New global ad forecast from ZO: Advertising growth continues as Latin America and Asia Pacific compensate for weaker Europe

• Global ad expenditure forecast to grow 4.8% in 2012, slightly up from the 4.7% forecast we made in December
• Large advertisers are investing for growth by spending more on brand building and winning market share
• Ten developing markets to deliver half of global adspend growth between 2011 and 2014
• Developing markets to increase their share of the global ad market from 33.2% to 37.1% over the next three years
• Quadrennial events and Japanese recovery to add US$7 billion (1.6 percentage points) to global growth this year
• Internet’s share of expenditure to rise from 16.4% in 2011 to 22.1% in 2014, exceeding 30% in six markets

ZenithOptimedia predicts global ad expenditure will grow 4.8% in 2012, reaching US$489 billion by the end of the year. This is a slight upgrade of the 4.7% growth we forecast back in December. We now expect ad expenditure to grow 5.3% in 2013 (up from 5.2%) and 6.1% in 2014 (previously 5.8%).

This upgrade is a result of two factors: signs that large companies are investing more in marketing to drive growth, and a reduced risk of disastrous collapse in the eurozone, even though its short-term economic performance has deteriorated.

As we argued in our previous forecast, companies have generally built up their cash reserves since the onset of the downturn in 2008, and are in a strong position to invest in marketing to compete for market share and stimulate consumption. Now some companies have started to do exactly that. Unilever, Reckitt Benckiser, Coca-Cola and PepsiCo, for example, have all made recent public announcements that they plan to spend more on advertising to build their brands and launch new products. Coca-Cola, which is ranked by Ad Age magazine as the seventh-largest advertiser in the world, intends to reduce business costs by between US$550 million and US$650 million by 2015 and reinvest the savings in marketing. We expect many other large advertisers to follow suit.

The risk of catastrophe in the eurozone appears to have receded since we last published our forecasts, although it remains very real. The long-term problem is government debt, and the associated risks of a liquidity crisis, sovereign defaults and breakdown of the eurozone. The European Central Bank’s intervention by issuing more than €1 trillion in short-term debt has boosted bank liquidity and reduced the cost of borrowing for troubled governments on the eurozone periphery. The Economist Intelligence Unit has reduced its assessment of the risk of a collapse of the eurozone from 40% to 30%. In the short term, however, Europe’s real economic performance has deteriorated, and the eurozone is now almost certainly in recession.

The combined effect of the intervention and the downturn in output has been modestly higher confidence in the world’s long-term economic prospects, but lower confidence in Europe in the short term. This is clearly reflected in the world’s advertising markets: we have reduced our 2012 forecast for Western Europe from 2.0% growth to 1.5% and our forecast for Central & Eastern Europe from 8.0% growth to 6.5%. We have held North America steady at 3.6%, since its tentative economic recovery appears on track.

We have upgraded Asia Pacific slightly from 7.2% growth this year to 7.4%, but the strongest region is Latin America, which we have increased from 6.0% to 9.2%, as confidence grows that its strong economic growth will be maintained. We have, however, reduced our forecast for the Middle East & North Africa from 1.5% growth to 1.0% while the political and social unrest continues.

In the longer term, we expect gradual but sustained improvement in ad expenditure in North America, Western Europe and the Middle East & North Africa in 2013 and 2014. Meanwhile Asia Pacific, Central & Eastern Europe and Latin America should all sustain 8% to 10% annual growth over these two years.

Advertising expenditure by region

Major media (newspapers, magazines, television, radio, cinema, outdoor, internet)

US$ million, current prices. Currency conversion at 2010 average rates.

	2010	2011	2012	2013	2014
North America	161,706	164,655	170,662	177,224	185,794
Western Europe	100,521	101,952	103,519	106,176	109,232
Asia/Pacific	116,283	123,702	132,881	142,921	154,783
Central & Eastern Europe	23,464	25,349	27,003	29,451	32,363
Latin America	32,469	35,614	38,874	42,066	45,707
Middle East & North Africa	4,881	4,155	4,198	4,313	4,412
Rest of world	10,731	11,419	12,197	13,263	14,596
World	450,055	466,847	489,335	515,414	546,887

Source: ZenithOptimedia

Major media (newspapers, magazines, television, radio, cinema, outdoor, internet)

Year-on-year change (%)

	2010 v 09	2011 v 10	2012 v 11	2013 v 12	2014 v 13
North America	2.7	1.8	3.6	3.8	4.8
of which USA	2.3	1.6	3.6	3.8	4.8
Western Europe	5.1	1.4	1.5	2.6	2.9
Asia Pacific	10.7	6.4	7.4	7.6	8.3
excluding Japan	19.2	11.7	9.9	10.6	11.2
Central & Eastern Europe	7.1	8.0	6.5	9.1	9.9
Latin America	18.8	9.7	9.2	8.2	8.7
Middle East & North Africa	7.7	-14.9	1.0	2.8	2.3
Rest of world	14.5	6.4	6.8	8.7	10.1
World	6.8	3.7	4.8	5.3	6.1

Source: ZenithOptimedia

Between 2011 and 2014 we predict 60% of all the world’s growth in ad expenditure will come from developing markets (which we define here as everywhere outside North America, Western Europe and Japan). Nearly half (49%) will come from just ten developing markets. The four BRIC markets alone (Brazil, Russia, India and China) are forecast to account for 33% of global growth. Beyond the BRICs, there are six fast-growing markets we forecast to add between US$1 billion and US$4 billion each to the global ad market, and deliver another 16% of global growth: Indonesia, Argentina, South Africa, South Korea, Mexico and Turkey.

Beyond the BRICs: the next wave of emerging ad markets

Adspend growth (2014 v 2011)

US$ million, current prices. Currency conversion at 2010 average rates.

		Adspend growth
1	China	17,158
2	Russia	4,138
3	Brazil	3,917
4	Indonesia	3,820
5	Argentina	2,281
6	South Africa	2,050
7	South Korea	1,632
8	India	1,571
9	Mexico	1,339
10	Turkey	1,167

Source: ZenithOptimedia

China is now the third-largest ad market in the world, and is catching up quickly with second-placed Japan. In 2005 China’s ad market was 23% of the size of Japan’s, in 2011 it was 69% and by 2014 we predict it to be 98%. Brazil, in sixth place, was 87% of the size of the UK (the fifth-largest) in 2011 and will be 99% in 2014. In 2015, therefore, China is on track to become the second-largest ad market and Brazil the fifth-largest. Russia, which was in twelfth place in 2011, will be eleventh in 2012 and ninth in 2014.

Top ten ad markets

US$ million, current prices. Currency conversion at 2010 average rates.

	2011	Adspend		2014	Adspend
1	USA	154,129	1	USA	173,629
2	Japan	45,358	2	Japan	48,825
3	China	30,920	3	China	48,078
4	Germany	24,441	4	Germany	26,348
5	UK	18,359	5	UK	20,214
6	Brazil	16,012	6	Brazil	19,930
7	France	12,910	7	France	13,806
8	Australia	11,417	8	Australia	12,696
9	Canada	10,526	9	Russia	12,415
10	South Korea	9,809	10	Canada	12,165

Source: ZenithOptimedia

As we noted in December, the global ad market will benefit this year from the ‘quadrennial’ effect and Japan’s recovery from the effects of the earthquake in March 2011. Every four years the quadrennial events – the summer Olympics, the European Football Championship and the US Presidential and other elections – provide a reliable boost to the global ad market. This time we expect the combination of the quadrennial effect and the Japanese recovery to add US$7 billion to ad expenditure in 2012. Without this extra stimulus, ad expenditure would grow 3.2% this year, slightly less than in 2011.

Global advertising expenditure by medium

The internet continues to exceed our expectations for growth, most recently thanks to the explosive growth in social media advertising. Online video is the other star in the category, propelling internet display to 21% annual growth between 2011 and 2014. Display advertising is now growing substantially faster than paid search (which we forecast will grow by 15% a year to 2014) and classified (9% a year). Display advertising accounted for 36% of internet advertising in 2011; by 2014 we expect this proportion to increase to 41%.

Internet advertising by type

US$ million, current prices Currency conversion at 2010 average rates.

	2010	2011	2012	2013	2014
Display	21,656	27,248	32,916	39,775	48,404
Classified	10,868	11,673	12,686	13,733	14,950
Paid search	32,485	36,826	42,463	48,855	55,588
Total	65,009	75,748	88,065	102,363	118,943

Source: ZenithOptimedia

Overall, we predict internet advertising will increase its share of the ad market from 16.4% in 2011 to 22.1% in 2014. Internet advertising already accounts for more than 25% of total ad expenditure in five markets (Denmark, Norway, South Korea, Sweden and the UK), and by 2014 we expect it to account for more than 30% in six markets (Canada, China, Norway, South Korea, Sweden and the UK), so there is plenty of potential for further growth in internet advertising’s global market share.

The internet is also the biggest contributor of new ad dollars to the global market. Between 2011 and 2014 we expect internet advertising to account for 55% of the growth in total expenditure. The next biggest is television, which we forecast to contribute 40% of growth. Television’s share of the global ad market has risen steadily over the last few years: it reached 39.9% in 2011, up from 36.9% in 2005. The amount of time viewers spend watching television has increased, and even though viewers are presented with a wider choice of channels than ever, the biggest television events are attracting record audiences. We expect the popular televised quadrennial events to lift television’s share to 40.1% in 2012, but beyond that we forecast its share to return to 39.9% by 2014. As the global economy improves we expect consumers to spend more time and money on activities outside the home, leaving less time for television.

Newspapers and magazines have been declining since 2007, with a brief pause for magazines in 2010, and we expect this decline to continue throughout our forecast period. We forecast advertising in both newspapers and magazines to shrink by 1% a year between 2011 and 2014. Note that this includes only advertising in printed editions of these publications; it does not include advertising on their websites, or in tablet editions or mobile apps, all of which will be picked up in our internet category. The prospects for newspaper and magazine publishers are therefore not quite as bleak as our headline figures would make them appear.

Advertising expenditure by medium

US$ million, current prices Currency conversion at 2010 average rates.

	2010	2011	2012	2013	2014
Newspapers	94,871	91,742	89,953	88,946	88,480
Magazines	43,643	43,003	42,137	41,741	41,674
Television	176,820	183,681	193,660	203,444	215,298
Radio	32,013	32,884	33,663	34,799	35,828
Cinema	2,319	2,474	2,643	2,848	3,055
Outdoor	29,722	31,315	32,862	34,413	36,108
Internet	65,009	75,748	88,065	102,363	118,943
Total *	444,397	460,847	482,983	508,555	539,386

Source: ZenithOptimedia

* The totals here are lower than the totals in the ‘Advertising expenditure by region’ table above, since that table includes total adspend figures for a few countries for which spend is not itemised by medium.

Share of total adspend by medium (%)

	2010	2011	2012	2013	2014
Newspapers	21.3	19.9	18.6	17.5	16.4
Magazines	9.8	9.3	8.7	8.2	7.7
Television	39.8	39.9	40.1	40.0	39.9
Radio	7.2	7.1	7.0	6.8	6.6
Cinema	0.5	0.5	0.5	0.6	0.6
Outdoor	6.7	6.8	6.8	6.8	6.7
Internet	14.6	16.4	18.2	20.1	22.1