "the floodgates are now open for direct-to-consumer distribution of recorded music."

Interactive Entertainment

Interactive entertainment, which includes the console video game and computer game software markets, grew a vigorous 25.7% in 1999 to $5.2 billion.

Video-game software sales gained 24.4% to $3.8 billion, while computer and entertainment software grew 29.4% to $1.4 billion.

Though it remains dwarfed by filmed entertainment and recorded music, interactive entertainment's 1999 growth was the highest of the three segments. Gains were fueled largely by the introduction last year of Sega's Dreamcast system, which offered superior graphics and speed to earlier hardware models; the Internet, which has allowed for the preponderance of popular multiplayer games; and a healthy economy.
Source: Veronis Suhler Communications Industry Forecast

11/09/99
Filmed Entertainment

Box-office spending was driven by the success of blockbusters, especially Titanic.

In fact, there were 15 movies that generated more than $100 million each in ticket sales. The continuation of multiplexing, which offers a wider selection of movies to viewers, should keep spending on the rise.

Filmed entertainment, which includes box-office, home video, and television programming spending, grew by 8.5 percent in 1998, spurred by healthy increases in all three areas. Box-office spending was up 9.2 percent, while home video and television expenditures rose by 8.5 percent and 8.3 percent, respectively.

Spending will grow at a 7.1 percent compound annual rate over the upcoming five years, somewhat faster than the 6.7 percent annual increase posted over the last five years. We project that by 2003 total expenditures on filmed entertainment will be $55.6 billion, $16 billion higher than the $39.5 billion of 1998.

Recorded Music

Recorded music spending grew by 12.1 percent in 1998 as inventory correction ceased to be a significant issue in this market.

Retail sales were up, in large part as a consequence of a number of hit titles. Sales of CD albums drove growth, while spending on singles declined following the expansive growth in 1997. Music videos became more popular in 1998, and DVDs were introduced as the potential replacement for music videocassettes. We expect album sales to pace the market in the coming years, while the deployment of new digital music technologies should also have an effect upon the market.

Spending in the recorded music industry will grow at a 5.5 percent compound annual rate over the forecast period, a bit lower than the 6.4 percent annual increase of 1993-1998.

Interactive Entertainment

Growth was strong in the interactive entertainment sector in 1998, although not nearly as robust as in 1997.

The development of the Nintendo 64 and Sony PlayStation platforms has fueled the industry's recent success, while spending in the computer game area has also been on the rise. Growth in sales of games designed for the Nintendo 64 and Sony PlayStation platforms should continue to moderate until a new platform emerges. Sega's Dreamcast system, scheduled for release in late 1999, should drive spending over the forecast period, as should the continued popularity of computer entertainment software.

We expect that spending on interactive entertainment will increase to $7.2 billion in 2003 from $4.1 billion in 1998, climbing at an 11.8 percent annual rate. Over the last five years, interactive entertainment expenditures averaged 9.1 percent compound annual growth.
Source: Veronis Suhler Communications Industry Forecast

01/04/99
Filmed Entertainment

The filmed entertainment market was affected by countervailing trends in 1997.

While U.S. box office spending and theatrical rentals were strong, weakness in the economies of Asia and Latin America curtailed exports, and the home video market was flat.

The television programming industry also had mixed results in 1997. On the plus side, UPN and WB increased their program hours and demand for programming in 1997, cable networks upped their use of original programs, and returning hit shows on the networks commanded higher license fees. On the minus side, self-produced newsmagazine programs reduced the networks' reliance on programming provided by third parties.

Operating costs rose faster than revenues for the second straight year, reflecting higher production and marketing costs for theatrical features, rising television programming production costs, and increased spending on video manufacturing and duplication. The operating income margin slipped two-tenths of a point to 9.0% in 1997, while the operating cash flow margin fell a half point to 12.0%.

Recorded Music

While revenues increased 3.5% to $8.6 billion in 1997, higher operating costs led to a drop in margins and returns on assets.

Operating income fell 2.7 points to 9.6%, while operating cash flow margins fell 2.8 points to 15.3%.

High returns, declining club and mail order sales, weaknesses in foreign markets and low overseas exchange rates were partially offset by strong retail spending spurred by the emergence of new artists.

Interactive Entertainment

The success of 32- and 64-bit games platforms propelled revenues to rise 22.5% to $6.5 billion in 1997, reversing a three-year decline.

Acquisitions by The Learning Company, Activision, Electronic Arts, GT Interactive Software, 3DO, and Br�derbund Software also boosted revenue growth.

Rising technology costs continued to depress operating income margins, but the 1997 decline was modest compared with a sharp drop in 1996, and operating cash flow margins edged up in 1997.
Source: Veronis Suhler Stevenson Communications Industry Report


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