World Media 2006: Global market analysis

Mature ad markets such as the US are devising new ways to reach consumers and maintain adspend, while younger upstarts such as Brazil enjoy fast growth. Jonathan Barnard surveys the planet.

Traditional advertising is under threat, or so we are constantly told. Newspaper readership is falling, film-lovers are watching DVDs at home instead of visiting the cinema and personal video recorders are making it easy for viewers to skip TV ads. Radio stations are cutting the number of commercials they air and listeners in the US are signing up to satellite radio services that enable them to avoid ads. Distribution over the web is allowing content producers to bypass traditional media entirely.

These threats certainly exist but in most markets they are only affecting consumer and advertiser behaviour at the margins. Sky+ may have doubled its penetration during 2005, for instance, but it is still only in 5 per cent of households in the UK and Ireland. But such problems are barely noticeable outside developed markets. PVRs are only available in a few advanced markets and newspaper readership is rising in the developing world. But the threats will become more widespread over the coming years and they have already stimulated some advertisers and agencies to devise creative new ways of reaching consumers.

ZenithOptimedia forecasts worldwide adspend will rise by 6 per cent in 2006 and will continue to grow at this rate for the next two years at least. The global ad market has grown at this rate on average for the past 20 years, so we think advertising is in a healthy state. There is no sign that any medium is about to start a long-term decline in absolute spend.

ONLINE

The internet is the star performer: we expect online spend to grow by 61 per cent between 2005 and 2008, more than three times the 18 per cent growth rate of the market as a whole. We have consistently raised our forecasts for web advertising because it has exceeded expectations. We now expect it to attract 6 per cent of world adspend by 2008, ahead of outdoor and just behind radio. Even this may be conservative: the internet already attracts 6 per cent of spend in the US, 7 per cent in the UK and 9 per cent in Sweden. Web penetration is levelling off in the richest countries but broadband is becoming faster and more widespread, giving the consumer a richer experience and offering advertisers new opportunities.

The web has established itself as a medium for entertainment as well as communication, commerce and research. Innovation in web advertising - which led to the recent explosion in sponsored search - continues as advertisers experiment with games and broadband video. The market for sponsored search has nearly caught up with that of display in size terms and could well overtake it in 2007.

OUTDOOR AND CINEMA

Outdoor and cinema are also growing well above the average market rate.

We forecast outdoor ad expenditure to grow 22 per cent and cinema ad expenditure to grow 26 per cent between 2005 and 2008. Outdoor - often described as the "last broadcast medium" - is ubiquitous and inescapable in most population centres. It is a good substitute for television in markets where TV audiences are shrinking. It is not intrusive, so it does not irritate the consumers it is trying to reach.

Outdoor contractors continue to invest in improving their products, developing new types of display and producing more sophisticated research, as well as extending their reach into unconventional areas.

Cinema is the smallest of the traditional media - a tenth of the size of the internet when measured in ad dollars - but it is still quite new in the US, where it is growing rapidly.

TELEVISION

Television's growth is vigorous in young consumer markets, where brands are keen to establish national recognition, brand counts are increasing and consumption is becoming a more important component of the economy.

But worldwide it roughly tracks the market average - we expect advertising expenditure to grow by 20 per cent between 2005 and 2008.

In two of the oldest ad markets - the US and the UK - television has been losing share for years as viewers have migrated from the big terrestrial channels to cable and satellite rivals. In the longer term, PVRs threaten to reduce the number of viewers available to advertisers. Advertisers hope that newer forms of television marketing - such as sponsorship, product placement and advertiser-supplied programming - will allow them to circumvent ad avoidance but these are unlikely to replace the 30-second spot fully.

RADIO

Radio has the intrinsic advantage of being a "passive" medium that is on in the background. It tends to be well established in listeners' daily routines and can be enjoyed inside and outside the home. However, radio is vulnerable to music delivered over the internet or stored on MP3 players, or to satellite radio services in the US. We think radio adspend will grow by 14 per cent between 2005 and 2008, slightly behind the market as a whole.

PRINT OVERALL

Print's long-term underperformance in participating in ad growth is well known, although both the newspaper and magazine ad markets continue to grow in absolute terms. Between 2005 and 2008, we predict advertising expenditure will grow by 11 per cent in newspapers and 15 per cent in magazines. We expect print's share of the world ad market to fall from 44 per cent to 42 per cent over the same period, this loss of share matching the 2 per cent increase we predict in the internet's market share.

NEWSPAPERS

Newspapers' value to advertisers is undermined by the steady decline in circulations across the developed world, which the launch of many free commuter newspapers in the past few years has failed to halt. Of course, many of the lost readers are now getting their news from the internet, where newspaper publishers generally have a strong presence, but it is hard to persuade readers to pay for content this way. Classified advertising is particularly prone to migrate from print to screen. Even when publishers recapture their classified advertisers online, competition from other internet services, such as search sites, reduces their pricing power.

MAGAZINES

Magazines have held on to more of their readers than newspapers, partly because it is more difficult to replicate the experience of reading a magazine online and partly because magazine publishers have responded to changing consumer trends. Publishers have launched titles and genres while closing down titles that have had their day.

GEOGRAPHICAL TRENDS

Adspend growth is distributed unevenly across the world - there is a sharp divide between the developed markets, where growth is slow, and the developing markets that are expanding quickly. We predict North America and Europe to grow at 4-5 per cent a year until 2008. Structural problems in Europe - such as rigid labour markets and Eurozone monetary inflexibility - remain unresolved and are stifling economic growth in important markets such as France and Germany.

Asia-Pacific is accelerating, led by China as it gears up for the 2008 Olympic Games in Beijing. Double-digit growth is also expected to continue in India, Indonesia and Vietnam. Asian adspend growth should increase from 6 per cent in 2006 to 8 per cent in 2008.

Latin America and the rest of the world are largely composed of small, quickly developing but volatile markets that are subject to large swings in expenditure. Latin America has been particularly vulnerable to economic shocks and will have to avoid these if spend is to increase ahead of the world average in the long term. Over our forecast period, we think annual growth will be in high single digits in Latin America and double digits in the rest of the world.

Some countries are joining the ranks of the world's largest ad markets while still growing at the pace of developing markets. Five countries stand out: Brazil, China, India, Indonesia and Russia. They are characterised by fast-growing economies, large populations distributed over huge areas and a rapid expansion of a consumer middle class. Between them, these five countries contribute 24 per cent of the total growth in adspend we forecast between 2005 and 2008. We predict they will increase their share of the world ad market from 7 per cent to 10 per cent over the period.

Their average growth rate is four times that of the rest of the world and this is likely to continue as advertisers extend their marketing efforts from the cities to more rural areas. By 2008, we expect China to be a larger ad market than France, and the fifth-largest in the world, while Brazil and Russia will be comparable in size to Spain and rank ninth and tenth in size.

- Jonathan Barnard is the head of publications at ZenithOptimedia.

Market size 2005: The area of the circle represents the market size USdollars million

Market growth 2005-08: The colour of the circle represents how fast the market is growing

% GROWTH 2005-08

US - This, obviously, is the world's largest and most diverse media market. There are, for instance, 10,000 commercial radio stations in the US and 1,500 daily newspapers. Traditional spot advertising revenue is still bleeding out of the traditional TV networks, while online advertising continues to grow at an astonishing rate.

INDIA - Media is one economic sector in which India fails, arguably, to punch its weight. Adspend remains below 0.5 per cent of GDP - puny for a supposedly emergent economy. The fragmented nature of the market - both in terms of audience and ownership - is a significant factor.

CHINA - Advertising groups are seeking leading positions in the fast-emerging BRIC countries (Brazil, Russia, India and China). The analyst Numis predicts double-digit growth in WPP's BRIC markets, resulting in them representing 25 per cent of the group's revenue by 2015.

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