Publication date:

13 May 2022
Author:
Rob Gallagher, Research VP, Media & Entertainment
Steven Bailey, Principal Analyst, Video Games
Simon Dyson, Senior Principal Analyst, Music and Digital Audio
David Hancock, Chief Analyst, Media and Entertainment
William Hare, Practice Leader
Irina Kornilova, Practice Leader, TV & Online Video
Marija Masalskis, Senior Principal Analyst, TV, Video and Advertising

Weighing the impact of the

cost-of-living crisis on media
and entertainment
Omdia view
Summary
With energy bills, food prices, and other living costs set to rise dramatically in many markets, this analyst
opinion takes a first pass at the likely impact on media and entertainment (M&E) services.

New dynamics in the competition for consumer spend

As digital media evolves and converges, a growing number of M&E firms have seen their services in a battle,
not just for the future of TV or games or music, but for consumers’ attention. But as utility bills and food
prices rise, will they need to warn shareholders about competition for another resource that’s set to get
scarcer: household budget?

The crisis will accelerate current trends, both positive and

negative
Omdia’s M&E and service provider analysts assessed the impact on the UK, likely to be one of the
economies hardest hit by the rise in cost of living, and the results are shown Figure 1.

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 Weighing the impact of the cost-of-living crisis 1
on media and entertainment

1. Figure 1: UK 2021 revenue and cost-of-living impact in 2022 for M&E segments

Source: Omdia
So-called transactional services offering one-off purchases of movies, TV shows, games, and music will come
under extra pressure, as consumers question their value for money, especially compared to subscription-
based and ad-supported alternatives.
Subscription services will cement their popularity, thanks to the all-you-can-eat value they offer. That said,
many consumers may look to reduce their overall spend, by switching to lower-tier packages or discounted
family plans, swapping services in and out to access specific content or cancelling contracts where they have
multiple subscriptions, such as online video.
Traditional advertising will be worst hit due to its reliance on big brands, which are likely to slash budgets as
overall consumer spending slows.
Digital advertising, meanwhile, will continue to flourish. Those same big brands will look to digital as a more
cost-effective means to reach consumers and drive sales than traditional ads. For the long tail of small and
medium-sized advertisers, digital advertising will become increasingly critical to their very being.
Ad-supported online services will also benefit as a source of “free” entertainment for consumers that want
to watch TV, play games, or listen to music, while reducing or avoiding spend on subscriptions or one-off
purchases.
The interplay of these dynamics means the overall impact of the cost-of-living crisis will be neutral or even
positive for individual M&E markets.

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 Weighing the impact of the cost-of-living crisis 2
on media and entertainment

TV and video’s evolution will ensure a net positive result

Transactional video services and pay TV are likely to take hits, as consumers look to reduce spend on what
many see as poor value for money. But the damage to pay TV will be softened by the power of subscriptions
and, in particular, bundles featuring utility-like home broadband and mobile services with long contract
terms.
However, pay-TV components may bear the brunt of consumers’ attempts to reduce overall spend, as
larger bouquets of channels and content are seen as less essential than connectivity.
While subscription video will benefit from shifts in spending away from transactional and pay-TV services,
the overall impact of the cost-of-living crisis is likely to be neutral. Households subscribed to multiple
services are likely to think harder about which are essential and which they can afford to swap in and out or
cancel altogether.
The impact on ad-supported online video is likely to be highly positive. Services performed well during the
COVID-19 pandemic, and we expect that to continue through this recession. There’s huge potential for TV
ad dollars to shift online, as consumers’ appetite for watching ad-supported video grows and big media
firms position their premium services as TV 2.0.
The impact on cinema will be slightly negative, as consumers cut spend on going out and are more selective
about the movies they choose to see. The industry is largely reliant on transactional revenue in the form of
ticket sales, driven by people’s desires to see a particular movie or have a social experience.
However, the impact will be limited by the fact that movie-going is predominantly popular with the middle
classes and accounts for a small amount of household spending, with the average number of visits per
person at 2.7 times per year. For these reasons, the cinema sector has traditionally proved recession
resistant, as seen in the 2008 financial crisis.

Universal jukeboxes will shore up music’s popularity

Buying digital tracks and albums has quickly become a niche sector of the music retail industry, so the cost-
of-living crisis will most likely accelerate what is already a sharp decline.
The impact on subscription services is likely to be minimal. Unlike online video, fewer people subscribe to
multiple music apps, as each of the major streaming platforms offers access to the vast majority of
commercially available tracks.
If anything, a squeeze on incomes may push subscribers toward family plans and other multi-user options.
These offer extremely good value for consumers, though at the expense of average revenue per user for
providers.
Audio advertising is unlikely to be negatively impacted. Should anyone cancel their subscription, they
wouldn’t abandon music altogether but switch to an ad-supported tier.

Games’ mastery of monetization will serve the market well

The games industry derives most of its revenue from transactional services, but even there we expect the
outcome to be positive. This is partly because the industry monetizes transactions in two ways: via full game
purchases and smaller items, such as downloadable content, in-app purchases, and microtransactions.

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 Weighing the impact of the cost-of-living crisis 3
on media and entertainment

Full game purchases will come under pressure as a result of inflation, especially since prices can be a very
contentious topic among traditional gaming audiences, where any increase (no matter how well justified)
can trigger major waves of pushback and negative PR.
But spend on smaller items will increase. These are sold largely through free-to-play games, which are likely
to grow in popularity as people look for cheaper ways to entertain themselves and to socialize while staying
at home instead of spending on nights out.
Games revenue will also be boosted by hybrid subscription services such as Xbox Game Pass Ultimate and
new tiers of PlayStation Plus. These will represent excellent value for money, especially while their providers
aggressively build out their catalogs to rapidly attract subscribers.

Ultimately, M&E will offer more than just value for money
New online subscription and ad-supported models have made TV, games, and music more affordable to
more people than ever before. But M&E also helps create social connections, whether watching
watercooler TV, sharing tastes in music, or playing games online. And during tough times, those can prove
much more valuable than money alone.

Appendix
Author
Rob Gallagher, Research VP, Media & Entertainment
rob.gallagher@omdia.com

© 2022 Omdia. All rights reserved. Unauthorized reproduction prohibited.

 Weighing the impact of the cost-of-living crisis 4
on media and entertainment

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