Global ad growth continues as Latin America & Asia Pacific compensate for weakening Europe

ZenithOptimedia predicts global ad expenditure will grow 4.8% in 2012, reaching US$489 billion by the end of the year. This is a slight upgrade of the 4.7% growth it forecast back in December.

The group now expects ad expenditure to grow 5.3% in 2013 (up from 5.2%) and 6.1% in 2014 (previously 5.8%). The key points from the latest report include:

• Global ad expenditure forecast to grow 4.8% in 2012, slightly up from the 4.7% forecast Zenith made in December
• Large advertisers are investing for growth by spending more on brand building and winning market share
• Ten developing markets to deliver half of global adspend growth between 2011 and 2014
• Developing markets to increase their share of the global ad market from 33.2% to 37.1% over the next three years
• Quadrennial events and Japanese recovery to add US$7 billion (1.6 percentage points) to global growth this year
• Internet’s share of expenditure to rise from 16.4% in 2011 to 22.1% in 2014, exceeding 30% in six markets

Zenith’s upgrade is a result of two factors: signs that large companies are investing more in marketing to drive growth, and a reduced risk of disastrous collapse in the eurozone, even though its short-term economic performance has deteriorated.

As Zenith argued in their previous forecast, companies have generally built up their cash reserves since the onset of the downturn in 2008 and are in a strong position to invest in marketing to compete for market share and stimulate consumption. Now some companies have started to do exactly that. Unilever, Reckitt Benckiser, Coca-Cola and PepsiCo, for example, have all made recent public announcements that they plan to spend more on advertising to build their brands and launch new products. Coca-Cola, which is ranked by Ad Age magazine as the seventh-largest advertiser in the world, intends to reduce business costs by between US$550 million and US$650 million by 2015 and reinvest the savings in marketing. We expect many other large advertisers to follow suit.

The risk of catastrophe in the eurozone appears to have receded since we last published our forecasts, although it remains very real. The long-term problem is government debt, and the associated risks of a liquidity crisis, sovereign defaults and breakdown of the eurozone. The European Central Bank’s intervention by issuing more than €1 trillion in short-term debt has boosted bank liquidity and reduced the cost of borrowing for troubled governments on the eurozone periphery. The Economist Intelligence Unit has reduced its assessment of the risk of a collapse of the eurozone from 40% to 30%. In the short term, however, Europe’s real economic performance has deteriorated, and the eurozone is now almost certainly in recession.

The combined effect of the intervention and the downturn in output has been modestly higher confidence in the world’s long-term economic prospects, but lower confidence in Europe in the short term. This is clearly reflected in the world’s advertising markets: Zenith has reduced its 2012 forecast for Western Europe from 2.0% growth to 1.5% and their forecast for Central & Eastern Europe from 8.0% growth to 6.5%. We have held North America steady at 3.6%, since its tentative economic recovery appears on track.

The group has upgraded Asia Pacific slightly from 7.2% growth this year to 7.4%, but the strongest region is Latin America, which it has increased from 6.0% to 9.2%, as confidence grows that its strong economic growth will be maintained. They have, however, reduced their forecast for the Middle East & North Africa from 1.5% growth to 1.0% while the political and social unrest continues.

In the longer term, Zenith expects gradual but sustained improvement in ad expenditure in North America, Western Europe and the Middle East & North Africa in 2013 and 2014. Meanwhile Asia Pacific, Central & Eastern Europe and Latin America should all sustain 8% to 10% annual growth over these two years.

Advertising expenditure by region

Major media

Between 2011 and 2014 Zenith predicts 60% of all the world’s growth in ad expenditure will come from developing markets (which they define here as everywhere outside North America, Western Europe and Japan). Nearly half (49%) will come from just ten developing markets. The four BRIC markets alone (Brazil, Russia, India and China) are forecast to account for 33% of global growth. Beyond the BRICs, there are six fast-growing markets we forecast to add between US$1 billion and US$4 billion each to the global ad market, and deliver another 16% of global growth: Indonesia, Argentina, South Africa, South Korea, Mexico and Turkey.

Beyond the BRICs

China is now the third-largest ad market in the world, and is catching up quickly with second-placed Japan. In 2005 China’s ad market was 23% of the size of Japan’s, in 2011 it was 69% and by 2014 we predict it to be 98%. Brazil, in sixth place, was 87% of the size of the UK (the fifth-largest) in 2011 and will be 99% in 2014. In 2015, therefore, China is on track to become the second-largest ad market and Brazil the fifth-largest. Russia, which was in twelfth place in 2011, will be eleventh in 2012 and ninth in 2014.

Top ten ad markets

As Zenith noted in December, the global ad market will benefit this year from the ‘quadrennial’ effect and Japan’s recovery from the effects of the earthquake in March 2011. Every four years the quadrennial events – the summer Olympics, the European Football Championship and the US Presidential and other elections – provide a reliable boost to the global ad market. This time we expect the combination of the quadrennial effect and the Japanese recovery to add US$7 billion to ad expenditure in 2012. Without this extra stimulus, ad expenditure would grow 3.2% this year, slightly less than in 2011.

Global advertising expenditure by medium

The internet continues to exceed expectations for growth, most recently thanks to the explosive growth in social media advertising. Online video is the other star in the category, propelling internet display to 21% annual growth between 2011 and 2014. Display advertising is now growing substantially faster than paid search (which we forecast will grow by 15% a year to 2014) and classified (9% a year). Display advertising accounted for 36% of internet advertising in 2011; by 2014 Zenith expects this proportion to increase to 41%.

Internet advertising by type

Overall, Zenith predicts that internet advertising will increase its share of the ad market from 16.4% in 2011 to 22.1% in 2014. Internet advertising already accounts for more than 25% of total ad expenditure in five markets (Denmark, Norway, South Korea, Sweden and the UK), and by 2014 they expect it to account for more than 30% in six markets (Canada, China, Norway, South Korea, Sweden and the UK), so there is plenty of potential for further growth in internet advertising’s global market share.

The internet is also the biggest contributor of new ad dollars to the global market. Between 2011 and 2014 Zenith expects internet advertising to account for 55% of the growth in total expenditure.

The next biggest is television, which Zenith forecasts to contribute 40% of growth. Television’s share of the global ad market has risen steadily over the last few years: it reached 39.9% in 2011, up from 36.9% in 2005. The amount of time viewers spend watching television has increased, and even though viewers are presented with a wider choice of channels than ever, the biggest television events are attracting record audiences. Zenith expects the popular televised quadrennial events to lift television’s share to 40.1% in 2012, but beyond that they forecast its share to return to 39.9% by 2014. As the global economy improves we expect consumers to spend more time and money on activities outside the home, leaving less time for television.

Newspapers and magazines have been declining since 2007, with a brief pause for magazines in 2010, and Zenith expects this decline to continue throughout its forecast period. The group forecasts advertising in both newspapers and magazines to shrink by 1% a year between 2011 and 2014. Note that this includes only advertising in printed editions of these publications; it does not include advertising on their websites, or in tablet editions or mobile apps, all of which will be picked up in the internet category. The prospects for newspaper and magazine publishers are therefore not quite as bleak as Zenith’s headline figures would make them appear.

Advertising expenditure by medium