Ad Spend Forecast: As West Slows Down, Developing Markets to Propel Growth

ZenithOptimedia has downgraded its forecasts for ad spend growth in 2008 from 3.7 percent to 3.5 percent for North America and from 3.9 percent to 3.7 percent for Western Europe, citing credit-crunch worries by investors, consumers and advertisers in Western markets, reports MarketingCharts.

High energy and commodity prices are stoking inflation, so real growth (after adjusting for inflation) is unlikely to exceed 1 percent in either region, ZenithOptimedia said - but it upgraded both regions’ forecasts for 2009 and 2010 in light of stronger-than-expected growth in internet advertising.

Other highlights from the forecast:

• World ad spend will grow 6.6 percent in 2008, up slightly from the 6.5 percent growth predicted in Zenith’s March forecast.
• Aside from North America and Western Europe, forecasts for the rest of the world are up from 11.1 percent to 11.8 percent.
• Developing markets will contribute 62 percent of ad expenditure growth between 2007 and 2010, and increase their share of the global ad market from 27 percent to 33 percent.
• Economic uncertainty in developed markets is accelerating the shift of budgets to accountable internet advertising.
• Internet advertising will break the 10 percent share barrier this year and account for 13.6 percent of world ad spend by the end of 2010.

Below, additional forecast info issued by ZenithOptimedia.

Advertising Expenditure by Region

(View tables of major media ad expenditures and major media ad expenditure growth, by region, 2006-1010.)

The rest of the world, in stark contrast to North America and Western Europe, is exhibiting even more strength than it was three months ago. Zenith now expects ad expenditure outside North America and Western Europe to grow 11.8 percent over the course of this year, 0.7 percentage points more than was forecast at the end of March.

After earlier export-led expansion, domestic consumption is assuming growing importance in developing-market economies, providing fertile ground for advertisers to establish and expand their brands:

• The net result is that the world ad market is forecast to grow 6.6 percent this year, fractionally more than the 6.5 percent predicted in March and well above the 5.2 percent rate at which it has grown over the last 10 years.
• Growth is expected to remain above-trend in 2009 and 2010, thanks to continued dynamism in Asia-Pacific, Central & Eastern Europe, Latin America and the Middle East.

Developing markets will continue to contribute to the growth in global ad expenditure (see table of top 10 contributors to global ad spend growth, 2007-2010.)

• China, Russia and Brazil follow closely behind the US as contributors to growth over the next three years, even though China’s ad market is just 9 percent of the size of the US ad market, and Brazil’s and Russia’s are 5 percent.
• Over the same period, developed markets (North America, Western Europe and Japan) will contribute 38 percent of new ad expenditure, while developing markets (everywhere else) will contribute 63 percent.
• Over that period the proportion of global ad expenditure going to developing markets will rise from 27 percent to 33 percent

Between 2007 and 2010, Brazil will rise in the rankings of the largest advertising markets from eleventh to sixth, and Russia will rise from thirteenth to seventh, displacing Spain and Australia from the top 10. (View tables of top 10 markets in 2007 and 2010.)

Global Advertising Expenditure/Share by Medium

(See tables of global ad expenditure/share by medium.)

Internet ad growth continues to run ahead of expectations. Faced with an uncertain economic future, Western advertisers are shifting even more of their budgets online, where the returns on investment are obvious, easy to quantify and fine-tune.

Moreover, the quantity and quality of online video is improving all the time, and online audiences for full-length films and television programs - and the ads that surround them - are growing rapidly.

Paid search continues to attract new advertisers, particularly small companies that may previously have advertised only in directories, if at all.

• Zenith now expects internet advertising to grow 26.7 percent and break through the 10 percent share barrier this year, a year earlier than predicted just three months ago.
• By 2010, it is expected to attract 13.6 percent of all advertising, well ahead of Zenith’s previous prediction of 12.3 percent.

Newspapers, magazines, television and radio are all losing share to the internet, but newspapers are clearly suffering the most, partly because news websites offer more timely coverage and instant reaction, and partly because classified advertising works better online than offline.

• Newspapers’ share of the global ad market fell by 7.6 percentage points in the 10 years to 2007, and Zenith expects it to fall another 3.5 points by 2010.
• It expects 4 percent growth in nominal newspaper ad expenditure between 2007 and 2010, but this equates to a 6 percent drop after adjusting for expected inflation.

Outdoor is the only other medium to be gaining market share. As well as investing in traditional displays, contractors are installing digital billboards that can display eye-catching creative, change at short notice and interact with consumers (for example by sending messages to their mobile phone by Bluetooth, or by using motion sensors to react to their movements), all of which make outdoor more attractive to advertisers.

Zenith expects outdoor to increase its share of the global ad market from 6.2 percent in 2007 to 6.7 percent in 2010.