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June 14, 2013

MAGNA GLOBAL Advertising Forecasts, June 2013

Global Advertising Market Back on Track
MAGNA GLOBAL predicts global ad revenues to grow 6% in 2014 
Top Stories
 
  • Media Owners Advertising Revenues will grow by +3.0% in 2013 to $515 billion dollars and accelerate to +6.1% in 2014.
  • In 2013 APAC and Latin America growth will offset the stagnation in EMEA and North America.
  • In 2014, US and European ad markets will benefit from economic recovery, US mid-term elections and global sports events. China remains a reliable growth engine and Japan confirms a surprise return to growth.
  • Digital Media will grow by +13.4% in 2013, reaching a 23.3% market share.
  • Social media generated $5.9 billion in advertising revenues in 2012 and we anticipate an impressive 39.6% growth in 2013.
  • Automated “programmatic” buying already represents 17% of online display transaction in the US and up to 30% in some other advanced markets.
MAGNA GLOBAL predicts the global advertising market to grow by +3.0% this year, to $486 billion, thus slowing down from 2012 (+3.9%), and then accelerate by +6.1% in 2014, to $515 billion. Compared to MAGNA’s previous forecasts, published in December 2012, this represents a small downgrade for 2013 (-0.1%) and a small increase for 2014 (+0.1%).  MAGNA’s analysis covers ad market conditions in 73 individual markets, adding three new markets this time: Sri Lanka, Pakistan and Kenya.
 
The predicted acceleration in ad revenues is in line with expectations of accelerated economic growth in the second half of 2013 and throughout 2014. In its April 2013 report, the IMF predicted 2013 real GDP growth to reach +3.3% globally and 2014 to accelerate to +4.0% in 2014. Although the economic forecast is still modest for developed markets (+1.2% and then +2.2%) and for Europe in particular (+0% and then +1.3%), it will in many cases bring the economic environment to the point where business growth triggers not only ad spend growth but, in some markets, faster-than-GDP growth. In markets where marketers have been cautious, they may at last switch from optimization mode to expansion mode.
 
Digital media will continue their double-digit growth in 2013, as ad revenues will increase +13.4% to $113.6 billion. Growth will be driven by search (+14.6% to $52 billion), video (+21% to $6.6 billion), mobile formats (+54% to $12 billion) and social formats (+39.6% to $8.2 billion). Other formats will barely grow, and actually decline in many markets due to the commoditization and deflation of display inventory.
 
Television advertising growth will slow down in 2013 due to the absence of global televised events. Following a +5.0% growth in 2012, ad sales will grow by only +2.0% to $196.5 billion, but TV remains the leading media category (40% market share) ahead of digital. Print formats continue their decline: in 2013 newspaper ad revenues will decline by -3.3% and magazine revenues by -5.1% to a combined $110 billion (a 23% market share). Radio advertising will grow by +1.1% to $32.5 billion and out-of-home media revenues will increase by +2.9% to $32.6 billion

2013-2014 across geographies

There continue to be wide regional and national contrasts in the global advertising landscape in 2013. There will be almost no growth this year in EMEA (+0.4%) and North America (+0.7%). On the other hand, we are increasing the 2013 forecast for Latin America (+12.5%) and for APAC (+5.9%).

EMEA: ad markets hit by European recession

EMEA will barely grow in 2013, with the sub-region going through varied states. Plagued by economic recession and record unemployment levels (12.2% in the Eurozone, 8.4% in the UK), Western Europe ad revenues will decline by -1.6%. Resilience of the two biggest markets – the UK (+2.2%) and Germany (+0.6%) - will partially offset the decreases in Southern Europe (France -3.3%, Spain -10.4%, Italy -9.4%). However, after three, four and sometimes five years of negative growth in some markets, we believe most of Western Europe will bottom out in 2013. For instance, there are signs already that television pricing may stabilize in the second half of the year and increase, however slightly, in 2014.
 
Central and Eastern Europe will grow by an average +7.6%, in line with previous expectation, but again reflecting national contrasts, with double-digit growth in Russia (+11.7%) and Turkey (+10.2%) partially offset by stagnation in several smaller markets (Poland, Czech Republic, Hungary).
The Middle East and Africa sub-region will be growing by +4.8%, with advertising expenditure increasing in the Gulf Cooperation Council countries (+3.8%) and in South Africa (+5.5%) but decreasing in Morocco (-2.1%) and Kenya (-20%).
 
US: light at the end of the tunnel

The US economy is on a slow but steady trajectory towards recovery. Despite the government sequester and higher payroll taxes that have contributed to the uncertainty that plagued the beginning of the year, 2013 will show moderate economic growth.  The second half of 2013 and 2014 are expected to improve, due notably to a stronger housing and job markets and higher business and consumer confidence. The US unemployment rate remains high (7.6%) but is declining month after month (+175,000 non-farm jobs in May). The latest consumer sentiment index showed a surge at 84.5 compared to 76.4 in April, bolstered by optimism stemming from rising stock market, home prices, and employment.
 
For 2013, we expect +0.4% growth in media owners ad revenues, to $155 billion.  These growth rates are not normalized and do not take into account the absence of the incremental Olympics and political spend that occurs in even years. If neutraled for political and Olympic spending in 2012 and 2013, the underlying growth would be stronger by approximately 1.5%.
 
We anticipate total US television advertising to decline -2.8% in 2013 with -6.8% in broadcast TV due to the absence of Olympics and political spend, and +2.4% for cable TV.  Digital media is the only category to show significant growth in 2013 (+11.5%), although the pace of growth should plateau slightly as a result of deflationary pricing trends affecting display formats. The category will be driven by mobile advertising continuing its aggressive growth at +61.7% to $5.4bn.  Print advertising will continue to decline as ad sales will drop by -6.7% for magazines and -6.8% for newspapers.  Radio is expected to remain flat this year and out-of-home advertising will grow +3.5%.

China: a successful soft landing

The Chinese economy successfully engineered a “soft landing” in 2012, with real GDP growing by +7.8% compared to +9.3% in the previous year (source IMF) and inflation coming under control (it was +1.8% in 2012 following +7.8% in 2011). The Chinese government can thus afford to continue stimulus programs and maintain high-single-digit real GDP growth rates in the mid-term. In its April report, the IMF  forecast +8% of real GDP growth this year and +8.2% next year. When factoring inflation, that translates into low-double-digit nominal GDP growth for the next five years.
 
Advertising spend had its own soft landing last year; it increased by 9.3%, which was the first time it grew at a slower pace than nominal GDP. In the mid-term however, MAGNA GLOBAL believes the ad market still has the potential to grow faster than the economy because domestic and international brands are competing for the attention of Chinese consumers while media inventory is limited, therefore driving media cost inflation. In 2013 we expect the advertising market to grow by +11.6% to RMB 302 billion. Television continues to command the highest media market share, growing 7.6% to RMB 109 billion and while digital is rapidly gaining (+27% to RMB 88 billion). Internet penetration will have to expand to older rural demographics for continued gains as the urban youth market has been completely saturated. Supported by robust domestic demand, ad expenditure will grow again by 12.1% in 2014 and by 12.6% in 2015 and China will pass Japan to become the 2nd largest media market globally by 2016.
 
Another “sleeping giant” is waking up in Asia: Japan. Following the general elections of December 2012, Shinzo Abe from the Liberal Democratic Party became the new Prime Minister. Prime Minister Abe introduced an aggressive unorthodox, expansionist economic policy – that has become known as “Abenomics” – to break the pattern of deflation/stagnation that has plagued Japan in the last fifteen years. In April the IMF raised its real GDP growth forecast to +1.6% for 2013 (+0.4) and to +1.4% for 2014 (+0.7). The IMF is acknowledging a shift in the Japanese economy: after 10 years of deflation, CPI inflation is expected to be flat in 2013 (+0.1%) and up by +3.0% in 2014, which, by Japanese standards, sounds like hyperinflation. The perspective of more dynamic economy and positive inflation in the mid-term has led us to change our advertising spend scenario too. We revise ad revenue growth forecast from +0.2% to +1.5% in 2013 and from +2.3% to +2.9% for 2014.
 
In Russia, already the world’s 10th largest advertising market, advertising sales grew by +11.4% in 2012 and are expected to grow at a similar rate (+11.7%) in 2013. Unlike many other large European markets, digital claims less than 20% of the total spend in Russia, while television controls half of total ad spend. TV advertising cost inflation continues to drive double digit television growth rates (+10.3% in 2013), and despite recent regulation requiring no TV sales house to control more than 35% market share, there are still only a handful of dominant points of sale and therefore limited competition. The Winter Olympics in Sochi in 2014 will also benefit television ad spend. Russia’s GDP growth should remain robust in the high single digits, which will continue to drive Russia’s advertising market higher in the top 10 global rankings.

Latin America bracing for the World Cup

As Latin America is gearing up for the 2014 FIFA Soccer World Cup (the first to be organized in the region since Mexico 1986), we anticipate stronger advertising demand in the next 12 months, most notably in the host country Brazil, and mostly on television. The region’s ad revenues will grow by +12.5% in 2013: growth will be moderate in markets with low inflation (Brazil +10.7%, Mexico +5.5%) but explosive yet again in countries with hyper-inflation (Argentina +28.7%, Venezuela +15.7%).
 
In 2014, ad growth will accelerate further to +12.9%. The entire region will benefit from domestic and international brands investing to be associated with the event. The Brazil market will grow by +13.6%, Argentina by +21.9% and Chile by +4.7%. Television will be the biggest winner, growing +13.6% to $25.5 billion and strengthening its leadership in the region (59% market share) but digital media and social are also expected to thrive, with ad revenues growing by +19.7% and +43% respectively. Brazil is already the second biggest market for Facebook with more than 70 million users and the big sports events of 2014-2016 are bound to accelerate social usage even further.

2014: strongest growth since 2010

For 2014 MAGNA GLOBAL predicts global advertising revenues to grow by +6.1% to $515 billion, which is a slight acceleration compared to our December forecast (+6.0%). This will be the highest annual growth since 2010, when the global advertising market grew by +8.2%, having rebounded from the worst recession year on record, 2009 (-11%).
 
The global ad market will be driven by a stronger economy (+4.0% of real GDP growth according to the IMF), aggressive economic policy in China and Japan and stabilization in Western Europe. In addition, ad spend will be driven by the even-year events: Soccer World Cup in Brazil (with soccer becoming increasingly popular in markets like Japan, China and the US), Winter Olympics in Sochi, Russia, and the mid-term election cycle in the US. Since the “Citizen United” decision of the Supreme Court that removed any limitation to fund-raising and campaign spending, ad spend around mid-term congressional elections and “propositions” has become almost as big as a presidential race year.
 
We have increased our 2014 forecast for North America from +5.1% to +5.6% (US: from +5.4% to +5.9%) and our forecast for EMEA from +3.2% to +3.3%. APAC will grow by +7.4% and Latin America by +12.9%.

Focus on Digital Media

In its new report, MAGNA GLOBAL is also focusing on two major trends affecting digital media advertising: the rise of programmatic buying and social media.
 
Programmatic buying is a method of buying and selling digital display inventory through automated, data-driven platforms and, sometimes, through real-time bidding (RTB). It fundamentally allows the demand side to buy audience for online display and video formats as they buy key-word search. Programmatic transactions continue to grow in the US, commanding an increasingly large share of display advertising revenues. In 2012, programmatic transactions represented $2.4 billion i.e. 17.4% of total display advertising, and we expect this to increase to 48% of revenues by 2017. Internationally, most markets still lag the US at this point, but some less advanced digital markets may face smaller legacy issues and resistance to change in the value and therefore evolve more rapidly towards automation. Some Western Europe are showing robust RTB growth such as the Netherlands where 29% of digital ad sales are already transacted via programmatic methods. Expansion in APAC and South America is still in more nascent stages.
 
For the first time, MAGNA GLOBAL is publishing estimates and forecasts on the size of social media within internet advertising revenues. Says Vincent Letang, Director of Global forecasting and author of the report: “In recent years, social media has become a central part of the online experience, partly at the expense of portals and emailing. Everywhere, internet users already spend 25% to 30% of their online time on social networks. Facebook is the leader with 1.1 billion users to-date, but other forms of social internet are flourishing, notably in Asia or Russia, and monetization is accelerating in 2013”. Global social advertising revenues are estimated $5.9bn in 2012, growing 36.8% compared to 2011. Social media advertising is expected to increase further from $8.2bn in 2013 to $24.3 in 2018, representing a 24% CAGR in the next five years.
 
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The next MAGNA GLOBAL forecasts will be published in December 2013.
 
About MAGNA GLOBAL Advertising Forecasts:
For more than 40 years, MAGNA GLOBAL forecasts have been the industry’s leading source for measuring and forecasting advertising revenues. MAGNA GLOBAL forecasts media owners’ advertising revenues in the US and around the world through financial analyses of media companies’ public filings, government reports, trade association data and local market expertise. MAGNA GLOBAL’s new methodology was introduced to the industry in 2009 and has redefined measurement for the advertising-supported media economy, delivering unparalleled authority and accuracy. Our Global Media Suppliers Advertising Revenue Forecasts include television (pay and free), internet (search, display, video, mobile), newspapers, magazines, radio, cinema and out-of-home (traditional and digital). Our report monitors media suppliers’ revenues in 73 markets, including all major countries, representing 95% of the world’s economy. Three new markets have been added in the June 2013 report: Sri-Lanka, Pakistan and Kenya. Our forecasts are updated twice a year and available to our subscribers. Our US Advertising Revenue Forecast study includes detailed data for more than 40 categories of media on a quarterly basis from 1990 to 2012 and on an annual basis from 1980 to 2017, updated quarterly.
 
Please contact vincent.letang@magnaglobal.com for further details.
 
About MAGNA GLOBAL:
MAGNA GLOBAL is the strategic global media unit of Interpublic Group, driving forecasts, insights and negotiation strategy across all media channels. The MAGNAGLOBAL Intelligence Unit delivers the industry’s most accurate and authoritative forecast of media value. The MAGNA GLOBAL Investment Unit harnesses $36 billion of Mediabrands global media billings. Follow us on Twitter for updates @MAGNAGLOBAL.
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