Ad markets continue to slow, but surging developing markets propel healthy world growth in ad expend

The credit crunch continues to worry investors, consumers and advertisers in Western markets, so we have downgraded our forecasts for ad expenditure growth in 2008 from 3.7% to 3.5% for North America, and from 3.9% to 3.7% for Western Europe. High energy and commodity prices are stoking inflation, so real growth – after adjusting for inflation – is unlikely to exceed 1% in either region. However, we have upgraded our forecasts for both regions in 2009 and 2010 in the light of stronger than expected growth in internet advertising.

• ZenithOptimedia forecasts world adspend growth of 6.6% in 2008, up slightly from the 6.5% growth predicted in its March forecast
• Growth forecasts for 2008 have been downgraded from 3.7% to 3.5% for North America, and from 3.9% to 3.7% for Western Europe
• But forecasts for the rest of the world are up from 11.1% to 11.8%
• Developing markets to contribute 62% of ad expenditure growth between 2007 and 2010, and increase their share of the global ad market from 27% to 33%
• Economic uncertainty in developed markets is accelerating the shift of budgets to accountable internet advertising
• ZenithOptimedia now forecasts internet advertising to break the 10% share barrier this year and account for 13.6% of world adspend in 2010

The rest of the world, in stark contrast, is exhibiting even more strength than it was three months ago. We now expect ad expenditure outside North America and Western Europe to grow 11.8% over the course of this year, 0.7 percentage points more than we 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 we predict the world ad market will grow 6.6% this year, fractionally more than the 6.5% we predicted in March and well above the 5.2% rate at which it has grown over the last ten years. We expect its growth to remain above-trend in 2009 and 2010, thanks to continued dynamism in Asia Pacific, Central & Eastern Europe, Latin America and the Middle East.

The table above demonstrates the contribution of developing markets to the growth in global ad expenditure. 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% of the size of the US ad market, and Brazil’s and Russia’s are 5%. Over the same period we predict that developed markets (which we define as North America, Western Europe and Japan) will contribute 38% of new ad expenditure, while developing markets (everywhere else) will contribute 63%. Over that period the proportion of global ad expenditure going to developing markets will rise from 27% to 33%. 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 ten.

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 their investment are obvious, and easy to quantify and fine tune. Internet ads are cheap, easy to target and to customise for particular audiences. The quantity and quality of online video is improving all the time, and online audiences for full-length films and television programmes – and the ads that surr ound 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.

We now expect internet advertising to grow 26.7% and break through the 10% share barrier this year, a year earlier than we predicted just three months ago. By 2010 we predict it will attract 13.6% of all advertising, well ahead of our previous prediction of 12.3%.

Newspapers, magazines, television and radio are all losing share to the internet, but newspapers are clearly suffering the most. This is 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 ten years to 2007, and we expect it to fall another 3.5 points by 2010. We do expect 4% growth in nominal newspaper ad expenditure between 2007 and 2010, but this equates to a 6% 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. We expect outdoor to increase its share of the global ad market from 6.2% in 2007 to 6.7% in 2010.

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For mmore information at http://www.zenithoptimedia.com