Global media economy set to accelerate in 2014: Study

In its latest study of global media owner advertising revenues, covering 72 individual countries, MAGNA GLOBAL estimates that revenues grew by +3.2% in 2013 to $489.6 billion. This is in line with our previous forecast (+3.0% published in June 2013). As the world economy gradually accelerates in 2014, so will advertising spending. We thus expect global advertising revenues to grow by +6.5% (previously +6.1%) to reach $521.6bn, which will be the strongest year-on-year growth recorded since 2010 (+8.4% following the 2009 recession).

The major sports events of 2014 (Sochi Winter Olympics, Brazil Soccer World Cup) and the US mid-term elections will contribute to that level of growth by generating incremental advertising spend in most markets. This will specifically fuel the global growth of television (+7.7%) as TV advertising revenues will also be driven by a recovery in pricing power in many markets. That compares with a modest growth of +1.8% for television in 2013. Newspapers and magazines will continue to lose market shares and advertising revenues (-3.2% and -3.9% respectively). Out-of-home will also benefit from cyclical events and organic growth (+4.8%). Digital media advertising revenues will keep growing at double-digit pace (+15.5% on average and a lot faster than that in emerging markets).

Vincent Letang, EVP, Director of Global Forecasting at MAGNA GLOBAL, said: “The combination of an improved economic environment and stronger-than-usual cyclical drivers is bound to unlock marketing and branding budgets in 2014. This will primarily benefit television and digital media where new formats and opportunities are being explored for activation and branding campaigns”.

2013-2014: Advertising growth across world markets

The economic environment remained weak throughout 2013 but is still expected to improve in 2014, especially in the developed world which has experienced four years of slow growth and stubborn unemployment. In its October 2013 update, the IMF forecast world output (real GDP) to accelerate to +3.6% in 2014. This is marginally below its April forecast (+4.0%) but still stronger than the 2013 and 2012 growth (+2.9% and +3.2% respectively). The latest IMF update also confirmed that the Euro markets are finally emerging from recession as of the end of 2013 (+1.0% GDP growth expected in 2014, +1.4% in Germany). The US will accelerate from +1.6% to +2.6%. Meanwhile, the emerging “BRIC” economies will also re-accelerate after experiencing a "soft landing" in 2012-2013: India +5.1% (following +3.8% in 2013), Russia +3.0% (following +1.5% in 2013); Brazil and China’s are expected to grow by +2.5% and +7.3% respectively (on par with 2013).

That level of economic activity is not particularly impressive by historical standards but confidence indices keep improving and we believe advertising spending will reflect and amplify that economic trend says Venkatesh S, EVP, Director Intelligence, Magna Global, India. It has to be noticed that the growth indicators mentioned above are for real GDP, whereas in our experience advertising expenditure is better correlated with nominal GDP. Over the 72 markets monitored by MAGNA GLOBAL, nominal GDP growth was +4.9% in 2013 and will be +6.1% in 2014. Our advertising growth forecast is therefore marginally above nominal GDP growth, which can be expected in an even year with cyclical boosters and coming after several years of savings and postponed investment.

Around the global average growth of +3.3% for advertising revenues in 2013, Latin America once again showed the strongest growth (+9.5%), followed by Eastern Europe (+7.9%) and Asia Pacific (+6.3%). On the other end, developed markets showed little or no growth: North America +1.5%, Western Europe -0.8%.
Advertising in Western Europe showed marked improvement in the second half of the year, and, as a result, decreased by only -0.8% in 2013, compared to -2.6% in 2012. The UK and Germany were resilient, as expected, growing by +4.2% and +1.3% respectively. For Greece, a market that has become the symbol of Europe’s economic woes and experienced a total collapse of its advertising revenues over 2009-2012, 2013 will end up a lot less negative than previously anticipated: we expect advertising revenues to decrease by “only” -3%, instead of -11% as of our June update. The turning point took place at the end of the second quarter, and the second half of the year saw positive year-on-year growth for television in particular. We now expect robust growth in 2014 (+5.7%). Spain and France display a similar pattern: stabilization in the second half of 2013 and realistic albeit modest growth prospects in 2014. The market conditions continue to be worrisome, however, in Portugal and Italy. Overall, we are raising our forecast for ad spend growth in Western Europe in 2014 from +1.5% to +2.1%. We believe the 2014 FIFA World Cup will be a net positive in a continent that is mad about soccer, as all the big nations have qualified for the Brazil tournament and the timing of matches (between early evening and late evening) should be optimal to European broadcasters. The fact that the tournament takes place in Brazil adds another layer of interest for European viewers and advertisers.

Central and Eastern Europe (CEE) showed robust growth in 2013 (+7.9%) and is anticipated to accelerate in 2014. Russia and Turkey are the main drivers, with double-digit growth in 2013 and again in 2014, and Poland should return to growth in 2014 after a couple of negative years. The Russian market grew by +11.6% this year to RUB 337bn ($10.9bn), following +13.9% growth in 2012. This strong rate of growth will continue through 2018, with the Russian market expanding by a CAGR of +9.8% to RUB 538bn in 2018 ($17.4). Television remains the dominant media in Russia, representing nearly half of all ad spend (48.3% in 2012). As real GDP growth will increase to +3.0% in 2014, advertising growth will accelerate from +8.5% in 2013 to +10.5% in 2014, with a slight boost coming from the Sochi Olympics and the World Cup. Digital continues to be the fastest-growing media category with an impressive +28% in 2013.

Latin American advertising revenues grew slightly less than anticipated in 2013 but still nearly hit double-digits growth (+9.5%), i.e. a similar level of growth to 2012. Economic activity has gradually slowed down in most of Latin America in 2013 according to the IMF. Real GDP grew by only +2.5% in Brazil and +1.2% in Mexico (vs. January expectations of +3.5% in both countries). The IMF also reduced its 2014 GDP forecast for Brazil from +4.0% (April) to +2.5% (October), whilst the Mexican economy should grow by +3.0%. As always, economic and media inflation will play an important role in ad spend in the region. The highest growth of 2013 was recorded in two markets that are plagued by high inflation (+20% or more): Argentina and Venezuela (+27% and +19% advertising spend growth, respectively). In 2014, we expect inflation and the impetus of the World Cup to offset the sluggish economic environment, and we still forecast double-digit growth of +12.3%, only marginally below our previous forecast (+13.3%). Brazil will be at the center of the media and marketing world in the summer of 2014 when the FIFA World Cup returns to the holy land of soccer for the first time since 1950. This is bound to bring incremental spending from domestic and international advertisers and drive media inflation well above general inflation despite the sluggish economic environment and social discontent. TV in particular should see the effects, as we expect cost-per-thousand to increase by an average of +13% on free TV, and advertising revenues to grow by +14% as a result. Digital media advertising should grow by +20.1% and outdoor media by +12.0%. Overall we expect advertising revenues to increase by +12.7%, marginally below our previous forecast (+13.7%) but significantly higher than the 2013 growth (+6.1%).

Asia Pacific advertising revenues grew by an average of +6.3% in 2013, to $148.7bn, and we anticipate acceleration to +8.7% in 2014. This is up from our previous growth forecast of +7.4% in 2014. Television is the largest media category in APAC, and will grow by +5.1% in 2013, up from +4.3% in 2012 to reach market share of 42.3% of total spend in the region. While television remains the dominant media category, it will gradually fall below 40% share in the next five years. Digital is the fastest growing category and will grow by +22.4% in 2013 to reach $33.6bn. Digital media CAGR of 17.3% through 2018 means its share of total spend will increase from 22.6% in 2013 to 34.0% in 2018. Newspaper and magazines continue to lose ground at -1.4% and -3.1% CAGR through 2018, respectively, and together print will only represent 21.8% of total spend in 2013, down from 32.2% of total spend as recently as 2008. Taken as a whole, the APAC region now represents approximately 30% of total global spend. Within APAC, China and Japan represent nearly two thirds of the total APAC advertising revenues. China is growing more quickly, however, and will pass Japan for the top spot in APAC as soon as 2015. The development of the markets within APAC varies significantly, however, with some very advanced markets such as Australia and some much underdeveloped markets such as India. The strongest growth markets in APAC are Vietnam (+27% growth in 2013), Indonesia (+16% growth in 2013) and the Philippines (+13% growth in 2013). Slower growth rates were recorded in Japan, Singapore, South Korea and Thailand (all around +2% growth in 2013). This variety of development can also be seen by the differing levels of spend per capita across APAC markets. APAC as a whole averages $40 per capita, but this is made up of Australia ($558 per capita in 2013), Japan ($400), Hong Kong ($391) and Singapore ($360) at the high end, and Pakistan ($2), India ($5), Vietnam ($6) and Sri Lanka ($7) at the low end. This disparity can also be seen in the share of digital spend, with India’s digital market share at 7.4% of total spend in 2013 vs. Australia’s at 32.7% of total spend. The Chinese market grew by 12.0% this year to RMB 278bn ($44.1), following 12.1% growth in 2012. Growth will continue to be strong through 2018, with a CAGR of 13.1% to RMB 515bn ($81.7). It will become the 2nd largest advertising market in the world by 2015, passing Japan, and will only trail the United States. Ad spend per capita in 2013 will increase to $29 in China. It is steadily improving but remains significantly below the global average of $84 per capita. China will pass the $50 per capita level by 2018.

Middle-East & Africa advertising was flat in 2013 (-0.3%), due to the political and economic situation in Egypt and a soft market in other parts of the Middle-East while African markets (Kenya, South Africa and newcomer Nigeria) kept growing. For 2014, we expect a recovery in the Middle-East and a +6.3% growth for the region as a whole.

Finally, North America is the only region where we have slightly reduced our 2014 forecast, to +5.5% (vs. +5.6% in June). 2013 has been a flat year, with advertising revenues growing by 1.5% (in line with the 0.7% predicted in June). US advertising revenues grew in line with our modest expectations (+1.3%), with stronger digital growth (+15%) balancing the declines in traditional media (newspapers -10.8%, magazines -5.3%, radio -1.0%). Once again, out-of-home media managed to grow (+4.8% including cinema) due to the migration to digital. Broadcast TV declined by -5.7%, which is not unusual in an odd-numbered year following a presidential/Olympic year; the growth of cable TV (+4.4%) was not sufficient to offset that decrease and total television advertising decreased by -1.3% as a result.

The US economy is still on a slow but real recovery path that will continue in 2014. In its latest update the Survey of Professional Forecasters from the Philadelphia Fed noted a slow-down of economic activity in the last quarter of 2013 and revised its 2014 real GDP forecast to +2.6%. This is marginally below the previous (August) forecast of +2.8% but still significantly higher than 2013 growth (+1.5%). In this environment, MAGNA GLOBAL is expecting normalized advertising spending to grow by +3.4%. When factoring in the incremental spend generated by the Winter Olympics and the mid-term election cycle, actual advertising revenues will grow by +5.5%. This is slightly below our June forecast of +5.9%. The Winter Olympics have an incremental effect on television advertising that is (perhaps counter-intuitively) similar to that of the Summer Olympics. This is because they come during a time (February) when TV viewing and marketing activity are significantly busier than July-August, and TV costs are typically higher. As for political advertising, we believe the inflation in fund-raising and ad spending, which was triggered by the “Citizens United” decision of the Supreme Court in 2010, is still gaining momentum. We therefore expect record levels of political spending, with local television being, as usual, the primary beneficiary, thanks to its capacity to target undecided voters in key markets. On top of those usual cyclical drivers, the implementation of the Affordable Care Act will create one-off incremental spend from Federal and State Government, as well as insurance and health care companies throughout 2014, with the bulk of it in local television. As a result of these 2014 boosters, national TV will grow by +4.3% in 2014 and overall TV will grow by +8.6%. This is a similar rate to the one observed in the last even-numbered year (2012: +8.0%). Newspaper advertising revenues will decrease by -8.2%, magazines by -6.4%, radio by -0.4%. Out-of-home media will grow by +4.8% and digital media will grow by +12.5%.

Digital Media Boosted by Mobile and Social Media

Compared to our previous forecasts published in June 2013, the biggest game changer was the rise of social media and, more specifically mobile social media. In the last 18 months, social media usage has migrated towards portable devices and platforms at a faster rate than most anticipated. By ‘portable’ we refer to mobile phones and tablets. It needs to be stressed that portable devices are increasingly used in the home and not just on the move; they’re not only filling a media-free space in consumers’ days, they’re also gradually replacing laptops and PC usage in the home. In fact, they have become the default devices for casual internet usage at home and the dominant platform for digital social media usage everywhere. Even more significantly, social and mobile seem to have found each other in perfect chemistry in 2013. The impressive success of tablets in the Western world and the rapid penetration of feature phones and smartphones in the developing world have contributed to this rapid shift in consumer usage. At the same time, social media owners (Facebook and Twitter most significantly) have introduced ad formats specifically matched to those portable devices that have met with instant success among marketers without alienating users. As a result, the share of advertising revenues derived by Facebook from ad insertions on portable devices has increased from 12% in 2012 to a projected 50% globally in the third quarter of 2013. Globally we believe social media advertising grew by 58% this year, to $9.1bn, of which $2.9bn from mobile social (+ 300%).

The huge growth of social media advertising spending is partly incremental (growing the digital media pie as it offers new opportunities to some categories of advertisers) and partly substitutive because it is fed by budgets that would otherwise grow non-social display formats or search. Overall, we believe it is slightly incremental and that is partly why we have seen stronger digital media growth than anticipated in 2013 (nearly +16% compared to our previous forecast of +13.4% in June). Globally the $118 billion spent with digital media represents 24% of global advertising revenues.

Meanwhile, Paid Search and Video continued to grow healthily in 2013, by +18% and +37% respectively. In terms of platform breakdown, mobile-based ad insertions across all formats generated approximately $16 billion in 2013, up +85% year-on-year, which represented 14% of global digital advertising revenues. Paid Search continues to grow organically from its long tail of users and major brands increasing their investment, partly to fight back “conquest” bidding by competitors (competing brands or third party companies bidding on your brand or product names). Search is also moving quickly towards mobile platforms. The introduction of “enhanced campaigns” by Google in 2013 was a turning point, as tablet and smartphone clicks are now bundled with desktops/laptops clicks, and buyers can only opt out from smartphone insertions to an extent. This has mechanically boosted mobile search advertising. We believe mobile search generated at least $8.6bn of spend in 2013 i.e. 14% of total paid search, globally (up from 9% in 2012). This is forecasted to grow to 17% in 2014. Mobile platforms are already a much higher proportion of search requests and clicks than that, but costs per click remain lower in the smartphone environment. Because of the similarities in the trading/bidding mechanisms and the skills required on the buyer side, social buying is increasingly managed by the same teams as search, and social budgets are increasingly managed alongside search, and are thus susceptible to trade-offs. The only digital format to stagnate is traditional display banners in the desktop/laptop web environment. Display formats, especially when they are not on premium websites, are hit with a negative pricing dynamic caused by lower demand and abundant supply.

The other big trend of 2013 was the rise of Programmatic Trading. According to MAGNA GLOBAL, programmatic trading will reach $12bn globally this year, of which $7.4bn in the US alone. That includes Real-Time Bidding (RTB) but also other forms of automated media transactions. (Paid Search, being real-time bidding by nature and from the inception, is not included in these calculations). Programmatic spend will increase to reach $32bn globally by 2017. It will reach $17bn in the US by 2017, of which $10.5bn will be RTB-based. The US will remain the most developed programmatic market globally, with 80% of display-related spend being transacted in a programmatic fashion (either RTB or non-RTB) by 2017. Other international markets will lag behind but still see significant penetration such as the Netherlands (60%), the UK (59%), France (56%) and Australia (52%). Programmatic technology will gradually embrace more types of inventory (not just “remnant” inventory but mid-tier and possibly some premium inventory as well) and an increasing number of premium publishers will become involved in the programmatic ecosystem. During 2013, premium publishers came together to form “co-ops” - programmatic sales houses aimed at sharing technology costs and keep a level of control on the value their inventory.

The next MAGNA GLOBAL advertising revenue forecasts will be published in June 2014.