U.S. Leads Mature Markets for Digital Potential, China Leads Emerging Markets (Study)

Cable Mergers Illustration - H 2013
Illustration by: Pawe? Jo?ca

Cable Mergers Illustration - H 2013

India, Russia and Mexico also score well, though each remains a work in progress.

The U.S. and other mature markets — Japan, Germany and the U.K. — still lead the way when it comes to "digital earnings potential," though media conglomerates can find better growth in China, India and other countries where, in fact, many of them are already heavily invested, according to an EY study set for release Monday.

China boasts a population of 534 million people ages 15-39 who account for "voracious digital media consumption," according to the EY report, but government regulations limit the country's growth opportunities. "Of the markets in our index, China ranks as the most closed for foreign direct investment in media and entertainment," the report concludes.

By 2020, India will have a population with an average age of just 29, the report says about the benefits of that country, and it is far more open to foreign content and investment than is China. On the flip side, though, is a lack of advertising revenue and consumer spending. By 2016, for example, India's Internet ad market is expected to be just more than $1 billion annually, compared with $23 billion for China. Also, tax, fraud and corruption make it tough to do business in India. 

Of course, companies like Disney, Viacom, 21st Century Fox and DreamWorks Animation are already jockeying for bigger portions of the Indian and Chinese markets with their film and TV efforts, but smaller digital players are expanding to those countries, as well. In December, for example, The Huffington Post, in partnership with Times of India Group, launched an Indian edition of its website and said it is confident it will find a partner for a Chinese version, as well.

The EY study uses a cost-benefit analysis that includes criteria such as taxation, political stability, the prevalence of piracy, Internet penetration and bandwidth speed to determine how much potential there is for earning large amounts of money through digital media.

Scale and stability ensured that the U.S. and more mature markets remained at the top of EY's list. As for emerging markets, after China and India come Russia and Mexico, and EY lays out the risks and rewards for each of those nations.

On the plus side for Russia is that it has 87 percent broadband penetration, 50 percent smartphone penetration and strong consumer spending. Russia, though, ranks lowest in political stability and highest in digital piracy, according to EY, which writes: "Rising geopolitical tensions are not helping its economy, which is expected to contract 0.1 percent in 2014, thanks largely to U.S. and European Union sanctions over Ukraine."

Likewise, Mexico has strong per capita consumer spending and its citizens love traditional media — each person watches nearly six hours of TV per day. Digital media, though, "has yet to accelerate" in Mexico, EY cautions. Due to high-priced plans and a lack of competition, smartphone penetration lags behind other countries in Central and South America. Also, media and entertainment companies "face a greater risk of fraud, with the country having a higher perception of bribery and corrupt practices."

Email: Paul.Bond@THR.com