What’s the global advertising situation looking like ahead of 2015? Sean Sullivan looks at growth in the global economy and media ad spend beyond 2015.
‘Beyond 2000‘ was always a form of appointment viewing in my youth (for those of us fortunate enough to have been schooled in the 1980s). The programme always gave me a glimpse of how easy our lives would become in “the future”. The world was on the cusp of a technology revolution – every gizmo imaginable was about to rain down upon the earth leaving humankind with little else to do but kick up their feet and enjoy life. And I wanted to be first in line to enjoy this Future World.
It’s our curiosity in the future that pushes us forward in the quest for that next big thing that will ultimately change life as we know it – if only we had a crystal ball.
Today we give the global economy a health check to gauge where we are and what’s to come, especially in terms of ad spend. They say ‘It’s all in the numbers’… so please don your Biohazard level four suit and come with me…
Ebola continues to dominate world headlines and my dark side can’t help wondering if we’re all doomed to a Zombie Apocalypse brought on by the outbreak of the haemorrhagic fever, but maybe that negativity stems from too many late nights viewing The Walking Dead.
Nevertheless, the spread of Ebola beyond West Africa could lead to turmoil in international financial markets and impact global growth should it become increasingly contagious.
The International Monetary Fund (IMF) downgraded its outlook for global economic growth, citing persistent weakness in the Eurozone and a broad slowdown in several major emerging markets. The IMF said it expects the global economy to grow by 3.8% next year, down from its July forecast of 4%, though still better than this year’s estimated pace of 3.3%.
IMF managing director Christine Lagarde believes the global economy could get stuck in a much lower growth gear for years, warning that the recovery is “brittle, uneven and beset by risks”.
IMF chief economist Olivier Blanchard says there are two forces at work weighing down prospects: the legacy of high debt and falling growth potential in the future. These less than favourible forecasts about the future are leading to investment and consumption woes that in turn leads to low growth.
Many major emerging markets meanwhile, are growing at a slower pace than they did before the global financial crisis as they strain their capacity to expand without major overhauls of their economies.
China’s economic growth is expected to slow to around 6.5% sometime in 2016 from 7.4% this year after averaging nearly 10.5% before the crisis.
Closer to home…
Sub-Saharan Africa’s economic growth remains strong and should accelerate to 5.8% in 2015 if the Ebola outbreak is contained. In its latest World Economic Outlook, the IMF said Africa should repeat 2013′s growth rate of 5.1% this year and then accelerate again in 2015 as infrastructure investments boost efficiency and the service and agriculture sectors flourish.
Growth in South Africa, the continent’s most advanced economy, has been lacklustre, hit by protracted strikes, low business confidence and tight electricity supply.
The IMF has predicted a “muted recovery’”taking hold in 2015 through improving labour relations and gradually stronger exports that would push South African growth to 2.3% from a forecast 1.4% this year.
Amazing – a glimmer of hope in an abyss of negativity!
Now that we have a snapshot of the global and South African economic outlook, let’s take a look at the ad spend momentum.
Forecasting ad spend
PricewaterhouseCoopers’ outlook study forecasts the next five years across the entertainment and media industry. The topline results are outlined below.
Revenue generated through advertising will increase by R18-billion between 2013 and 2018, with the fastest-growing segment – online advertising – showing double-digit growth as a result of the substantial increase in internet access over the period.
Online advertising’s anticipated compound annual growth rate (CAGR) of 22.7% will be driven by search and mobile advertising, with Google the most visited site in the country, holding the vast majority of the South African search market. This propels digital to a 10% share of ad spend by 2018.
Mobile advertising will be driven by an increase in smartphone penetration and the increasing number of South Africans who are becoming mobile internet subscribers is forecast to rise from 15 million in 2013 to 35.2 million in 2018.
Display advertising will grow at a CAGR of 18.8%, driven principally by the second most visited site, Facebook, while video advertising will grow substantially from a very low base of R2-million in 2013 to reach R9-million in 2018, as broadband speeds gradually improve and internet access widens.
The second-fastest growing advertising segment is video gaming, albeit from a low base of R29-million which is expected to grow at a CAGR of 15.4% to reach R60-million in 2018. This growth will be inextricably linked to the number of video gamers who play online, as video game advertising’s main asset is its ability to target users based on their playing behaviour while online.
Radio advertising, the third-fastest growing segment, will enjoy a healthy CAGR of 8.2% thanks to radio still being widely consumed throughout South Africa.
TV advertising remains comfortably the largest South African advertising sector. It will grow at a CAGR of 6.8% over the forecast period, reaching a projected R18.4-billion in 2018. This growth will largely be driven by more competition and larger broadcasting audiences, as television continues to have the largest reach of any media format. A growing middle class with greater disposable income will lead to a rise in pay-TV households.
Magazine and newspaper total advertising revenues will show growth of 4.0% and 6.0% respectively, and in both cases the advertising spend from printed editions will consume the overwhelming majority of total advertising revenues. Who said print was dead?
Printed newspaper advertising growth can be attributed to locally distributed, free newspapers that build a strong connection between consumers and brands, while print magazine advertising will be driven by niche magazines covering topics such as home improvement, which tend to suit luxury goods advertisers. Digital advertising in both instances is still in its infancy, but will see a double-digit CAGR over the forecast period.
Out of home maintains its ground, with growth over five years forecast at 5.9%
A compound annual growth rate of 7% across all segments is a fortunate position to be in.
Despite dramatic growth of the internet, traditional advertising media will still prevail. The likes of television and radio revenues are still guaranteeing the kind of captive mass audiences that online cannot yet offer.
The tipping point from traditional media to digital media remains a long way off in South Africa, in terms of revenue at least. Companies and advertisers would still do well to focus on the digital consumer, who may well have greater disposable income, but for the time being traditional media will still constitute the majority of revenues.
Sources: The Wall Street Journal, Sunday Times Business Times, IOL, PwC Outlook
Sean Sullivan is associate media director at The MediaShop. This post was first published in the company newsletter.