Monday 5 December 2011

Quadrennial events to help ad market grow in 2012 despite economic troubles



  • Global ad expenditure forecast to grow 4.7% in 2012, up from 3.5% in 2011
  • Quadrennial events and Japanese recovery to add US$7 billion (1.6 percentage points) to global growth
  • Advertisers in much stronger position to invest in marketing than at the start of the last downturn
  • Advertisers to invest cash reserves to win market share and stimulate consumer demand
  • 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 32.3% to 35.9% over the next three years
  • Internet’s share of expenditure to rise from 15.9% in 2011 to 21.2% in 2014, exceeding 30% in four markets


ZenithOptimedia predicts global ad expenditure will end this year at US$464 billion, 3.5% higher than in 2010, then accelerate to US$486 billion – a 4.7% growth – despite the continuing slowdown in Europe and fears that its debt crisis will get much worse. We then expect ad expenditure to grow 5.2% in 2013 and 5.8% in 2014.

This acceleration in global expenditure is the result of the ‘quadrennial’ effect and Japan’s recovery from the effects of the earthquake in March. 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 3.1% next year, slightly less than this year.

The global ad market is therefore remarkably strong at a time when the eurozone threatens to fall back into recession and drag down the growth of its trading partners. That’s because advertisers are in a very different position now than they were at the start of the last downturn in 2008. In general, advertisers have built up large cash reserves and – thanks to exceptionally low interest rates in the developed world – are earning very little interest on this cash.

Marketers have the lessons of the last downturn fresh in their minds, in particular that downturns are a great time to expand market share. During an economic downturn consumers fundamentally reassess their spending habits, partly to save money, and partly as a way of treating themselves to affordable luxuries in times of gloom. Brands that gain the loyalty of consumers in a downturn can reap the benefits for years to come. We therefore expect advertisers to invest their cash reserves in competition for market share, and as a way of stimulating extra consumption.

Western Europe is at the centre of the current economic turmoil, and we forecast it to grow by just 2.0% in 2012, even though the Olympics is being held in the UK (which means that the coverage will be broadcast at ideal times for Western European audiences) and most of the big markets will be participating in the European Football Championship. Assuming the economy improves by the end of next year, we forecast 2.8% growth in 2013 and 3.3% in 2014.

Our forecast assumes that GDP continues to slow in the eurozone (and the rest of Western Europe) towards the end of 2011 and the beginning 2012. However, the economic situation is extremely uncertain and could get even worse, so we have considered the potential effects of a further deterioration of the debt crisis in Europe. This would clearly depress advertising in the eurozone and its main trading partners, but its impact on global growth should be limited. Looking at previous examples of countries defaulting on their debts (such as Russia in 1998 or Argentina in 2002), and the wider regional effects of this default, we estimate that a default in two eurozone countries, coupled with deeper recession in the eurozone and other Western European markets, would bring growth in Western Europe down to -4.0%, but global ad expenditure would still grow by 3.2%.

North America now looks decidedly healthier than Western Europe. In the US, industrial production and employment growth are on the rise, and foreclosures are down. Retail sales rose 7% in October, and sales on ‘Black Friday’ were up 6.6% to a record US$11.4 billion. Canada has performed strongly throughout the downturn. We forecast 3.6% growth in North American ad expenditure in 2012, strengthening to 3.7% in 2013 and 4.4% in 2014.

We predict ad expenditure to grow 3.1% in Japan next year, as it recovers from the damage caused by the earthquake and tsunami in March, which severely disrupted media and advertising for several weeks this year. After this one-off stimulus we expect Japanese growth to fall back to 1.9% in 2013 and 2.5% in 2014.

Most of the growth in global ad expenditure is now coming from developing markets, which we forecast to contribute 58% of new ad dollars between 2011 and 2014. Asia Pacific, Central & Eastern Europe and Latin America are all expanding much faster than the developed world, driven by both their current economic performance and their future potential. Over the next three years we expect Asia Pacific (excluding Japan) to grow by an average of 10.4% a year, Central & Eastern Europe to grow 9.6% a year and Latin America to grow by 7.3% a year. The exception is the Middle East & North Africa, where political turmoil has disrupted media production and distribution, and made advertisers wary of attracting negative attention. We forecast the Middle East & North Africa to grow at an average of 1.3% between 2011 and 2014. Overall we expect developing markets – which we here define as everywhere outside North America, Western Europe and Japan – to increase their share of the global ad market from 32.3% in 2011 to 35.9% in 2014.

Beyond the BRICs: the next wave of emerging ad markets
Adspend growth (2014 v 2011)
US$ million, current prices. Currency conversion at 2010 average rates.


Adspend growth
1
China
16,439
2
Russia
4,418
3
Indonesia
3,768
4
Brazil
2,972
5
South Africa
2,050
6
Argentina
1,812
7
India
1,571
8
Turkey
1,435
9
Mexico
1,092
10
South Korea
1,016
Source: ZenithOptimedia

Over the next three years nearly half (48%) of all the world’s growth in ad expenditure 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 15% of global growth: Indonesia, South Africa, Argentina, Turkey, Mexico and South Korea. In these ten markets ad expenditure occupies 0.32% of GDP, less than half of the world average of 0.70%, demonstrating their huge potential for further catch-up growth.

There are now two ‘developing’ markets in the world’s top ten ad markets, and there will be three in 2014. 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 is 66% and by 2014 we predict it to be 95%. Brazil, in sixth place, is 84% of the size of the UK in 2011 and will be 91% in 2014. Russia, which was in eleventh place in 2011, will be tenth in 2013 and ninth in 2014.

Top ten ad markets
US$ million, current prices. Currency conversion at 2010 average rates.

2011
Adspend

2014
Adspend
1
USA
154,935
1
USA
173,165
2
Japan
45,358
2
Japan
48,825
3
China
29,943
3
China
46,381
4
Germany
24,419
4
Germany
26,005
5
UK
18,355
5
UK
20,345
6
Brazil
15,470
6
Brazil
18,442
7
France
12,823
7
France
13,827
8
Australia
11,417
8
Australia
13,035
9
Canada
10,529
9
Russia
12,592
10
Italy
10,040
10
Canada
12,458
Source: ZenithOptimedia

Advertising expenditure by region
Major media (newspapers, magazines, television, radio, cinema, outdoor, internet)
US$ million, current prices. Currency conversion at 2010 average rates.

2010
2011
2012
2013
2014
North America
161,707
165,464
171,455
177,742
185,623






Western Europe
101,862
103,722
105,785
108,795
112,427






Asia/Pacific
114,832
121,058
129,769
139,302
150,791






Central & Eastern Europe
23,373
25,355
27,387
30,147
33,340






Latin America
31,248
33,110
35,089
37,802
40,960






Middle East & North Africa
4,945
4,177
4,242
4,344
4,344






Rest of world
10,731
11,419
12,197
13,263
13,710






World
448,697
464,304
485,924
511,394
541,194
Source: ZenithOptimedia


Major media (newspapers, magazines, television, radio, cinema, outdoor, internet)
Year-on-year change (%)

2010 v 09
2011 v 10
2012 v 11
2013 v 12
2014 v 13
North America
2.7
2.3
3.6
3.7
4.4
of which USA
2.3
2.2
3.5
3.5
4.3






Western Europe
4.9
1.8
2.0
2.8
3.3






Asia Pacific
9.7
5.4
7.2
7.3
8.2
excluding Japan
17.5
10.2
9.7
10.4
11.2






Central & Eastern Europe
7.2
8.5
8.0
10.1
10.6






Latin America
15.5
6.0
6.0
7.7
8.4






Middle East & North Africa
7.7
-15.5
1.5
2.4
0.0






Rest of world
14.5
6.4
6.8
8.7
3.4






World
6.3
3.5
4.7
5.2
5.8
Source: ZenithOptimedia

Global advertising expenditure by medium

The internet continues to grow much faster than any other medium, at an average of 15.9% a year between 2011 and 2014. Display is the fastest-growing segment, growing by 18.9% a year, driven mainly by online video and social media. Streaming video ads are burgeoning 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 15.7% 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.

Internet advertising by type
US$ million, current prices Currency conversion at 2010 average rates.

2010
2011
2012
2013
2014
Display
21,845
25,362
29,965
35,597
42,648
Classified
10,951
11,989
13,068
14,236
15,594
Paid search
31,183
35,491
41,234
47,931
55,039
Total
63,979
72,842
84,267
97,764
113,281
Source: ZenithOptimedia

The internet is also the biggest contributor of new ad dollars to the global market. Between 2011 and 2014 we expect internet advertising to account for 52.9% of the growth in total expenditure. As the largest segment, paid search will contribute 25.6%, followed by display at 22.6%, with classified at a much lower 4.7%.

Overall, we predict internet advertising will increase its share of the ad market from 15.9% in 2011 to 21.2% in 2014. Internet advertising already accounts for more than 25% of total ad expenditure in four markets (Denmark, Norway, Sweden and the UK), and by 2014 we expect it to account for more than 30% in four markets (Canada, Norway, Sweden and the UK), so there is plenty of potential for further growth in internet advertising’s market share.

Internet advertising is now clearly dominated by Google, which has increased its share of the internet ad market from 34.9% in 2006 to 44.1% in 2010. Over this time Google has tightened its grip on global search (raising its share of searches from 72% in 2006 to 85% now) and established a lead in traditional display and online video with the help of the acquisition and development of companies like DoubleClick and YouTube. In addition, its three main early competitors (Microsoft, Yahoo! and AOL) have failed to match this pace of development and lost a lot of ground; their combined market share fell from 33.1% in 2006 to 13.8% in 2010. Since 2006 Facebook has established itself as a major supplier, increasing its market share from just 0.2% to 3.1% in 2010. Last year Facebook doubled its share and overtook AOL; at its current pace of growth it is likely to overtake Microsoft by the end of 2011.

Market share of the main internet portals
Share of global internet ad expenditure (%)

2006
2007
2008
2009
2010
Google
34.9
40.3
42.5
41.9
44.1
Microsoft
8.1
7.9
4.2
4.0
4.0
Yahoo!
18.7
14.9
11.7
9.6
8.3
AOL
6.3
5.5
4.2
2.2
1.5
Facebook
0.2
0.4
0.6
1.4
3.1
Total
68.1
68.9
63.2
59.2
61.0

After the internet, the main contributor to global ad growth is television, which we forecast to supply 41.1% of new ad dollars between 2011 and 2014. Television’s share of the global ad market has risen steadily over the last few years: we expect it to end this year with 40.2% of all ad expenditure, up from 37.0% 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. We expect the popular televised quadrennial events to lift television’s share to 40.4% in 2012, but beyond that we forecast a very slight decline to 40.3% in 2013 and 2014, as often happens after a quadrennial year.

Newspapers and magazines have been declining since 2007, with a brief pause for magazines in 2010. We expect this decline to continue throughout our 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. We predict magazine ad expenditure will shrink by 0.7% a year over our forecast period, while newspaper ad expenditure shrinks by 1.1%.


Advertising expenditure by medium
US$ million, current prices Currency conversion at 2010 average rates.

2010
2011
2012
2013
2014
Newspapers
94,600
91,495
89,868
88,785
88,446
Magazines
43,741
43,122
42,681
42,464
42,186
Television
176,627
184,290
193,735
203,608
215,737
Radio
32,017
32,903
33,667
34,827
35,923
Cinema
2,313
2,442
2,564
2,732
2,916
Outdoor
29,824
31,291
32,928
34,559
36,350
Internet
63,979
72,842
84,267
97,764
113,281
Total *
443,100
458,385
479,710
504,738
534,839
Source: ZenithOptimedia
* The totals here are lower than the totals in the ‘Advertising expenditure by region’ table above, since that table includes total adspend figures for a few countries for which spend is not itemised by medium.

Share of total adspend by medium (%)

2010
2011
2012
2013
2014
Newspapers
21.3
20.0
18.7
17.6
16.5
Magazines
9.9
9.4
8.9
8.4
7.9
Television
39.9
40.2
40.4
40.3
40.3
Radio
7.2
7.2
7.0
6.9
6.7
Cinema
0.5
0.5
0.5
0.5
0.5
Outdoor
6.7
6.8
6.9
6.8
6.8
Internet
14.4
15.9
17.6
19.4
21.2


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