ZenithOptimedia forecasts 4.1% growth in global adspend in 2013

Global ad recovery to accelerate from 4.1% growth in 2013 to 5.6% in 2015

ZenithOptimedia predicts global ad expenditure will grow 4.1% in 2013, reaching US$518 billion by the end of the year. As has been the case since the economic downturn began in 2007, this growth will be led by developing markets, which we forecast to grow by 8% on average in 2013, while developed markets grow by just 2%, weighed down by the eurozone crisis.

 Internet advertising is supplying most of the growth in expenditure by medium, driven by rapid development in social media and online video. We forecast internet advertising to grow by 14.6% in 2013, while traditional media grow by 1.7%.

 “Advertisers are willing to increase their budgets wherever they can achieve a strong return on investment,” says Steve King, Global Chief Executive Officer for ZenithOptimedia Group. “This means that developing markets, social media and online video are all growing rapidly, supporting continued expansion in global ad expenditure despite stagnation in the eurozone.”

Advertising expenditure by region

Major media (newspapers, magazines, television, radio, cinema, outdoor, internet)

US$ million, current prices. Currency conversion at 2011 average rates.

Source: ZenithOptimedia

 Major media (newspapers, magazines, television, radio, cinema, outdoor, internet)

Year-on-year change (%)

Source: ZenithOptimedia

The advertising market has been slow to recover from its 9.6% decline in 2009, the sharpest decline we have on record. This is mainly because the underlying economic recovery has been slow and erratic, as is normally the case when recessions are caused by financial crisis.

The eurozone crisis in particular is dragging down economic growth at the moment. This is because the eurozone is in recession, its imports from other countries are slowing down or shrinking, and the risk of eurozone collapse adds to global uncertainty, leading companies to hoard cash instead of investing in growth.

 Developing markets slowed in mid-2012, partly thanks to weak exports to the eurozone, but recent economic data suggests that government stimulus has helped prevent a prolonged slump.

 The main risks to growth in 2013 are the US fiscal cliff (automatic increases in tax and reductions in public spending that come into effect in January) and the potential for further conflict in the Middle East (and therefore higher oil prices). The general consensus among economic forecasters, however, is that the global economy will gradually build up speed over the next three years. The IMF predicts nominal GDP growth will rise from 5.6% in 2012 to 6.9% in 2015 (in the countries included in our forecasts, converted into US dollars at average market exchange rates for 2011).

ZenithOptimedia predicts ad expenditure will rise in step with GDP over the next three years, although ad expenditure growth will remain behind GDP growth throughout our forecast period. We do not expect ad expenditure to grow at or ahead of GDP until full confidence in the global economy is restored. In particular this will require a convincing, permanent solution to the eurozone crisis.

Growth in adspend by regional bloc (2013 v 2012)

Source: ZenithOptimedia

For this edition of our advertising forecasts, we decided to look in more detail at the growth rates of different regional blocs, because the regions we usually look at (e.g. Western Europe, Central & Eastern Europe and Asia Pacific) do not capture the nuances of how different parts of the world are currently developing. These blocs have been defined by the similarity of the performance of their ad markets as well as their geographical proximity.

In Europe, we have separated out the ‘PIIGS’ markets (Portugal, Ireland, Italy, Greece and Spain), which are suffering much more from the eurozone crisis than other European markets, into the Peripheral Eurozone bloc. Their ad markets have fallen even more sharply than their economies, as local advertisers cut back to reduce losses and preserve cash, and multinationals withdraw budgets to redeploy in more economically healthy regions. We estimate that ad expenditure in Peripheral Eurozone will be down 15.3% by the end of 2012, and decline another 4.0% in 2013. We then expect spending to stabilise in 2014, leading into mild recovery (2.1%) in 2015.

 Our next bloc – Northern & Central Europe – includes the rest of Western Europe, as well as Central European countries like the Czech Republic, Hungary and Poland, which are currently performing more like countries such as France, Germany or the UK than the much-faster growing markets of Eastern Europe such as Russia and Ukraine. This is partly because many of these Central European markets are in the eurozone, and because they have strong trading links with Western Europe. Advertising budgets in this bloc are essentially on hold as advertisers await more clarity on the future of the eurozone. We expect ad expenditure to shrink 0.2% in 2012 and grow 0.8% in 2013, then enter another mild recovery in 2014 and 2015 (with 2.1% and 2.3% growth respectively).

 Eastern European advertising markets like Russia and Ukraine generally recovered quickly after the 2009 downturn and have since continued their healthy pace of growth. Their near neighbours in Central Asia, such as Azerbaijan and Kazakhstan, have behaved very similarly, so we have gathered them together under the Eastern Europe & Central Asia bloc. Compared to the static markets of Central Europe, these markets are characterised by high rates of economic growth and a low proportion of advertising to GDP. We estimate that ad expenditure in Eastern Europe & Central Asia will have grown 10.7% by the end of 2012, followed by growth of 11.7% in 2013. As these markets develop over the long term, we expect advertising’s contribution to the economy to rise, as it has done historically as other markets have developed, so we expect rapid growth in ad expenditure from this bloc to continue for many years to come.

 Japan behaves differently enough from other markets in Asia to be separated into its own bloc. Japan has had a strong year in 2012 as it recovers from the disaster of last year’s earthquake and tsunami – we expect ad expenditure to be up 3.1% by the end of the year. In 2013, however, we expect it to revert to a more typical 1.4% growth, held back by Japan’s persistently low-growth economy.

 Apart from Japan, there are five countries in Asia with developed economies and advanced ad markets that we have called Advanced Asia: Australia, New Zealand, Hong Kong, Singapore and South Korea. We expect a mediocre 2.3% growth from these ad markets in 2012, partly because of a slowdown in trade with China and partly because global uncertainty has encouraged advertisers to devote more of their resources to developing rather than developed markets. However, we expect Advanced Asia to return to 4.0% growth in 2013, followed by 4.7% in 2014 and 5.0% in 2015 as advertisers rebuild their confidence in the global economy.

We characterise the rest of Asia as Catch-up Asia (China, India, Indonesia, Malaysia, Pakistan, Philippines, Taiwan, Thailand and Vietnam). These economies are growing extremely rapidly as they adopt Western technology and practices, often leap-frogging over superseded technology that has become entrenched in more developed economies, while benefiting from the rapid inflow of funds from investors hoping to tap into this growth. Catch-up Asia barely noticed the 2009 downturn (ad expenditure grew by 7.2% that year) and since then has grown comfortably at double-digit rates. We expect ad expenditure in Catch-up Asia to be up 10.8% in 2012, with 10%-11% annual growth in 2013 to 2015.

We have not changed the definition of North America, Latin America or the Middle East & North Africa (MENA) in this analysis.

 Ad expenditure in North America is much more robust than in Europe. Consumer confidence, retail sales, job numbers and house construction are all trending encouragingly upwards. We expect 4.1% growth this year, boosted by unexpectedly strong ratings for the Olympics and record political spending in the US. In the absence of these quadrennial effects we expect growth to slip back to a still-respectable 3.5% in 2013, followed by 4%-5% annual growth in 2014 and 2015.

 Latin America is another region with rapidly growing economic output like Eastern Europe & Central Asia and Catch-up Asia, and its ad market is growing at a similar rate. Latin America’s growth rate will be slightly disappointing at 7.8% in 2012, partly because of a row over how TV advertising is monitored and sold in Mexico, but it should return to 9%-10% growth a year in 2013 to 2015.

Ad markets in Middle East & North Africa are still constrained by the region’s social and political turmoil, which has left many advertisers cautious about attracting negative attention. We forecast just 1.0% growth in ad expenditure here this year, followed by 2%-3% annual growth from 2013 to 2015.

 Average annual growth in adspend by regional bloc (2015 v 2012)

Source: ZenithOptimedia

 In the medium term we can divide our blocs into four categories: no growth, low growth, medium growth and high growth. In the no-growth category is Peripheral Eurozone, where slight recovery in 2015 will not compensate for decline in 2013, so we forecast an average 0.5% decline in expenditure between 2012 and 2015. The low-growth blocs are Japan, Northern & Central Europe and MENA, where we expect average growth of 1.6% to 2.5%. North America and Advanced Asia are in the more dynamic medium growth category, with 4.2% to 4.6% annual growth. But the high-growth markets of Latin America, Catch-up Asia and Eastern Europe & Central Asia are well ahead with an average of 9.6% to 11.0% growth a year expected between 2012 and 2015.

 Top ten contributors to adspend growth (2015 v 2012)

US$ million, current prices. Currency conversion at 2011 average rates.

Source: ZenithOptimedia

 Despite the rapid growth of the developing markets, the US is still the biggest contributor of new ad dollars to the global market. Between 2012 and 2015 we expect the US to contribute 28% of the US$76 billion that will be added to global adspend. However, seven of the ten largest contributors will be developing markets, contributing a further 44% of new adspend. Overall, we predict developing markets will contribute 61% of adspend growth between 2012 and 2015, and increase their share of global adspend from 34% to 37%.

Top ten ad markets

US$ million, current prices. Currency conversion at 2011 average rates.

Source: ZenithOptimedia

 We forecast six of the current top-ten ad markets will retain their positions in 2015: the USA, Japan, China and Germany in first to fourth place, Australia at eighth and South Korea at tenth. Three markets will fall down the rankings: the UK from fifth to sixth, and France from seventh to ninth, while Canada will fall out of the top ten altogether. Meanwhile Brazil will overtake the UK to take fifth place, while Russia will rise from eleventh place in 2012 to seventh in 2015.

Global advertising expenditure by medium

The internet is still the fastest growing medium by some distance. We expect it to have grown by 15.2% over the course of 2012, and forecast 14%-15% annual growth for 2013 to 2015. Display is the fastest-growing sub-category, with 20% annual growth, thanks to the rapid rise of social media and online video advertising, each of which are growing at about 30% a year. Display advertising is now growing substantially faster than paid search (which we forecast will grow by 12% a year to 2015) and classified (5% a year). Display advertising accounted for 38% of internet advertising in 2012; by 2015 we expect this proportion to increase to 43%.

 Internet advertising by type

US$ million, current prices Currency conversion at 2011 average rates.

Source: ZenithOptimedia

 Since it began in the mid-1990s internet advertising has principally risen at the expense of print. Between 2002 and 2012 the internet’s share of global advertising rose by 15 percentage points, while newspapers’ share fell 12 points and magazines’ share fell by 5 points. We predict internet advertising will increase its share of the ad market from 18.0% in 2012 to 23.4% in 2015, while newspapers and magazines will continue to shrink at an average of 1% a year. Note that these figures include only advertising in printed editions of these publications, not on their websites, or in tablet editions or mobile apps, all of which are picked up in our internet category.  We forecast internet advertising to overtake newspapers for the first time in 2013, and then exceed the combined total of newspaper and magazine advertising in 2015.

 The internet is by some distance the biggest contributor of new ad dollars to the global market. Between 2012 and 2015 we expect internet advertising to account for 59% of the growth in total expenditure. The next biggest is television, which we forecast to contribute 39% of growth.

 Television’s share of global adspend has stabilised, after growing slowly but surely for most of the last three decades. Television accounted for 31% of spend in 1980, 32% in 1990, 36% in 2000 and 39% in 2010. Now we expect television to fall back slightly, from 40.2% in 2012 to 40.0% in 2015.

However, the growth of online video means that video formats overall (television plus online video) are still increasing their share of global spend, from 41.5% in 2010 to 42.6% in 2015.

Advertising expenditure by medium

US$ million, current prices Currency conversion at 2011 average rates.

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 (%)