The unprecedented economic problems that are currently underway lead us to a forecast of decline in advertising investment for 2009 of 6.9%
Since our last forecasts in December, the global advertising market has taken a significant turn, for the worse. Trade has fallen rapidly, dragging many developing markets down. To date today we forecast a sharp decline in investments in both North America and Western Europe and in the rest of the world, which will be around 6.9% during 2009.
Currently, we are in the midst of this period of deterioration of advertising investment. The decline began in the 3rd Quarter of 2008, accelerated in the 4th Quarter of 2008, and the 1st Quarter of 2009 was presented as hard as the previous quarter. As we enter the 2nd Quarter, we see limited long-term visibility in the market as most advertisers wait until the last moment to commit their investments. Many treat advertising investment as an optional expense and easy to cut. Advertising investment, when directly related to the benefits, will surely not begin to recover until the benefits begin to rise.
Current obstacles to recovery are due to a lack of confidence in the credit market and little security in short-term growth. If governments succeed in tackling toxic assets and if their stimulus programs give the necessary boost to economic growth, then advertisers will begin to regain lost confidence. All this will take time and will occur at different speeds according to the different markets. At the moment, we estimate a growth of 1.5% in advertising investment for 2010, followed by a growth of 4.5% in 2011, but these estimates will be revised as new data is received.
As has happened in previous recessions, the consumer has begun to spend less, save more and spend more time at home. The consumer is currently postponing any purchase of relevance and their purchasing habits have also been modified by moving from premium products to savings brands.
For the retailer, this means that those stores that use advertising to demonstrate the value of their products, may attract new customers. As a result, premium stores are creating value lines and are announcing the presence of such lines. Thanks to this, the sector has remained quite strong.
In the financial sector, corporate advertising has suffered a dramatic drop, but thanks to the consumer’s search for savings and risk aversion, savings accounts grow as well as certain types of insurance. Much advertising in the insurance sector is direct response and insurers that cut in this type of advertising will lose business opportunities.
Investment in FMCG (consumer products) in general has always been maintained in times of crisis; advertisers of consumer products have hundreds if not thousands of product lines and know they need to advertise if they want to sell them. Many have maintained their budgets and have managed to close very favorable agreements with the media. Also, in this sector, there has been a clear change from first quality products to value products, since the companies of consumer products act in accordance with the demand.
The automotive industry is suffering long-term problems that the deceleration has brought to light and exacerbated, without being the direct cause of this problem. The new regulations (of emissions and service, for example), high labor costs and other structural problems have left car manufacturers with very narrow margins even in good years. As a result, manufacturers have drastically reduced production in such a way that productivity is almost in line with demand, but they have been left with an important stock that needs to be sold. The situation is not gloomy everywhere equally. In France and Germany, for example, government aid has achieved an increase in the number of short-term sales and even an increase in advertising in this sector. In many markets,
Companies have reduced their travel expenses significantly, causing a significant decline in first class and preferential traffic of airlines. But leisure travel is still popular, particularly in countries where the exchange rates are very favorable for the consumer with euros or US dollars. Therefore, airline advertising continues to be active in markets with strong exchange rates.
We forecast that advertising investment will contract by 8.3% in North America in 2009. This region, which is logically dominated by the US market, will suffer due to the absence of four-year events (the Olympic Games and the presidential elections) that injected additional amounts into the market. advertising market in 2008. Faced with a contraction of 8.7% in the US in 2009, in Canada the investment will remain stable and even with a growth of 0.2%.
All major markets in Western Europe are currently suffering a significant decline in advertising investment: in 2009, we estimate a decrease of 7.3% in France, 5.5% in Germany, 5.0% in Italy; 10.1% in Spain and 8.7% in the United Kingdom. In general terms, we expect a fall of 6.7% in advertising investment in the
region. However, we are confident that all major markets will grow in 2010.
A single exception, Italy, which will foreseeably contract an additional 0.8%. As for the Asia Pacific area, we estimate that it will fall by 3.4% in 2009. The Asia Pacific region includes several weight markets that continue to grow, although with less growth than years ago. We forecast a growth of advertising investment in China of 5.4% (a significant reduction from the 18.8% of last year), a growth in India of 6.4% (versus 18.9% in 2008) and an increase in Indonesia of 7.9% (again, a significant drop from 18.9% in 2008). Although there are some smaller markets with positive growth, this is offset by dramatic drops in other markets (-11.0% in Taiwan, -16.5% in Singapore and -20.0% in South Korea). Even in Japan, that contributes 38% of the advertising investment in the region, there will be a drop of 5.0%. In Central and Eastern Europe, the fall is expected to be the most dramatic, at 13.9%.
This decline has been aggravated in some markets by monitoring advertising in US dollars but buying in local currencies, which have been weakened at the end of 2008 and beginning of 2009. At the moment, these currencies seem to have stabilized with respect to the dollar. Therefore, the downward pressure of advertising investment in dollars should decrease. Also, we predict significant declines in markets like Russia, Turkey and Ukraine that actually represent timely corrections by international advertisers. As they re-evaluate the long-term growth potential of these markets, a return to growth is expected in 2010.
Most of the markets in Latin America are currently growing, but the region as a whole is being dragged by two markets (Brazil and Colombia) that also buy in local currencies but follow a monitoring in US dollars. As these currencies have weakened against the dollar, investment has also been reduced. However, in its entirety, we expect a drop in advertising investment of only 2.0% for Latin America in 2009 and once the currency effect is exceeded, we estimate a growth return of 7.1% for 2010.
Global Advertising Investment through
Due to their eagerness for savings, the consumer is spending more time at home. As is often the case in a recession, this means that media consumption is increasing, especially television and internet consumption.
Internet is the only means that we hope will continue to attract advertising investment in 2009, thanks also to the consolidation and innovation of its formats. We estimate a growth of 8.6% in advertising investment on the Internet in 2009 versus 20.9% growth in 2008. Most of this growth will come from search advertising. The consumer who considers a purchase uses more and more searches to get better buying opportunities. In the US, we estimate that advertising in search will grow by 9.0% in 2009 while classified advertising will grow by only 1.8% and the display will contract by 1.8%. The new formats will enjoy greater growth (29.8% of video on the internet and interactive multimedia, 29.7% of Internet radio and 11.9% on podcast),
Once confidence returns to the market, we expect the growth of the internet medium to increase, so that we estimate 11.3% in 2010 and 15.3% in 2011. We anticipate that its market share will rise to 14%. , 6% in 2011, from 10.4% in 2008. However, in recent years the number of portals on the web has almost doubled with respect to advertising investment in this medium, due to a certain group of key companies. Numerous internet companies that have based their business model on advertising will hardly be able to maintain this model now that there is little credit.
Also, television is responding well in this deceleration that we live. We expect advertising investment to decrease by 5.5% in 2009, although its market share will increase from 38.1% to 38.6% in 2010. Advertisers cut their budget in all media, but they do so to a lesser extent. television because they know it better as an advertising medium and are convinced of its effectiveness. Some advertisers, even, are taking advantage of reduced prices to consolidate their brands and market share while their rivals focus solely on promotions and sales. The fact that more television is shown also favors this trend.
However, this will not necessarily help the big chains that are currently suffering at the hands of hundreds of digital rivals. Large chains continue to lose market share to these newcomers.