MAGNA GLOBAL Ad Forecasts: Reaching the Half Trillion Mark

In its latest study of global media owner advertising revenues, covering 73 individual countries, MAGNA GLOBAL forecasts that revenues will grow by +6.4% in 2014 to $516 billion. This is in line with our previous forecast (+6.5% published in December 2013) and represents a significant acceleration from 2013 (+4.2%). Globally, the advertising market is now a half-trillion market. For context, this is similar to the global revenues of the air transportation industry ($518bn), but twice the size of the computer hardware industry, and a quarter of the size of the automotive industry ($2 trillion) as estimated by Bloomberg.
 
Two factors are combining to drive advertising expenditure in 2014.
 
First, the economic environment is gradually improving. In its April 2014 update, the IMF forecast world output (real GDP) to accelerate to +3.6% in 2014. This is marginally below its January forecast (+3.7%) but still stronger than 2013 growth (+3.0%). The latest IMF update also confirmed that the Euro markets are finally emerging from recession in 2014 (+1.2% real GDP growth) while the US economic growth will accelerate from +1.9% in 2013 to +2.8% in 2014.
 
Second, non-recurring even-year events are generating incremental marketing and advertising activity. The largest of these are the Winter Olympics, the soccer World Cup and the US mid-term elections. The implementation of Affordable Care Act and the general elections in India are also powerful non-recurring drivers on a local level. Globally, MAGNA GLOBAL believes that these events will be generating an extra $7.5bn in 2014, i.e. adding 1.5% on top of the underlying ad growth. Stronger-than-average-impact (in percentage of incremental spend) is expected in the US, Brazil, the UK, Russia and Canada.
 
Despite the apparent stability of our top-line growth forecast, some significant revisions have been made on a country-by-country basis. Focusing on the world’s 10 biggest markets, we are increasing the forecast for four markets but decreasing it for the other six.
 
On the positive side, the US (#1), Canada (#8) and the UK (#5) will all grow faster than previously expected (by +6.0%, +4.1% and +5.3%, respectively) due to a stronger economic outlook locally. Brazil (#6) should grow by 16% (previously 13%) thanks to the FIFA World Cup and despite a fragile economic and social environment.
 
On the other hand, China (#2) and Russia (#10) will grow by less than previously expected but still above global average (by +12% and +7% respectively). Germany (#4), France (#7) and Australia (#9) forecasts are revised downwards to low-single-digit as the economic recovery remains fragile in the Euro area and the Australian economy is faltering. Finally Japan’s growth will be lower than expected due to the negative impact of the new consumption tax increase that took place in April 2014.
 
Vincent Letang, EVP, Director of Global Forecasting at MAGNA GLOBAL, said: “The global advertising economy returns to robust growth as digital media spend is growing by double-digits and television is benefitting from the various non-recurring events of 2014.The only losers in that picture are other traditional media categories, that are losing market share at an accelerated rate”.
 
2014 Advertising Growth Around the World

Of the $31bn of additional advertising spend expected in 2014, almost 60% ($10bn) will come from North America and Emerging Asia ($8.5bn). In terms of individual markets, two markets only (US and China) will provide nearly 50% of the world market’s growth ($9.5bn and $5.5bn resp.) following by Brazil and Indonesia ($4.5bn combined).
 
EMEA

After years of declines, advertising spend in Western Europe has stabilized over the last 12 months, in line with the stabilization of the economy. Dragged down by low demand, advertising prices hit rock-bottom in the first half 2013 in many markets and have started to increase in several markets (television in particular, e.g. in Spain and Greece). The UK market actually recovered two years ago and spending in the beginning of 2014 was particularly strong, amidst an accelerated economy, which led us to increase our forecast to +5.3%. The economic and advertising recovery is significantly more fragile in continental Europe. We are reducing our forecasts for Germany and France, both of which should see little growth (between 0% and +1.5%). Ad revenues will also stabilize in Italy and Spain, but only digital media will show real growth in those markets, while television revenues will grow in low-single-digits and all other media categories (print in particular) will continue to decline.
 
Central and Eastern European ad markets will grow by +6.3% this year following 2013’s +7.2% growth. This is down from our previous forecast as a result of economic slowdown and political uncertainty. This will represent the lowest growth rate since 2009 for this emerging region that 4/13
represented $22bn last year (5% of the global market). Russia represents nearly half of the total regional spend, and its growth will slow to +7.1% this year, lower than our previous forecast (+11.4%) and 2013’s growth of +9.4%. The IMF reduced its 2014 real GDP growth forecast down to 1.3% in April, down from 3% in October 2013. Uncertainty regarding the Ukrainian crisis makes the advertising environment slightly less conducive to international brands (8 of the 10 biggest ad spenders in Russia are Western brands). While Ukraine only represents 5% of regional spend, we now expect advertising spending to decrease due to significant political uncertainty. The other large markets in the region will see mixed performance: Poland will fully recover (+6%); Turkey remains a growth engine even though 2014 growth will moderate to just under 9%.
 
Elsewhere, ad spend in Middle-East and Africa will grow by an average 9% this year with a much faster growth in Egypt and Kenya (above 20%) while the largest and most developed market South Africa will slow-down to 4%.
 
Asia-Pacific

APAC advertising markets will grow by +7.6% to $150 billion, reaching 29% of the global marketplace. China has now become the largest market in the region, passing Japan with a combination of strong growth and depreciation in the Yen. Digital will represent 26.4% of total spend in 2014, up from 23.4% in 2013. Mobile ad spend in APAC already represents 19% of total digital spend. This is the highest regional level outside of North America. Japan, Hong Kong, Thailand and Singapore have some of the highest mobile advertising penetration ratios, globally.
 
The fastest growth in 2014 will come from Indonesia and Vietnam, driven by booming economy growth. The slowest growth will occur in Thailand (2% decline, due to economic and political difficulties) and Australia (due to economic slowdown). APAC growth is driven by its emerging markets* (+12.5% growth in 2014) which continues to be one of the engines of global advertising growth. Emerging markets within APAC will represent $76bn in 2014, or half of total APAC spend. Emerging Asia will represent 15% of global ad revenues this year, up from just over 5% a decade ago. (*“Emerging Asia”, for the purpose of this report, includes China, India, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam).
 
China is now the largest market in APAC, and will represent $51bn of advertising spend this year, ahead of Japan’s $43.5bn. Looking at some of the largest markets in Asia, China will see strong growth again this year at +12%, similar to last year’s. While the overall economy continues to moderate with signs of the property market finally slowing, the government continuing to rein in credit growth and the economy’s primary driver rebalancing from investment to consumption, digital ad growth in China remains robust and will continue to drive strong growth overall. Digital advertising will pass TV this year as the largest advertising media in China and will represent more than 40% of total Chinese spend for the first time. This trails only the digital share of Denmark, the Netherlands, Sweden and the UK globally. 5/13
 
The Indian market is predicted to grow by 12 % to 410 billion rupees ($7bn), driven by robust economic growth and the gigantic general elections that generated an extra 5% to 10% in television spending during the first four months of the year. Advertising minutes will shrink this year for commercial television, following a new regulatory cap, but the resulting inflation in CPM will more than offset the reduction in volume. Overall, TV is forecast to grow by 10%.
 
Japan saw modest growth in 2013, as advertising spend increased by 1.3% to JPY 4.1 trillion (approx. $42 billion) and as a result lost its #2 global ranking to China. We still expect advertising spending to re-accelerate in 2014-2015, mostly because of the newly inflationary environment. Our advertising growth forecast for 2014 is reduced to +2.4%, however, as GDP growth expectation was reduced by half a point between October 2013 and April 2014 (from +3.4% to +2.9%). In addition there is uncertainty regarding how the economy will recover from the increase of consumption tax that took place on April 1st. Nevertheless, we expect TV advertising to grow +2.6% (15% for pay TV) whilst radio and magazine ad sales will decline between 1% and 2%. Once again, digital media spend (+7%) will drive overall ad revenues to reach JPY 741bn (approx. $7.4bn), and represent 18% of total market. Mobile-centric advertising will provide almost all of that growth: +22% vs. +2% for desktop-centric campaigns. Smartphone and tablet advertising already represent 24% of total digital media in 2013 (one of the highest ratios in the world) and that ratio will reach 27% this year.
 
In Australia, advertising revenue growth will grow by a modest 0.9% in 2014, down from our December forecast of +4.4% as a result of a worsening economic environment. Tailwinds from the mining economy in Australia have stalled, and ad spend will suffer along with the rest of the economy. Activity was sluggish in the first few months of the year, and the outlook for the remainder of 2014 is not substantially better. The IMF cut the overall nominal growth forecast by 1.1% to 4.0% for 2014, and given Australia’s extremely mature advertising market, advertising spend closely mirrors the economic trends.
 
Latin America

Latin American advertising revenues will grow by double digits again (+15.4%) in 2014*. This apparently strong growth is in fact mostly driven by higher-than-expected economic inflation (especially in Argentina, following the peso devaluation earlier this year) and helped by soccer madness as the World Cup returns to Latin America for the first time in 30 years. This is despite an economic environment that is anything but buoyant: the IMF recently cut its real GDP growth forecast from 2.9% to 2.5%, thus predicting further slow-down compared to the already-sluggish 2012-2013. In Brazil, hosting the World Cup for the first time since 1950, advertising spend was strong in the early months of the year, and television pricing is sharply up, leading us to increase our full-year growth forecast to +15.8%. Despite a weak economy (1.8% in real GDP growth) and the risk of social unrest, we assume the World Cup will be too big of an opportunity for advertisers to miss, and the event might deliver a feel-good effect that will, at least temporarily, alleviate economic difficulties. Although we downgrade the long-term growth forecast, high-single-digit average growth over 2015-2019 and the 2016 Olympics in Rio should help Brazil to climb from being the sixth biggest ad market in 2013 to #4 by 2019. (*excluding Venezuela from the regional average, due to hyper-inflation)
 
North America

In the US, media owners advertising revenues are forecast to grow by +6.0% this year, to $168bn. This is an increase from our December 2013 forecast of +5.5%. The main growth drivers are the improved economic outlook and record incremental spend generated by several non-recurring events. The biggest of those events is the mid-term elections cycle followed by the Winter Olympics. The soccer World Cup will be make a modest boost at the scale of the entire market, but a significant one in the Hispanic television sector. As analyzed in the upcoming installment of MAGNA GLOBAL’s “Media Economy Report”, dedicated to Sports & the Media, soccer is becoming increasingly popular in the US, even beyond the Hispanic demographic. Another one-off spending driver this year is from insurance companies, healthcare institutions and local governments communicating around the implementation of the Affordable Care Act.
 
As always, US television will benefit the most from the non-recurring drivers of 2014, with advertising revenue growth of +8.3%, following 2013’s stagnation (-0.6%). National TV benefitted from the Olympics in the first quarter. Local TV will gain from political and health-related campaigns throughout the year. Hispanic TV will be boosted by the soccer World Cup. Digital media advertising revenues grew by +17% in 2013 to $43 billion. Within digital, mobile-based ad sales grew by +110% (vs. +8% for desktop-based advertising) to reach 17% of total digital media revenues. Another driver was social media advertising that grew by +53% to $3.6bn. With a 27% market share in 2013, digital media is now bigger than national TV, but still significantly smaller than television as a whole (TV commands a 40% market share). MAGNA GLOBAL is forecasting digital media advertising sales to increase by +14.4% in 2014 and ultimately surpass total television by 2018. Print advertising will continue to decrease by approximately -7%, while radio revenues will be flat and outdoor media will grow by +3.7%. Excluding the impact of Political and Olympic (P&O) spending, 2014 growth would only be +3.9%. Amidst economic recovery and decreasing unemployment, we expect underlying advertising growth to accelerate further in 2015, at +4.6%, excluding P&O effects, or +2.4% in nominal terms.
 
Digital Media Boosted by Mobile and Social

Digital media continues to grow by double digits globally, although the growth rate will slow-down slightly due to the maturity achieved in many markets. Still, digital spend will increase by nearly $20 billion this year to nearly $140bn and 27% global market share (2013: 25%). Of that $20bn in additional spend, the bulk will come from social media formats (+$4.5bn), search (+$10bn) and video (+$2bn), while non-social, non-video display formats (e.g. banners) are stagnant globally and experiencing a steep decline in several mature markets.
 
Mobile media (on smartphones and tablets) is now capturing the bulk of digital media growth. In 2014 it will grow by $10bn to $27bn, a growth rate of 61% compared to just 9% for non-mobile formats, and -1% for non-mobile display. Mobile already accounts for 19% of digital media advertising; this will grow to 24% in 2014 and to 38% by 2019.
 
In addition to the shift to mobile affecting usage and ad formats, digital media markets are experiencing another revolution with the rise of automated and programmatic buying. According to MAGNA GLOBAL, programmatic buying for display, social and video campaigns will reach $18.4bn globally this year, of which $9.8bn will be in the US alone. That includes Real-Time Bidding (RTB) but also other forms of automated transactions. Programmatic spend will increase to reach $37.5bn globally by 2017. It will reach $17bn in the US by 2017, of which over $10bn will be RTB-based.
 
Traditional Media Under Pressure

Against the organic growth of digital media and the power of television, other traditional media categories are losing market shares in most markets. At the end of 2013, print media are down to 22% market share globally, compared to 42% ten years ago, and now smaller than digital media. Radio and outdoor media both control approximately 7% of advertising revenues globally.
 
Print advertising revenues will somewhat benefit from the improvement of the economy in 2014 but not enough to pause the long-term decline caused by the loss of readers and the shift of budgets towards TV and digital media. Newspapers and magazines paper-based ad revenues will decrease between 3% and 5% in 2014 and by high-single digit in most advanced market. It will only increase in emerging or inflationary markets where literacy and readership are still growing. Adding up the ad revenues generated by publishers from digital media would not suffice to offset the revenue declines suffered in their core/legacy ad products. In our five-year forecast, the share of print advertising will further decline to just 13% at the end of 2019.
 
Radio proved consistently resilient in advanced markets during the worst years that other traditional media went through, despite flat or eroding listenership, typically because it is generally the cheapest media, in CPM terms and one that is deemed flexible and efficient at supporting sales. Globally it grew by 1% in 2013 and is expected to accelerate to 2% in 2014. Despite the value of broadcast radio as a tactical media, we anticipate its global dollar share to erode down to 5.7% by 2019. 8/13
 
Outdoor media has also been largely immune from the loss of market share experienced by other traditional media categories. Revenues are expected to grow by 4% in 2014, a similar rate as in 2013. Drivers include innovation in formats (digital formats having reached a 10% share of total OOH revenues, including cinema, in 2013); innovation in business model (more cities across the world contracting with major OOH players for ad-funded street furniture roll-outs) and concentration around national or international media owner enabling investment in digital and new indoor environments (transit, malls, airports, office elevators). Because of these strengths we forecast OOH media to maintain its 7% market share in the next five years while the share of DOOH within outdoor media will rise to 22% by 2019.