While the U.S. still has the highest earning potential for both online media and entertainment companies, emerging markets like China, India, Russia, and Mexico are quickly catching up. A new report by Ernst & Young says growth will be fueled by rapidly increasing Internet penetration. There are expected to be two billion broadband connections by 2016 in the emerging markets covered by the report, twice that of mature markets Smartphone shipments to emerging markets will also double between 2014 and 2018.
China, the top emerging market for online media companies, is expected to have 500 million wireless broadband connections by 2016 (to put that number in context, it has a population of 1.36 billion).
The country’s regulations, however, make it an infamously difficult market for foreign companies to enter. Facebook and Google are just two U.S. tech giants that have been blocked or restricted.
For example, Google Play is unavailable in China, which means that over a hundred alternative app stores have sprung up for Android users. Even though developers in China can now make money from Google Play stores in 130 international markets, they are still blocked from selling apps in their own country. Google Play’s lack of availability in China also means overseas Android developers have a difficult time taking advantage of its highly-developed (and still rapidly growing) smartphone ecosystem unless they find a local distribution partner.
India also presents challenges for online media companies because of limited smartphone and broadband penetration. Telecoms are gradually beginning to launch 4G service, but Ernst & Young says India is still not expected to generate much online advertising revenue in the near-term, especially in comparison to other emerging markets. Its online advertising market is expected to reach just $1 billion next year, compared to China’s forecast for $23 billion.
On the other hand, India will not only have 300 million wireless broadband connections by 2016, but it will also become the country with the youngest average age (29) by 2020, which means there are plenty of long-term growth opportunities. Furthermore, the increasing availability of affordable smartphones from makers like Xiaomi and Micromax means that India is one of the fastest growing markets in the Asia Pacific region.
Russia, meanwhile, enjoys higher penetration rates for both broadband (87 percent) and smartphones (50 percent) but, like China, it presents several significant roadblocks for foreign companies. Ernst & Young says that out of the countries included in its report, Russia ranks the lowest in political stability and also has the highest level of digital piracy.
Furthermore, last fall Russia introduced a law limiting foreign ownership of media, which means that many companies will have to sell part or all of their stakes by 2017.
Another difficult market to enter for foreign companies is Mexico, because it has “a higher perception of bribery and corrupt practices,” says the report, which means media and entertainment companies have to deal with a higher risk for fraud.
Its smartphone penetration is also just 21 percent, much lower than other Latin American countries like Argentina and Brazil. On the other hand, Mexico’s per capita consumer spending is the highest among emerging markets covered by the study, at $11,000 per person.Featured Image: Shutterstock