Global ad spend continues to grow despite stock market turmoil

ZenithOptimedia has made a small reduction to its global ad forecast for 2011 as fears of a double-dip recession sees advertisers limiting budget increases.

The company now expects total ad expenditure to reach $466 billion in 2011, up from $450 billion in 2010.

• Global ad expenditure forecast to grow 3.6% in 2011 after a modest slowdown in expenditure growth towards the end of the year

• Growth forecast for 2012 remains a reassuring 5.3%

• This picture is consistent with a history of ad market growth after many previous stock market shocks, assuming the world economy does not deteriorate dramatically

• Developing markets to increase their share of the global ad market from 31.0% in 2010 to 34.9% in 2013

• Internet the fastest-growing medium between 2010 and 2013 (14.6% a year)

• Television to contribute most new ad dollars (46% of total)

ZenithOptimedia has changed its forecast for global ad expenditure growth in 2011 to 3.6%, which is 0.5 percentage points less than the forecast it made in July.

The slowdown in economic recovery in the developed markets, coupled with rising fears of double-dip recession, have caused some advertisers to trim back budget increases planned for the end of 2011, but there has been no sign of the cancelled campaigns and sharp budget cuts that signalled the beginning of the last advertising downturn in 2008. Zenith now expects total ad expenditure to reach US$466 billion in 2011, up from US$450 billion in 2010.

ZenithOptimedia has made a similar reduction to its growth forecast for 2012: from 5.9% to 5.3%, still a reassuringly healthy rate. 2012 is a ‘quadrennial’ year and will benefit from the summer Olympics in the UK, the European Football Championship in Poland and Ukraine, and the Presidential elections in the US. The growth rate will also be boosted by Japan’s recovery from the earthquake in March, which severely disrupted media and advertising for several weeks this year. Zenith estimates that the quadrennial effect will add US$6.2 billion to the global ad market in 2012, and the Japanese recovery another US$0.8 billion.

The new forecast for 2013 is barely changed at 5.5%, down from 5.6% in July.

There is certainly a risk of further economic downturn ahead, but the current consensus is that the developed economies face a sustained period of below-potential growth instead of decline, while developing markets will continue to grow rapidly, if at a cooler pace than in 2010. Our forecasts assume that economic growth remains weak in Europe and the US, but neither goes into double-dip recession, and the Eurozone debt crisis does not get substantially worse.

Developing markets, in general, continue to expand far faster than developed markets, driven by their much faster economic growth. Zenith forecasts North America to grow by an average of 3.3% a year between 2010 and 2013 and Western Europe to grow by 2.8%. These regions have reversed positions since its previous forecast, when the company expected Western Europe to outperform North America with 3.4% growth to North America’s 3.1%. The continuing debt crisis in the peripheral Eurozone has damaged advertisers’ confidence in Western Europe’s long-term growth prospects. Zenith expects Japan to grow an average of just 1.1% a year, after a big drop in 2011 followed by the recovery of lost ground over the next two years.

By sharp contrast the company forecasts that Latin America will grow by 7.1% a year between 2010 and 2013, Asia Pacific excluding Japan to grow by 10.1%, and Central & Eastern Europe to grow by 10.4%. The exception is the Middle East and North Africa, where political turmoil has disrupted media production and distribution, and made advertisers wary of attracting negative attention.

The report forecasts a 14.2% decline in ad expenditure in 2011, followed by very modest recovery of 2.0% in 2012 and 2.3% in 2013, averaging 3.6% decline between 2010 and 2013. The global impact of this will be limited by the fact that the Middle East and North Africa accounts for just 1% of global spend. Overall, Zenith expects developing markets – everywhere outside North America, Western Europe and Japan – to increase their share of the global ad market from 31.0% in 2010 to 34.9% in 2013.

There are now two ‘developing’ markets in the world’s top ten ad markets, and there will be three in 2013. China is now the third-largest ad market in the world, and is catching up quickly with second-placed Japan. In 2005, China was 23% of the size of Japan, in 2010 it was 57% and by 2013 we predict it to be 82%. Brazil, at sixth place, is even closer to the UK: 81% of the size of the UK in 2010 and will be 89% in 2013. Russia, which was in 13th place in 2010, will be in tenth in 2013.

Top ten ad markets

The sheer size of the US – 3.3 times the next-largest market – means it will contribute the most new ad dollars to the global market over the next three years (US$14.3 billion), despite its slow growth.

However, the next five largest contributors are all developing markets: China (which contributes almost as much as the US, US$12.7 billion), Russia (US$4.7 billion), Brazil (US$2.9 billion), India (US$2.6 billion) and Indonesia (US$2.5 billion). Overall, Zenith predicts that developing markets will contribute 59% of new ad dollars over the next three years.

Global advertising expenditure by medium

Online:

As usual, the internet is growing much faster than any other medium, at an average of 14.6% a year between 2010 and 2013. Display is the fastest-growing segment, growing by 17.2% a year, driven mainly by online video and social media.

Streaming video ads are growing extremely quickly, thanks to the emergence of do-it-yourself tools that have allowed local advertisers to enter the market. In most developed markets, social media sites are near the top of the list of most-popular websites, and they are often way ahead of their rivals in time spent by users. Other display publishers are developing new tools and formats to compete with social media sites.

Paid search is growing by 14.6% a year, but its growth is being slightly restrained by the shift in search behaviour from desktop to mobile devices, where costs are currently lower. Online classified is growing relatively slowly, by 9.2% a year, while employment and property markets remain weak in the biggest countries. Overall, Zenith predicts internet advertising will increase its share of the ad market from 14.4% in 2010 to 18.9% in 2013, when it will overtake newspapers to become the world’s second-largest medium.

Television:

The main contributor to global ad growth, however, is television, which Zenith forecasts to account for 46% of new ad dollars between 2010 and 2013. Television’s share of the global ad market has risen steadily over time: it attracted 39.8% of spend in 2010, up from 37.0% in 2005, and the company forecasts that it will attract 40.5% in 2013.

The amount of time viewers spend watching television continues to increase, and even though viewers are presented with a wider choice of channels than ever, the biggest television events are attracting record audiences. This year’s Super Bowl, for example, was watched by 111 million Americans, making it the most watched broadcast in US history. It beat the previous year, itself a record breaker, by 4.2%.

Press:

Newspapers and magazines have been declining since 2007, with a brief pause for magazines in 2010, when ad expenditure remained essentially static. Zenith expects this decline to continue throughout its forecast period.

Magazines are suffering less than newspapers, because the experience of reading a magazine is less easy to replicate online, and because they do not rely so much on the timely delivery of information, where the internet has a big advantage over newspapers. Zenith predicts that magazine ad expenditure will shrink by 0.6% a year over its forecast period, while newspaper ad expenditure shrinks by 1.4%.

In 2013 newspapers will fall behind the internet into third place, with a 17.9% share of spend.