- Category: December 2011
The geography of growth
More than ever, emerging economies drove global advertising revenue growth in 2011, posting an average +15.0% growth during the year. Among these developing economies, Latin America posted the strongest growth rates, averaging +13.2%, closely followed by Central and Eastern Europe at +13.0%. Meanwhile, developed markets grew at much slower rates, such as +1.6% in Western Europe and +3.1% in North America, due to a number of factors including: a strong 2010 comparison, where revenues were up +8.2% compared to 2009; macro-economic slow down and persistent financial uncertainties; the absence of major sporting events or US elections; and natural disasters in Asia. Among individual countries, the strongest growth rates came from: Argentina with +37.9% in the context of a strong inflationary economic growth, China (+22.5%), Kazakhstan (+25.6%), Russia (+20.4%), India (+15%) and Brazil (+10.2%).
Eleven countries, out of the 63 analyzed by MAGNAGLOBAL, suffered a decline in advertising revenues, including countries in Southern Europe hit by protracted economic turmoil and political instability, such as Greece: -19.3%; Portugal: -6.9%; Spain: -6.3%; Italy: -2.5%; as well as emerging markets temporarily destabilized by the Arab Spring (Egypt -21%); and Asian countries hit natural disasters (Japan -2.0%, Thailand: -2.0%). Many of the large markets of Western Europe and North America wound up in the middle, typically showing low single-digit growth (UK: +1.8%; Germany: +3.0%; US: +2.9%).
Among media categories, television, an unexpected winner in 2010 (+12.7%), continued to show strength in 2011, despite the absence of cyclical sporting events or elections in the US. Broadcasters' advertising revenues grew 4.8% to $175 billion, in 2011, maintaining TV's leadership with a 41.0% market share globally. Good audience levels and audience measurement improvements such as the integration of time-shifted DVR viewing into ratings for the first time (e.g. France) made the medium attractive. Out-of-home (OOH) media fared even better: including cinema, OOH grew 6.4% globally, driven by the incremental revenues generated through digital billboards (+19.9%), which have rolled out in various parts of continental Europe and Asia. Other traditional media categories, however, had a tougher year. Radio grew only +2.2%; newspapers revenues were down -2.4% and magazines declined -0.9%. Declining circulation, shrinking readership, internet competition and short term media buying patterns (which penalizes monthly magazines), all contributed to print's decline in developed markets. Things are different in emerging markets, however, where literacy is still increasing and broadband access is still relatively low. In those markets, magazines are growing along with the middle class, and there is enough advertising demand for every media to benefit beyond TV. Overall, print advertising revenues are up by a high single digit percent in emerging markets.
The big winner of 2011, however, was internet media. Total internet advertising revenues increased +16.9% to $78.5 billion. While Display subcategories increased +15%, Paid Search reaped the benefits of usage growth and algorithm improvements to reclaim its position as the largest digital revenue driver (+19%). Within Display, online video continues to show impressive growth (+58.5%), reaching $4.7 billion in revenues. Pre- and mid-rolls in online videos now generate 6% of total internet advertising revenues and 1.1% of global advertising revenues. Even more than online video sharing specialists, TV broadcasters offering free, ad-funded online "catch-up" of long-form, full-length episodes are driving category growth.
Overall, coming after a strong 2010 and in a poor macro-economic context, media suppliers displayed a resilient performance in 2011. But the global market is barely back to where it was in 2007 ($423 billion in constant USD), and still smaller in the case of Western Europe (2007: $112 billion, 2011: $106 billion). This reflects that media costs that are still low from a historical perspective.
2012: The BRIC Engine
For 2012, MAGNAGLOBAL now forecasts media owners' advertising revenues to grow by 5.0% to $449 billion, which is 1.5% below their previous prediction published in June 2011 (6.5%), due to deteriorating macro-economic perspectives. Their forecast model is based on current, official economic forecasts that are generally predicting weaker - but still positive - growth next year. Uncertainty, however, remains high, especially in Europe. In September, the IMF reduced its global output forecast (real GDP growth) from +4.5% to +4.0%. Although that forecast suggests the world economy would still grow, it's an awkward average between emerging economies that are growing at healthy rates and developed economies that are still sputtering (average: +1.9%, US: +1.8%). In late November, the OECD revised its own global output forecast to +3.4% (including +1.6% for OECD countries and only +0.2% for the Euro area) warning that 4Q11 and 1Q12 could tip negative in most European countries, in line with a 3Q11 slowdown. Greece, Italy and Portugal, in particular, are now expected to suffer full-year recessions in 2012. Other economic indicators, such as industrial production, personal consumption and business confidence, have been similarly downgraded in recent months and some independent forecasters have expressed increasingly gloomier views.
Despite the worsening economic outlook, MAGNAGLOBAL is still projecting a positive growth rate based on a few factors:
- The well-known "quadrennial" cyclical driver is back, and it is believed that it will be stronger than ever. The incremental ad spending, generated by major sporting events like the London Summer Olympics, or the Poland/Ukraine European Soccer Championship, and the US Presidential Elections, will bring an additional 1% to 2% on top of organic revenue growth across markets. In the US, Political and Olympic (P&O) money will account for three billion dollars of incremental ad spend, mostly on television ($2.4 billion related to the Elections, $600 million generated by Olympic Broadcasts). Meanwhile, major sporting events will help in European markets that are otherwise hit by economic stagnation, such as the UK, which is hosting the Olympics, although the games are broadcast on the ad-free BCC, and Italy where the Games and Soccer tournament will mostly be broadcast by RAI, one of the few European public television groups still allowed to carry a full, all-day advertising load.
- Big emerging countries will increase their share of global economic and advertising influence. At the end of 2012, emerging markets will represent 24% of global advertising revenues (compared to 7% in 1999) and the four BRICs alone will account for 14% (compared to 3% in 1999). Adding scale to dynamism, the BRIC markets have the capacity to offset part or all of the Western weakness. The four BRIC markets equated to only 10% of Western Europe's advertising revenues in 1999. That ratio will grow to 59% by the end of 2012, and by 2016 the BRIC countries will almost match the size of Western Europe (94%). The BRIC countries contributed to 45% of the global market growth in 2011 ($9 billion out of $19 billion). With a growing proportion of the BRIC countries' population accessing mass media, digital media and Western-style consumption patterns; with Western and local brands competing to position themselves in the top of mind of that emerging middle class, media demand is in excess of supply and inflation reigns. BRIC countries lag behind the global average advertising spend per capita ($80) - Russia: $70, Brazil: $60; China: $21, and India: $4. With such structural factors, we expect advertising spending and revenues in those markets to keep growing faster than the general economy, supporting global revenues in their wake.
- Some lessons learned in 2009 may help avoid a replay. A few major advertisers, e.g. in FMCG, have since admitted that they may have over-reacted back then by cutting advertising expenditure too hard too quickly, which harmed their brands. We believe that this time, even if sales forecasts are being revised downwards, marketers will remember that market shares are still up for losses or gains, including - and perhaps even more so - during a recession, as consumers reconsider their choices. Besides the Western advertising market is still smaller than five years ago, which means prices and net costs per thousand - despite some inflation in 2010/2011 - are still competitive and attractive by long term standards. Therefore, brands in various sectors have both the incentive and capacity to invest smartly to boost or defend their market shares.
In 2012, advertising revenues will grow by 12.4% in emerging economies, with Latin America still leading the charge (+13.0%) followed by Central and Eastern Europe (slowing down at +7.7%). Asia Pacific will re-accelerate to 8.3% due to the recovery of Japan and the continued growth of China. Western Europe will slow down at +1.1%. The sports driver will not be enough to offset recession in many European countries: Greece, Portugal, Spain, Ireland will decrease again (between -2% and -6%); Italy and France will be flat at best. UK and Germany will grow below 2%.
The biggest growth rates of 2012 will come from Argentina (+26.4%), Ukraine (+21.0%), Indonesia (+16.0%), China (+16.1%), Brazil (+12.0%), India (+13.5%) and Russia (+9.6%).
In terms of media market share, internet will grow by 11.2% and outrank newspapers to become the second biggest media category globally, accounting for nearly 20% of global advertising dollars (19.5% at $87.4 billion). The category already stands at 23% in both North America and Western Europe - where it even takes the #1 spot in a few markets, such as the UK.
Television will receive the bulk of the "quadrennial" bonanza and benefits from the typical concentration of advertisers into leading media at the expense of secondary media during harsh times. TV will grow by 6.7% globally to $187 billion.
Newspaper and magazine revenues will shrink by an average -1% and -1.3% respectively, with much deeper drops in Western markets, where circulation losses of 2011 will be reflected in 2012 ad pricing.
Radio will grow by 2.2% to $30.4 billion. OOH will also benefit from the "quadrennial" events and the roll-out of new digital (+6.3% to $28.3 billion) platforms. In the UK, the innovative upfront auction process conducted last summer to allocate the most premium London inventory during the Games did not quite meet the high expectations, but the industry is still expected to grow healthily next year.
China Takes the #2 Spot
China's advertising market is expected to continue outperforming its already impressive economic growth in 2012, with +16.1% growth. At $33 billion, China will become the second biggest advertising market, ahead of Japan, now third at $32.1 billion. Germany remains the fourth biggest market, some distance behind ($25 billion). Other top 10 markets are - in the following order - UK, France, Brazil, Canada, Australia and Italy. Russia will enter the top 10 in 2013, at the expense of Italy.
Top 10 advertising in 2012 (constant USD 2010)
Global Media Owners Advertising Revenues (2006-2013)
Global Advertising Growth by Media Category (2011-2012)
(Source: IPG Mediabrands)