Study: Emerging markets ripe for digital earnings potential

Accelerated digital media adoption makes China and India the two most attractive developing regions for investment.
February 11, 2015

When it comes to digital media earning potential, China ranks the highest of the emerging markets, according to a recent EY study entitled “Riding the new wave: Are you ready for accelerated digital media adoption?”

EY’s new “digital media attractiveness index,” or DiMAx, ranks countries on their potential to generate earnings from digital media based on a cost-benefit analysis, with data from more than 36 sources. It factors in the size of each country’s millennial and Generation C market, smartphone adoption, internet and broadband penetration, bandwidth speed, content consumption levels, e-commerce, digital as sales levels, population, spending and the average citizen’s disposable income as the foundation for accelerated digital media adoption. Digital piracy, political and regulatory risk, and digital tax costs are also factored into the analysis as cost attractiveness.

The combination of China’s 534 million-strong 15- to 39-year-0ld demographic and its growing wireless and internet market put it in first place, the report notes. The country is expected to have more than 500 million wireless connections, as well as an internet advertising market valued north of US$23 billion by 2016, placing it ahead of India, Russia and Mexico as a prime target for digital media investment.

As well, EY notes that China, propelled by the rollout of 3G and 4G broadband connections, cheap smartphones and a population with disposable income, has added 3.5 times the number of digital video viewers compared to the U.S. in the past three years.

However, India, Russia and Mexico are also worthwhile targets: India is expected to have 300 million wireless connections by 2016; both India and Russia are forecast to experience a 200% growth in smartphone shipments, and while Mexico’s population is lagging when it comes to practicing digital media consumption, it offers attractive per-capita consumer spending levels and a stable political and regulatory environment to make it enticing.

“Emerging markets are primed for accelerated digital media adoption,” said EY global media and entertainment leader John Nendick in a statement. “Many of these markets have a large number of young, tech-savvy consumers with rising earnings potential. They are also ‘mobile first’ with cheap smartphones and the rollout of 3G and 4G infrastructure rapidly coming together to democratize online access.”

Moreover, by 2016, broadband connections in emerging markets are expected to increase to nearly double that of mature markets, reaching 2 billion, he said. Meanwhile, from 2014 to 2018, smartphone shipments are anticipated to increase two-fold in those former markets.

The study notes that it took Weibo, a Chinese micro-blogging website, 14 months to reach 50 million users, while it took Twitter three years to reach the same number globally.

The news isn’t all positive: regulation limits in China, weak monetization in India and political instability in Russia are all potential causes for concern, with the report warning potential media and entertainment company investors that “reacting to the pace at which opportunities in these markets present themselves requires agility.” While anticipating rewards, these companies must also “appreciate the risks,” the report suggests, and the “opportunity for M&E companies from this ‘new wave of digital’ growth is enormous, as is the cost of missing out.”

In developed markets, the U.S. is still top dog for the highest digital earnings potential of any country, followed by Japan, Germany and the U.K.

Screenshot via EY

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