Global & European Advertising

www.mediatelinsight.co.uk
Global & European Advertising
Executive Report
Last Updated
March 2010
Global & European Advertising
Highlights 3
Advertising Forecasts 4
Consensus 4
Growth Rate By Country 5
Forecasts by Medium 7
Current Market Indicators 8
Commentary 8
Advertising and GDP 9
Economic Outlook 10
Historical Global Advertising Trends 11
Contents
Global & European Advertising
Global advertising revenues are expected to have slipped by -10.4% in 2009 but will grow by 2.2% in 2010, according to the most recent forecasts compiled by MediaTel Insight.
After a period of tremendous uncertainty, the ‘Great Recession’ of 2008-2009 is at last receding in most parts of the world and for 2010 the picture looks more promising – with the most optimistic global forecast coming from MAGNA, anticipating adspend growth of 5.9%.
The US is expected to grow at a slower rate than other global regions in 2009 and 2010; by -13.2% and -2.0%.
Asia-Pacific is forecast to demonstrate the greatest growth, at higher rates than both Europe and the US, which is boosting the overall global growth rate.
Television has suffered less than other media because television viewing rises in a recession. Zenith still expects television advertising to be down 7.6% in 2009, but its market share has increased from 38.2% to 39.2%.
Global internet adspend is still expected to grow – Zenith forecasts internet advertising to rise 9.5% in 2009, followed by 12% to 13% annual growth over the next three years. In 2012 the forecaster expects the internet to attract 16.2% of all ad expenditure.
Highlights
Global & European Advertising
Consensus
Global advertising revenues are expected to have slipped by -10.4% in 2009 but are expected to return to positive growth in 2010, up by 2.2% according to a consensus of the most recent forecasts compiled by MediaTel Insight; see Figure 1 and Table 1.
Within this, the Asia-Pacific region is expected to be the comparatively stronger market, slipping by -2.3% in 2009, before growing by 6.8% in 2010.
By comparison, European advertising expenditure is predicted to grow at a rate of -11.9% for 2009, while the US will end the year with -13.2% growth.
For 2010 the picture looks more promising with the most optimistic global forecast coming from MAGNA, who anticipates adspend growth of 5.9%.
After a period of tremendous uncertainty, the ‘Great Recession’ of 2008-2009 is at last receding in most parts of the world – however, the damange wrought was deep and lasting for many, according to MAGNA. In US dollar terms, media suppliers’ advertising revenues declined by -15% during 2009 as the economy faced near-collapse, industrial activity came to a near-halt in many sectors, consumers curtailed their spending and marketers around the workd generally cut back. Declines were particularly severe for media suppliers in
Global & European Advertising
some countries, especially Estonia, Kazakhstan, Lithuania, Romania and Turkey. But perhaps surprisingly, pockets of growth were evident in such large markets as Brazil, China, Indonesia and India. Combined, media suppliers’ global advertising revenues exceeded $358 billion during 2009.
2010 marks a return to growth for most – but not all – parts of the world. With this growth, the ad-supported media economy should also grow. Certainly, many areas hit worst in 2009 will rebound, others which sailed through 2009 without pause will continue, but most will resume normal rates of growth, largely driven by advertising’s relationship with the broader economy.
GroupM stressed in its latest forecasts that global prospects for ad recovery in 2010 are improving.“There are signs from around the world of confidence returning to the financial services and automotive sectors which have been hit hardest, though this has yet to translate into bigger marketing appropriations,” said Adam Smith, futures director of GroupM. “FMCG (Fast Moving Consumer Goods), personal care and telecommunications are widely cited to have sustained their advertising through the recession, but marketers everywhere, particularly in the U.S. and Western Europe, are looking for further savings and more value from media markets in 2010.”
GroupM’s new long-range forecast model expects global ad revenue to return to annual growth in the range of 6-7% from 2011-2014, around a point ahead of expected nominal global GDP growth.
Zenith estimates that global advertising expenditure will have dropped by -10.2% over the course of 2009. It is normal for ad expenditure to exaggerate general economic trends: when the economy shrinks, ad expenditure shrinks faster, and by more. The corollary to this is that when recovery is complete, we can expect the ad market to outperform the economy as a whole. This recovery is expected to take some time. After reaching its lowest point during the last two recessions, the global ad market recovered progressively over the course of the next three years, and it is expected that the current downturn will follow a similar pattern. However, Zenith upgraded its forecast for growth in 2010 by 0.4 percentage points to 0.9% as the forecaster expects the recovery to strengthen steadily as corporate and consumer confidence continue to improve, with 3.9% growth in 2011 and 4.8% growth in 2012.
Growth Rate By Country
2010 marks a return to growth for most countries and with this growth, the ad-supported media economy should also grow. In many countries – especially slower-growing developed economies – this translates into low single-digit growth; see Table 2.
Growth in emerging markets such as BRIC (Brazil, Russia, India, China) contribute significantly to the total size of the worldwide advertising-supported media industry.
In some markets new regulations have exacerbated the downturn, or are likely to hinder recovery. In France, for example, the public television channels (which attract more than a third of viewing) began to phase out their advertising at the beginning of 2009, and will be completely free of advertising by 2011.
Global & European Advertising
Forecasts by Medium
The internet is the only medium that grew in 2009. The downturn accelerated the structural shift of budgets from traditional media to the internet; in a time when marketing departments have to justify every dollar they spend, the rapid and clear returns offered by internet advertising are more attractive than the longer-term brand-building benefits offered by other media. Zenith forecasts internet advertising to grow 9.5% in 2009, followed by 12% to 13% annual growth over the next three years. In 2012 the forecaster expects the internet to attract 16.2% of all ad expenditure; see Figure 2. The gap between the internet and newspapers narrowed from 26 percentage points five years ago to 11 percentage points in 2009, and Zenith forecasts it will be just four percentage points in 2012. Zenith expects the internet to overtake newspapers to become the world’s second-largest advertising medium by half way through the next decade.
Paid search is the engine of internet growth: it is expected to grow 15% globally in 2009, and is forecast consistent 14%-15% annual growth over Zenith’s forecast period. Internet display, by contrast, is only growing by 6% for 2009, while classified is up just 2%. Display and classified is expected to accelerate in 2010 and 2011, but paid search is steadily increasing its market share. Paid search is forecast to attract 53% of internet ad expenditure in 2012, up from 50% in 2009.
Global & European Advertising
Television has suffered less than other media because television viewing rises in a recession (it’s a cheap but absorbing form of entertainment), and because its brand-building power is a great complement to the internet’s strength in generating response and sales. Zenith still expects television advertising to be down 7.6% in 2009, but its market share has increased from 38.2% to 39.2%, and we expect it to continue to outperform the market over the next three years.
Newspapers and magazines have clearly suffered the most from the downturn, which has exacerbated their structural problems of falling consumer interest and substitution by new media. By 2012 newspapers and magazines will be 26% and 28% respectively below the peak levels they reached in 2007.
Current Market Indicators
Commentary
The advertising sector is cyclical and is closely tied to economic growth. In particular, corporate profitability and consumer spending levels greatly affect the degree to which companies are willing to spend on marketing and advertising. Companies will want to advertise their products more when consumers are spending money and less when consumer confidence is low.
This process is then exaggerated by corporate profits. High profits will usually lead to a boost in marketing expenditure, but because advertising is seen to a certain extent as a luxury item, it is often the first area of expenditure to be cut when profits are under pressure. As Merrill Lynch analysts have noted, it is generally preferable to cut marketing budgets than to close factories and fire staff.
As a result, advertising growth often sees more dramatic peaks and troughs than the wider economy, as companies invest and withdraw their marketing spend depending on the economic conditions, as demonstrated by Figure 3.
Other factors affecting advertising revenue growth include the level of deregulation in a given market and the volume of new mass-market products being released.
For the past few years, global advertising growth has been at a higher rate than global GDP growth. The gap, however, reduced between 2005-2007 with growth levels being very similar for both adspend and GDP. The forecasts for 2009 showed the gap to be widening once again but, in 2010, it is expected that the rate of global advertising growth will be higher than global GDP growth.
Forecasts for global GDP growth, from the IMF and NIESR (National Institute of Economic and Social Research) differ by one percentage point for this year; see Figure 4.
Advertising is inherently linked to a region’s GDP. Typically, advertising outpaces GDP in periods of stronger economic growth and under-performs GDP in recessional periods, however this pattern appears to be changing, according to Merrill Lynch. Factors causing this change vary from high oil prices to rising short term interest rates.
Merrill Lynch also comments that the greater efficiency of the internet has capped the ability of traditional media companies to raise advertising rates, which is another reason to explain the current under-performance of advertising spend relative to GDP.
GDP regional forecasts from the National Institute Economic Review are shown in Table 5 and Figure 5, while MAGNA’s forecasts for GDP growth in key economic markets are shown in Table 6 and Figure 6.
Economic Outlook
The acute phase of the financial crisis has passed and a global economic recovery is under way. Moreover, the recovery is fragile and expected to slow in the second half of 2010 as the growth impact of fiscal and monetary measures wane and the current inventory cycle runs its course.
Industrial production growth is already slowing (albeit from very high rates). As a result, employment growth will remain weak and unemployment is expected to remain high for many years. The overall strength of the recovery and its durability
will depend on the extent to which household- and business-sector demand strengthens over the next few quarters. While the baseline scenario projects that global growth will firm to 2.7% in 2010 and 3.2% in 2011 after a 2.2% decline
in 2009, neither a double-dip scenario, where growth slows appreciably in 2011, or a strengthening recovery can be ruled out.
Financial markets have stabilised and are recovering, but remain weak. Interbank liquidity
as measured by the difference between the interest rates commercial banks charge one another and what they have to pay to central bankers have declined from an unprecedented peak of 366 basis points in dollar markets to less than 15 basis points—a level close to its “normal” pre-crisis range. Currencies, which fell worldwide against the U.S. dollar in the immediate aftermath of the crisis, have largely recovered their pre-crisis levels. And international
capital flows to developing countries have recovered—with a rapid run-up during the last months of 2009. Also, borrowing costs for emerging market borrowers have stabilised over the last few quarters, but remain elevated.
Historical advertising expenditure and growth for the US, non-US and global markets are provided by MAGNA in Table 7 below. The average rate of global growth over the last ten years was 4.8%, with the US weaker at 4.0% and non-US countries stronger at 5.7%.
The data shows that 2004 was the first time since 1997 that expenditure in all non-US countries combined was greater than the advertising expenditure in the US, and it is estimated that non-US countries will continue this growth over the next two years. In 2008, MAGNA changed its methodology in recording advertising expenditure data to measure core media supplier advertising revenues. Therefore year on year analysis for 2008 and 2009 is not possible with years prior to this change.