According to ZenithOptimedia’s new Advertising Expenditure Forecasts, global adspend will grow 4.4% to reach US$544bn in 2015, and will accelerate to 5.3% growth in 2016, boosted by the 2016 Summer Olympics in Rio and the US Presidential elections. Adspend will then slow down slightly in the absence of these events, growing 4.8% in 2017.
ZenithOptimedia has, however, reduced its forecasts for adspend growth in 2015 and 2016 by 0.5 and 0.3 percentage points respectively, due primarily to the deepening recession in Russia, Ukraine and Belarus, and a slowdown in growth in China. Our forecasts for each year are above the average annual growth rate for the last 20 years (4.2%), and well ahead of the average for the last 10 years (2.8%).
Online video is the fastest-growing advertising category
The fastest-growing advertising category is online video, thanks to the explosion of mobile video consumption and the spread of internet-connected devices, such as smart TVs and games consoles. Smartphones have bigger and better displays, and transmission technologies like 4G are improving connection speeds, making it possible for consumers to watch high-quality video content wherever and whenever they choose. According to the Ooyala Global Video Index, mobile devices accounted for 34% of all online video plays in Q4 2014, up from 17% a year earlier. Several other factors are contributing to online video growth: measurement agencies are investing in research to track consumers’ exposure to video ads across desktop computers, tablets and television screens; the main social media platforms are all developing their video products; and more online video is being sold by programmatic buying, providing advertisers with more control and better value. We estimate that global online video grew 34% to US$10.9bn in 2014, and we forecast it to grow at an average of 29% a year to reach US$23.3bn in 2017.
Deterioration in Eastern Europe
The conflict in Ukraine has severely disrupted the domestic economy, while Russia has suffered from sanctions imposed by the US and the EU, the sanctions it imposed in response, and a withdrawal of international investment. These shocks have been exacerbated by a sharp drop in the price of oil, which accounts for 70% of Russia’s exports, and devaluation of the Ukrainian and Russian currencies. These problems have since spread to Belarus, whose main trading partner is Russia, by some distance. International advertisers have responded by rapidly reducing their exposure to these markets, while domestic advertisers have been forced to cut their budgets to minimise their losses. We forecast adspend in Ukraine to shrink 62.3% this year, on top of a 51.2% decline in 2014. Russian adspend grew just 4.3% in 2014, which was the first year of growth below double-digit rates since 2009, and we expect the market to shrink by 16.5% in 2015. We forecast a 33.5% decline in adspend in Belarus this year, following 7.6% growth in 2014. Between them, these three markets account for 2.1% of global adspend, so their sudden decline has slowed but not derailed global adspend growth.
China slows, but continues to grow at twice global rate
The Chinese economy is starting to slow after years of blistering growth – the technology gap with mature markets has narrowed, making productivity growth harder to come by; China’s previous debt-fuelled growth has left it with a large repayment burden; and the property sector is burdened by a large amount of unsold property. However, it is still growing at rates most other countries would regard with envy: GDP grew 7.4% in 2014 and the government has set a target of 7.0% growth in 2015. China’s ad market is slowing in step with its economy, but it too remains very healthy by international standards. We forecast that Chinese adspend will grow 9.1% this year – below the 10.5% annual growth it averaged over the past five years, but more than twice the rate of the world as a whole. Between 2014 and 2017, we expect the Chinese ad market to enjoy an average growth rate of 8.5% a year.
Eurozone recovery on track despite worries about Greece
Although the election of its new Syriza-led government has raised concerns about Greece’s willingness and ability to reform its economy, pay its debts and even remain in the eurozone, the recovery in eurozone adspend has remained on track. After shrinking 5.2% in 2012 and 2.5% in 2013, adspend in the eurozone grew 1.5% in 2014. We expect growth to continue to improve, though very gradually, from 1.6% in 2015 to 1.9% in 2017.
“Online video combines the emotional connection of television with the efficient targeting and measurable effectiveness of digital display. While television will remain dominant for many years to come, advertisers are increasingly utilising online video as an invaluable complement, giving them new opportunities to communicate brand values to consumers,” said Steve King, ZenithOptimedia’s CEO, Worldwide.