Why entertainment and media hold high GDP growth potential

The industry is growing at a fast pace due to innovation. [iStockphoto]

Over 12.4 million people watched the 65th Annual Grammy Awards ceremony held in Los Angeles on February 5, 2023.

However, as the finest of musicians were feted that night, The Grammy's experienced what was the third smallest TV audience of the ceremony in the history of the broadcast.

And yet 12.4 million is not a necessarily small number.

While it is dwarfed by the over 1.5 billion that watched the (FIFA) World Cup finals nearly two months ago or the billions that reportedly watched Cristiano Ronaldo's presentation at Saudi side Al Nasr last month, it still signifies the huge attraction to arts and entertainment in a world whose economists barely glance in that direction.

According to data firm Statista, the market size of the arts, entertainment and recreation industry in the United States (US) grew by roughly 11.5 per cent in 2021 over the previous year to $300 billion (Sh37.5 trillion). "Overall, this industry's market size was valued at around $299.98 billion (Sh37.08 trillion) in 2021. This figure was forecast to reach around $399 billion (Sh49.48 trillion) in 2022," it said.

Other sources put the figure considerably higher.

The projected figure of $399 billion (Sh49.8 trillion) is nearly four times Kenya's 2021 gross domestic product (GDP) which was estimated at $110.3 billion (Sh13.7 trillion).

The US announced that in 2018, the total core copyright industries added $2.2 trillion (Sh275 trillion) to the economy and employed over 11.6 million workers. "These industries grew on average 5.23 per cent a year, while the US economy as a whole averaged 2.21 per cent annually," it said.

Locally, art and entertainment seem to often take a back seat, with stakeholders only recently seeming keen to rally an industry that has been in the background for many years.

Boomplay, Spotify, YouTube and Shazam lists for Africa's top streamed - and Shazamed - music is top-heavy on Western Africa (countries such as Nigeria and Ghana), Tanzania, Congo and South Africa artistes.

Music service Mdundo's report for the first half of the financial year that ended December 31, 2022, shows that its revenue for this period was over Sh115 million, an increase of 161 per cent compared to the same period in the previous financial year.

The online music platform reached 23.4 million unique monthly users, representing a 15 per cent increase since June 2022.

"The increase in unique monthly has been majorly driven by the use of smartphones, internet penetration, premium products, and partnerships with telecommunication companies. 3.5 million monthly users were from Kenya, up from 2.7 million in December 2021," it said.

It expects the number of monthly active users to increase to approximately 25 million at the end of the financial year 2022-23.

Local music

Questions have in the past abounded on the consumption of entertainment and media in Kenya. How much local music do people listen to or play on radio stations? How many people watch local TV channels for news?

Do they read newspapers?

Are they neglecting an entertainment sector which, for many other countries, generates billions of dollars annually and employs hundreds of thousands, and in some cases millions?

In gross domestic product (GDP) by activity, the performance of the arts, entertainment and recreation sector lags behind many others that are viewed as tier-one industries.

Some, such as construction, real estate, transportation and storage, public administration and education have output tens of times more than arts, entertainment and recreation.

According to the Economic Survey report of 2022, the value of the entertainment and arts sector was Sh22.4 billion in 2017, Sh24.5 billion in 2018, Sh27. 1 billion in 2019, Sh19.9 billion in 2020 and Sh23.4 billion in 2021.

Its percentage contribution to nominal GDP has for the past five years oscillated between 0.2 and 0.3 per cent. And in the GDP by activity growth, the arts, entertainment and recreation sector recorded 16.5 per cent in 2017, 3.7 per cent in 2018, and eight per cent in 2019, before crashing to -28.3 per cent in 2020 amid the Covid-19 pandemic.

This, however, set the ground for new innovation and rethinking, recording a bounce of 13.7 per cent in 2021. The earnings, thus, increased by 31 per cent in 2021 compared to 2016, and 1.5 per cent compared to 2020 when, during the pandemic, the internet provided a new avenue for many in the industry.

The number of Kenyans employed in the industry in 2021 increased by 10.9 per cent from 2016 and 15.9 per cent from 2020. As internet penetration increases in the country, entertainment and media consumption behaviours are shifting radically, with revenues darting from one platform to the other. DataReportal's Digital 2022 report showed that Kenya's internet penetration rate was 42 per cent as of January 2022.

Local internet service providers have been working to connect the remotest parts of the country to fast, reliable internet, with more Kenyans affording internet-enabled devices.

As such, there has been a proliferation of previously relatively unknown activities such as gaming, which is now employing some in a youthful population grappling with high levels of unemployment.

According to the PWC Africa Entertainment and Media Outlook for 2022-2026, 22 per cent of Kenya's population plays these games.

It is a little higher in Nigeria at 23 per cent, and even higher in South Africa at 40 per cent. The gaming industry has been one of the factors driving entertainment and media development in Kenya, with sustained growth since 2017.

Revenue reached new heights in 2021 with a 12.6 per cent annual growth rate, according to PWC.

The report also notes that the internet, which has driven up the consumption of various media, has a compound annual growth rate of 24.4 per cent in the forecast period, and OTT video (over-the-top is a media service offered directly to viewers via the internet) a growth rate of 15.6 per cent.

The consumption of various forms of entertainment determines the production of the same.

Often, in a reversal of roles, the quality of content shown on various media platforms - alongside the consistency and other features that boost its attractiveness to audiences - determines its consumption.

Social gatherings

During the pandemic, stand-up comedians who were forced off the stage due to restrictions imposed on social gatherings took their craft to social media, in essence increasing the consumption of media through the internet. In this period, platforms such as TikTok gained wide usage and acceptance, and short video clips on other social media platforms increased.

Advertisers followed content creators there. Meetings were taken to online platforms and commerce also shifted to e-platforms that were quickly gaining traction.

PWC notes that such shifts have led to an increase in internet advertising at the expense of more traditional forms of advertising. "While traditional TV and home video will maintain its position as the second-largest segment in Kenya's entertainment and media market over the forecast period, rapid gains in internet advertising will mean that, by 2026, the former will be just $1.2 million larger than the latter, paving the way for internet advertising to overtake this segment in later years," it says.

OTT revenue is also set to rise rapidly over the next five years, with revenue growth to 2026 expected to outpace increases in TV subscription revenue across all three markets- South Africa, Nigeria and Kenya, the report indicated. "But this is from a small base, meaning that revenue itself will remain low. In Kenya, OTT revenue will total $8.9 million (Sh1.12 billion) in 2026, whereas TV subscription revenue will total $420 million (Sh52.5 billion)."

Post-pandemic, a focus on entertainment and media have revealed huge opportunities, previously hiding in plain sight.

Internet usage had revolutionised operations in nearly every sector, mostly in entertainment and media. Fixed broadband take-up in Nigeria and Kenya is low, with household penetration at 6.5 per cent and seven per cent in 2021 respectively, compared with a global average of 72.7 per cent.

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