*connectedthinking how to stay in touch with tomorrow’s consumer. * Trends in the Netherlands 2007-2011 Entertainment&MediaOutlooktowards2011 Special pre-launch edition how to stay in touch with tomorrow’s consumer. * Entertainment & Media Outlook towards 2011 Trends in the Netherlands 2007–2011 Dutch Entertainment & Media Outlook towards 2011 Summary The entertainment and media industry in the Netherlands expanded by 4.4 percent in 2006, up from the 3.1 percent rise in 2005 and the fastest increase during the past five years. End-user spending, which comprised 76 percent of the total market in 2006, rose by 4.0 percent, up from the 3.4 percent rise in 2005. Advertising increased by 5.6 percent, its largest gain during the past five years and well above the 2.1 percent growth in 2005. The rebound in the economy in the Netherlands in 2006 contributed to the jump in advertising. Fueling the improvement was a reversal in filmed entertainment, which rose by 3.5 percent in 2006 after falling by 11.1 percent in 2005. Although recorded music declined by 6.1 percent, that drop was a 10.4 percentage point improvement compared with the 16.5 percent decrease in 2005. Double-digit increases in video games and sports also contributed to faster growth in 2006. Sports benefited from spending associated with the FIFA World Cup and Winter Olympics and video games were bolstered by the introduction of new console platforms. Video games and sports were the fastest-growing segments in 2006 with increases of 17.1 percent and 11.6 percent, respectively, and the only segments to generate double-digit growth. The Internet, which was the fastest-growing segment in 2005 at 15.6 percent, rose by 7.7 percent in 2006, falling to third place. Slower growth in broadband access spending and a faster decline in dial-up accounted for the drop to single-digit growth for the Internet, its first single-digit advance since 2000. Television was the next-fastest-growing segment with a 7.2 percent advance, fueled principally by double-digit growth in subscription spending that offset a decrease in the government contribution to public broadcasters. Out-of-home advertising at 5.0 percent was the only other segment to grow by five percent or more. Digital billboards and digital networks contributed to the increase in out-of-home growth in 2006. Recorded music, theme parks and newspaper publishing were the only segments to record declines in 2006. Physical sales of recorded music fell by 9.2 percent, offsetting a 200 percent increase in digital sales from a tiny base. Falling admissions at De Efteling and Walibi World accounted for the 0.4 percent decline in theme park revenues, while a drop in newspaper circulation spending offset a rebound in newspaper advertising leading to a 1.1 percent dip in the newspaper market. That drop, however, was substantially less than the 2.1 percent decrease in 2005. The entertainment and media (E&M) market as a whole in 2006 benefited from a noticeably stronger economy. We expect economic growth to remain relatively healthy during the next five years, which should support continued E&M expansion. We expect overall growth to average 4.6 percent compounded annually during the next five years, comparable to the increase in 2006. Spending in 2011 will total an estimated ` 14.8 billion, up from`11.9 billion in 2006. We do not expect any segment to average double-digit growth during the next five years. Video games, which rose at a 26.9 percent compound annual rate during the past five years, will drop to an 8.0 percent compound Entertainment and Media Spending by Component in the Netherlands (`Millions) Category 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2007-2011 CAGR* Advertising 2,753 2,622 2,672 2,727 2,880 3,016 3,170 3,307 3,456 3,583 % Change –2.8 –4.8 1.9 2.1 5.6 4.7 5.1 4.3 4.5 3.7 4.5 End-User Spending 7,644 7,921 8,349 8,634 8,977 9,403 9,873 10,318 10,820 11,241 % Change 6.1 3.6 5.4 3.4 4.0 4.7 5.0 4.5 4.9 3.9 4.6 Total 10,397 10,543 11,021 11,361 11,857 12,419 13,043 13,625 14,276 14,824 % Change 3.6 1.4 4.5 3.1 4.4 4.7 5.0 4.5 4.8 3.8 4.6 *CAGR = Compound Annual Growth Rate. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Dutch Entertainment & Media Outlook towards 2011 annual increase during the next five years, but it will remain the fastest-growing segment. New video game platforms and growth in online and wireless gaming will drive spending. We expect television to be the second- fastest-growing segment with a projected 6.8 percent compound annual increase. A surging video-on-demand and the effect of government contributions to public broadcasters will propel television, although growth will be less than the 7.9 percent compound annual increase during the past three years as subscription spending growth moderates. Continued double-digit growth in online advertising will support the Internet market at a 6.3 percent annual rate. Out-of-home advertising will build on the momentum generated in 2006 and buoyed by increasing penetration of digital technologies will expand at a 6.0 percent compound annual rate. Our 5.6 percent compound annual growth for recorded music represents a dramatic turnaround following five years of decline. We project recorded music to begin to increase in 2008 as the expanding digital music sector begins to become large enough to offset continued declines in physical music. We project sports to expand at a 5.4 percent compound annual rate, led by expanding television rights fees and continued growth in sponsorship gate revenues. Theme parks will grow at a 3.8 percent compound annual rate, as new rides, hotels, and new parks boost admissions. Steady box office growth and increasing sell-through spending will offset a drop in the home video rental market, leading to a projected 3.2 percent rate compound growth for filmed entertainment. We expect radio to expand at a 2.4 percent rate compounded annually, helped by a rise in government contributions to public broadcasters. Magazines will lead the publishing segments with a 2.8 percent compound annual increase, while book publishing and newspaper publishing will grow by 1.9 percent and 1.3 percent, respectively. We do not project any segment to decline during the next five years. During the past five years, three segments – recorded music, newspaper and magazine publishing – declined. Dutch Entertainment & Media Outlook towards 2011 Entertainment and Media Spending in the Netherlands (` Millions) Segment 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2007-2011 CAGR Filmed Entertainment 648 639 642 571 591 606 619 636 662 693 % Change 39.1 –1.4 0.5 –11.1 3.5 2.5 2.1 2.7 4.1 4.7 3.2 Television 2,300 2,366 2,585 2,771 2,971 3,161 3,384 3,612 3,873 4,123 % Change 5.0 2.9 9.3 7.2 7.2 6.4 7.1 6.7 7.2 6.5 6.8 Recorded Music 467 444 411 343 322 320 337 359 391 423 % Change –6.2 –4.9 –7.4 –16.5 –6.1 –0.6 5.3 6.5 8.9 8.2 5.6 Radio 435 458 459 460 462 473 485 497 509 521 % Change 2.8 5.3 0.2 0.2 0.4 2.4 2.5 2.5 2.4 2.4 2.4 Out-of-Home Advertising 143 136 138 141 148 156 165 175 186 198 % Change –0.7 –4.9 1.5 2.2 5.0 5.4 5.8 6.1 6.3 6.5 6.0 Internet 1,020 1,137 1,342 1,551 1,670 1,818 1,954 2,077 2,175 2,268 % Change 16.3 11.5 18.0 15.6 7.7 8.9 7.5 6.3 4.7 4.3 6.3 Magazine Publishing 1,635 1,541 1,509 1,511 1,560 1,621 1,679 1,722 1,758 1,793 % Change –1.9 –5.7 –2.1 0.1 3.2 3.9 3.6 2.6 2.1 2.0 2.8 Newspaper Publishing 1,615 1,647 1,631 1,610 1,593 1,601 1,626 1,651 1,677 1,703 % Change –6.5 2.0 –1.0 –1.3 –1.1 0.5 1.6 1.5 1.6 1.6 1.3 Book Publishing 1,145 1,149 1,154 1,165 1,174 1,198 1,213 1,242 1,269 1,293 % Change 0.0 0.3 0.4 1.0 0.8 2.0 1.3 2.4 2.2 1.9 1.9 Theme Parks 265 259 267 278 277 286 296 312 323 333 % Change 1.1 –2.3 3.1 4.1 –0.4 3.2 3.5 5.4 3.5 3.1 3.8 Sports 560 565 605 645 720 745 810 840 930 935 % Change 6.7 0.9 7.1 6.6 11.6 3.5 8.7 3.7 10.7 0.5 5.4 Video Games 164 202 278 315 369 434 475 502 523 541 % Change 46.4 23.2 37.6 13.3 17.1 17.6 9.4 5.7 4.2 3.4 8.0 Total 10,397 10,543 11,021 11,361 11,857 12,419 13,043 13,625 14,276 14,824 % Change 3.6 1.4 4.5 3.1 4.4 4.7 5.0 4.5 4.8 3.8 4.6 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Dutch Entertainment & Media Outlook towards 2011 The Economy In addition to the industry-specific factors, the economy plays an important role in the entertainment and media industry. The rebound in real GDP in 2004 contributed to the improvement in industry growth and the slowdown in economic growth in 2005 was a factor contributing to the slowdown in entertainment and media growth. In 2006, real GDP rose by 2.9 percent, by far its best performance during the past five years. While we do not expect a further meaningful acceleration in growth, we do expect increases to be sustained during the next three years and project 3.0 percent advances during 2007 and 2008 and a 2.8 percent rise in 2009. Thereafter, the economy will lose some momentum, a typical pattern in the fifth year of a recovery, and project growth to moderate somewhat. Real GDP growth for the 2007–2011 periods will average 2.8 percent on a compound annual basis, comparable to 2006 but a noticeable improvement compared with 2002–2005. In nominal terms the economy rose by 4.8 percent in 2006, also a significant pickup. We expect nominal GDP growth to continue to average 4.8 percent through 2011. The entertainment and media industry is cyclical. This means that during weak economic periods many markets in the E&M industry start to decline as companies look for ways to reduce costs and advertising is often one of the first expense items to be cut. During expansionary periods the opposite happens, as most markets in the E&M industry start to grow since companies start to focus on generating growth and advertising is one of main tools used to boost sales. Similarly for consumer spending, the economy affects disposable income, which in turn affects the resources available for entertainment and media. The Netherlands experienced this pattern during the past five years. During 2002–2003, when the economy was weakening, entertainment and media grew more slowly than nominal GDP growth. A rebound in the economy in 2004 contributed to a jump in E&M growth that year. Despite a modest increase in nominal GDP growth in 2005, real GDP slowed in 2005, leading to a slowdown in E&M growth. In 2006, both the economy and the E&M market rebounded at comparable rates. During the next five years, we expect entertainment and media growth to closely track nominal GDP growth. 0 8 2 3 1 4 5 6 7 Entertainment and Media and Nominal GDP Growth (%) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Nominal GPD Growth E&M Nominal Growth GDP Growth in the Netherlands (%) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2007-2011 CAGR Real GDP Growth 0.1 –0.1 1.7 1.1 2.9 3.0 3.0 2.8 2.6 2.4 2.8 Nominal GDP Growth 3.9 2.4 2.6 2.9 4.8 4.9 5.0 4.9 4.6 4.4 4.8 Sources: Statistics Netherlands, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Source: Statistics Netherlands, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Dutch Entertainment & Media Outlook towards 2011 Advertising Advertising recorded its strongest performance during the past five years with a 5.6 percent increase in 2006, nearly three times the average growth during 2004–2005 and a marked improvement compared with declines during 2002–2003. Each segment rose in 2006 with notable turnarounds in newspapers and magazines. Magazine advertising increased 6.3 percent, except for the Internet the fastest growing category in 2006. It also marked a 6.5 percentage point swing from the 0.2 percent decline in 2005. Newspaper advertising increased 0.6 percent compared with a 1.8 percent decline in 2005, repre - senting a 2.4 percentage point swing. Television, radio, and out-of-home advertising also grew faster in 2006 than in 2005 and Internet advertising continued to soar, rising by 41.2 percent. Because we do not expect the acceleration in economic growth that occurred in 2006 to be replicated during the next five years, we do not expect the 2006 increase in advertising growth to be matched. Nevertheless, with the economy expected to remain healthy during the next five years, we project advertising in the Netherlands to be relatively strong as well. The Internet, excluding key word and recruitment advertising, will pass out-of-home in 2007 and will continue to grow at double-digit annual rates, boosted by the large broadband universe that attracts advertisers. Growth, however, will moderate to 15.0 percent on a compound annual basis. Out-of-home will be the next-fastest growing segment at 6.0 percent compounded annually. New digital and interactive displays will make out-of-home a more appealing medium while making it an option for companies interested in time-sensitive ads. Advertising (` Millions) Segment 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2007-2011 CAGR Television 790 745 820 850 900 925 975 1,015 1,070 1,100 % Change 5.3 –5.7 10.1 3.7 5.9 2.8 5.4 4.1 5.4 2.8 4.1 Radio 240 260 265 270 280 290 300 310 320 330 % Change 4.3 8.3 1.9 1.9 3.7 3.6 3.4 3.3 3.2 3.1 3.3 Out-of-Home 143 136 138 141 148 156 165 175 186 198 % Change –0.7 –4.9 1.5 2.2 5.0 5.4 5.8 6.1 6.3 6.5 6.0 Internet 32 40 66 97 137 170 200 225 250 275 % Change 52.4 25.0 65.0 47.0 41.2 24.1 17.6 12.5 11.1 10.0 15.0 Magazines 770 696 666 665 707 755 795 830 860 890 % Change –4.2 –9.6 –4.3 –0.2 6.3 6.8 5.3 4.4 3.6 3.5 4.7 Newspapers 778 745 717 704 708 720 735 752 770 790 % Change –11.8 –4.2 –3.8 –1.8 0.6 1.7 2.1 2.3 2.4 2.6 2.2 Total 2,753 2,622 2,672 2,727 2,880 3,016 3,170 3,307 3,456 3,583 % Change –2.8 –4.8 1.9 2.1 5.6 4.7 5.1 4.3 4.5 3.7 4.5 Sources: Interactive Advertising Bureau Netherlands, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Dutch Entertainment & Media Outlook towards 2011 Magazine advertising will grow at a 4.7 percent compound annual rate, buoyed by new consumer launches and improved growth in the highly cyclical trade magazine category. In the television market, inflows associated with major sporting events such as the FIFA World Cup and Olympics boost revenues in even-numbered years. On quadrennial-to-quadrennial basis (comparing 2007–2010 with 2003–2006), growth will improve to 4.4 percent compared 2.2 percent during the previous quadrennial. Actual growth during the next five years will average 4.1 percent on a compound annual basis. Radio and newspapers will be the slowest-growing segments with compound annual increases of 3.3 percent and 2.2 percent, respectively. We project the overall advertising market to expand at a 4.5 percent compound annual rate, a substantial improvement compared with the past five years when spending grew at a percent rate. Advertising will rise to an estimated ` 3.6 billion in 2011 from ` 2.9 billion in 2006. End-User Spending End-user spending, consisting of spending by consumers and other end users on products and services produced by the entertainment and media industry, rose 4.0 percent in 2006, the first time during the past five years that advertising grew faster than end-user spending. End-user spending is less sensitive to economic fluctuations than advertising. Additionally, new technologies such as broadband and new video game platforms overrode economic considerations and fueled spending. End-user spending was less affected than advertising when the economy was weak but did not benefit as much as advertising from improved economic growth in 2006. During the next five years, end-user spending and advertising will grow at comparable rates. -10.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 Advertising and End-User Spending Growth (%) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 End User Advertising The end-user market in 2006 was led by video games at a 17.1 percent increase and sports, which rose by 11.6 percent. Television was next at 7.8 percent followed by the Internet access spending, which dropped to 5.4 percent form double-digit increases during the prior four years. With 80 percent of Internet households now on broadband, migration to broadband is slowing. A strong box office performance led to a rebound in filmed entertainment. Books and magazine rose by less than 1 percent and recorded music, radio, newspapers, and theme parks declined. Sources: Statistics Netherlands, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Dutch Entertainment & Media Outlook towards 2011 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates End-User Spending (` Millions) Segment 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2007-2011 CAGR Filmed Entertainment 648 639 642 571 591 606 619 636 662 693 % Change 39.1 –1.4 0.5 –11.1 3.5 2.5 2.1 2.7 4.1 4.7 3.2 Television 1,510 1,621 1,765 1,921 2,071 2,236 2,409 2,597 2,803 3,023 % Change 4.8 7.4 8.9 8.8 7.8 8.0 7.7 7.8 7.9 7.8 7.9 Recorded Music 467 444 411 343 322 320 337 359 391 423 % Change –6.2 –4.9 –7.4 –16.5 –6.1 –0.6 5.3 6.5 8.9 8.2 5.6 Radio 195 198 194 190 182 183 185 187 189 191 % Change 1.0 1.5 –2.0 –2.1 –4.2 0.5 1.1 1.1 1.1 1.1 1.0 Internet 988 1,097 1,276 1,454 1,533 1,648 1,754 1,852 1,925 1,993 % Change 15.4 11.0 16.3 13.9 5.4 7.5 6.4 5.6 3.9 3.5 5.4 Magazines 865 845 843 846 853 866 884 892 898 903 % Change 0.2 –2.3 –0.2 0.4 0.8 1.5 2.1 0.9 0.7 0.6 1.1 Newspapers 837 902 914 906 885 881 891 899 907 913 % Change –0.9 7.8 1.3 –0.9 –2.3 –0.5 1.1 0.9 0.9 0.7 0.6 Books 1,145 1,149 1,154 1,165 1,174 1,198 1,213 1,242 1,269 1,293 % Change 0.0 0.3 0.4 1.0 0.8 2.0 1.3 2.4 2.2 1.9 1.9 Theme Parks 265 259 267 278 277 286 296 312 323 333 % Change 1.1 –2.3 3.1 4.1 –0.4 3.2 3.5 5.4 3.5 3.1 3.8 Sports 560 565 605 645 720 745 810 840 930 935 % Change 6.7 0.9 7.1 6.6 11.6 3.5 8.7 3.7 10.7 0.5 5.4 Video Games 164 202 278 315 369 434 475 502 523 541 % Change 46.4 23.2 37.6 13.3 17.1 17.6 9.4 5.7 4.2 3.4 8.0 Total 7,644 7,921 8,349 8,634 8,977 9,403 9,873 10,318 10,820 11,241 % Change 6.1 3.6 5.4 3.4 4.0 4.7 5.0 4.5 4.9 3.9 4.6 Dutch Entertainment & Media Outlook towards 2011 Video games will continue to pace end-user spending with a projected 8.0 percent compound annual increase. Television will be the second fastest-growing segment at 7.9 percent compounded annually, with sports and the Internet next at 5.4 percent each. We expect recorded music to turn around and grow at a 5.6 percent compound annual rate, fueled by online and music digital distribution. We also look for a rebound in theme parks with a 3.8 percent increase compounded annually while filmed entertainment will rise at a 3.2 percent annual rate. Books, newspapers, magazines and radio will each grow at low rates. We project total end user spending to expand at a 4.6 percent compound annual rate, rising to ` 11.2 billion in 2011 from ` 9 billion in 2006. The Netherlands’ share of Western European Spending The Netherlands in 2006 accounted for 4.0 percent of total entertainment and media spending in Western Europe, which is comparable to its share of population and GDP. The share for theme parks was well above average at 8.0 percent as the Netherlands has one of the largest parks in Europe, De Efteling, which attracts visitors from other countries. Magazines at 5.1 percent had the next- largest share followed by video games at 4.9 percent and television at 4.5 percent. The Netherlands has a large magazine market and its high broadband penetration is reflected in the vibrant online video game market. The Netherlands also has a competitive television distribution market which leads to high subscription household penetration. The Netherlands’ share of Western European entertainment and media spending has declined in recent years, falling from 4.3 percent in 2002. We anticipate that the Netherlands’ share will remain at 4.0 percent in 2007 and then dip to 3.9 percent during 2008 –2011. We look for a substantial share declines for the Internet and video games as the rest of the region closes the gap with the Netherlands in broadband penetration. We also expect share declines for theme parks and a small drop in book publishing. The Netherlands is behind the rest of the region in digital music but growth in that component will lead to an increase in share during the next five years of six-tenths of a percent. We also expect modest share gains in filmed entertainment, out-of-home advertising, magazine publishing, and sports. The shares for television and newspaper publishing are expected to remain unchanged. [...]... Spending (%) Segment 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Filmed Entertainment 4.4 4.0 3.7 3.5 3.7 3.8 3.8 3.8 3.8 3.8 Television 4.4 4.3 4.4 4.5 4.5 4.5 4.5 4.5 4.5 4.5 Recorded Music 4.3 4.5 4.5 3.6 3.4 3.4 3.6 3.7 3.8 4.0 Radio 4.3 4.4 4.2 4.0 4.0 4.0 4.0 4.0 4.0 4.0 Out-of-Home Advertising 3.1 2.9 2.8 2.8 2.8 2.9 2.9 2.9 2.9 3.0 Internet 5.5 5.1 4.7 4.6 4.0 3.8 3.6 3.5 3.4 3.3 Magazine... 4.6 4.0 3.8 3.6 3.5 3.4 3.3 Magazine Publishing 5.7 5.4 5.2 5.1 5.1 5.2 5.2 5.2 5.2 5.2 Newspaper Publishing 3.7 3.8 3.7 3.6 3.5 3.5 3.5 3.5 3.5 3.5 Book Publishing 3.2 3.2 3.2 3.1 3.1 3.1 3.1 3.1 3.0 3.0 Theme Parks 9.0 8.6 8.4 8.4 8.0 7.9 7.9 7.9 7.7 7.6 Sports 3.2 3.2 3.2 3.1 3.0 3.1 3.1 3.1 3.0 3.2 Video Games 3.5 3.9 4.6 4.8 4.9 4.9 4.8 4.7 4.5 4.4 Total 4.3 4.2 4.2 4.1 4.0 4.0 4.0 4.0 3.9 3.9... Games 3.5 3.9 4.6 4.8 4.9 4.9 4.8 4.7 4.5 4.4 Total 4.3 4.2 4.2 4.1 4.0 4.0 4.0 4.0 3.9 3.9 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Dutch Entertainment & Media Outlook towards 2011 www.pwc.nl *connectedthinking Assurance • Tax • Advisory . *connectedthinking how to stay in touch with tomorrow’s consumer. * Trends in the Netherlands 2007-2011 Entertainment&MediaOutlooktowards2011 Special pre-launch edition how to stay in touch with tomorrow’s. following five years of decline. We project recorded music to begin to increase in 2008 as the expanding digital music sector begins to become large enough to offset continued declines in physical. GDP in 2004 contributed to the improvement in industry growth and the slowdown in economic growth in 2005 was a factor contributing to the slowdown in entertainment and media growth. In 2006,