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Straight Talk Media & Entertainment

Ovum view

The decision by UK voters to leave the European Union could have a profound impact on the media industry in the UK and beyond, although in the immediate aftermath, the biggest threat comes from uncertainty.

Uncertainty will impact spend on media by consumers, advertisers, and investors alike

June has been a stormy month in the UK. A month's worth of rain fell in the days preceding the Glastonbury Festival last weekend, leaving hundreds of thousands of music fans stranded knee-deep in mud. The presence of some of the world's top-selling musical acts – Adele and Coldplay – reminded us how the UK continues to punch above its weight in terms of content creation. But now the music has stopped, the tricky onward journey – and clearing up the muddy mess – has begun. And not just for music fans.

In political terms, a lifetime's worth of rain fell in one day in the UK last week. The impact of Brexit has shocked the markets and blown apart the UK's two main political parties. The blogosphere is not short of comment on the implications of retrenchment from the European Union, but one thing is beyond dispute: the UK economy is now in an almost unprecedented period of uncertainty. And there is one thing we can say for certain: markets hate uncertainty.

So what does this mean for the media sector in the UK and beyond? In Ovum's view, in the short-to-medium term, we expect to see the following impacts.

Investment will be frozen – or at best slowed down. UK start-ups in the tech and media space reliant on funding will find it harder to raise money for the foreseeable future. UK-based innovators and creators will feel that competing with the ever-expanding US giants just got even harder.

Consumer spending on media will decline. Even without a full-blown recession (which still seems likely), consumers will be cautious about discretionary spending on media content and services. We've seen in previous economic dips that consumers will continue to spend on connectivity, but are likely to cut back on paid-for content, both traditional and digital, in the short term. If a short-term downturn turns into a full recession, as we saw in 2008/9, expect a devastating effect on the UK media sector, new and old, which would also ripple out to other markets in Europe and beyond.

Advertiser spending will also decline. As consumer spend shrinks, advertisers will be scrutinizing the return on their investments even more closely. This could see risk-averse advertisers cutting back on less established ad platforms. But equally, if users turn away from traditional media, the migration to digital platforms could be accelerated – if publishers can better serve their needs.

Partnership and collaboration will be more difficult, but even more important. In an era of programmatic trading, chatbots, and algorithms, it is worth noting that much of the media business is still very much based on networks of real human relationships. And in a period of uncertainty those will, counterintuitively, assume even greater importance.

Trading in Europe will become more complex. The market for media content in Europe is complex already, but proposals to create a single European market for digital content will surely be harder without the UK – whose content, whether TV, music, or games, is hugely popular across the region. If new trade agreements are required in order to keep selling UK content, that will usher in an unwelcome period of extensive negotiation and bureaucracy. And it is unclear who will be involved in those processes, how long they will take, or who will pay for them. Or whether the demand for UK content will remain as strong if the licensing process becomes more burdensome.

There will be notable casualties in the media sector. Most of those working in the media industry are instinctively "remainers" (opposed to Brexit), with the notable exceptions of those newspapers – The Daily Mail, The Sun, The Telegraph – and their columnists (including Boris Johnson and Michael Gove) who have been the main cheerleaders of the Leave campaign. It would be ironic if the impact of the Leave vote were to inadvertently blow a hole in those newspapers' main source of revenue.

Appendix

Further reading

"Brexit will have minimal impact on the UK's regulatory environment," TE0007-001040 (June 2016)

Author

Nick Thomas, Practice Leader, Digital Media

nick.thomas@ovum.com

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