Introduction to the Advertising and Branding Industry
The size of the advertising market is difficult to assess, and estimates by analysts vary to some degree. This is partly due to the fact that the final cost of advertising for any company includes creative and agency costs; local branding and marketing efforts; catalogs, brochures and other printed matter; the creation and maintenance of web sites and myriad other components, in addition to expenses for media. Numbers that are available for analysis and comparison are generally limited to actual spending on media, such as radio, TV, billboards and paid search or Internet advertising. Even these numbers are often educated guesses. Estimates of ad spending may include spending at both local and national media outlets, as well as spending on Internet media via paid search and online ads. Recently, spending on social media sites has been added to the mix.
By all accounts, the recent global recession took an immense toll on the industry, as revenues declined and layoffs were announced, from agencies to broadcasters to magazine and newspaper publishers. Many well-known magazines closed down, and a handful of respected newspapers went to online-only versions. Many advertisers were unable to pay their bills. GM alone owed more than $100 million in advertising bills as it entered bankruptcy.
The advertising industry enjoyed a rebound in 2010-12, as significant economic growth boosted emerging nations, and the U.S. and other mature nations found themselves on firmer ground. Analysts at Magna estimated global advertising revenues at $480 billion for 2012. ZenithOptimedia forecast that the global market would total $517.7 billion for 2013.
Analysts at Magna estimated U.S. advertising revenues at $152 billion for 2012. They expected 2013 revenues to hit $178.5 billion. eMarketer forecast total U.S. advertising spending at $171.7 billion for 2013. America is by far the world’s largest advertising and media market.
During 2012, advertising in the U.S. got a significant boost thanks to the convergence of ad spending on national elections and the Summer Olympics. Those advertising revenues will be difficult to replace during 2013, unless economic growth picks up. On the positive side, both automobiles and real estate were enjoying soaring sales during the first part of 2013, and both of these sectors are big advertisers.
The European market has been a big problem for the advertising industry. While the market there is massive, with a population over 500 million if you look at Europe in a broad sense, the economic picture has been generally dismal. Unemployment rates are high and consumer spending is low in such markets as Italy, France and Spain. The UK has been posting dismal growth. Germany, the largest market by far, has been fairing better, as has Austria. The Scandinavian countries, while relatively small, continue to enjoy good economic environments. One of Europe’s biggest problems is the automobile market, where sales are very slow. This is tough on the advertising industry, since auto makers and dealers are among the largest advertisers of all.
Advertising spending has enjoyed outstanding growth during recent years in emerging markets such as China, Malaysia and Brazil. Magna estimated that emerging markets accounted for 25% of global ad spending as of 2012, and may grow to 33% of the market by 2017. However, economic growth was very slow in late 2012 and early 2013 in important markets such as China, Brazil and India. While growth may be slower over the near term, emerging economies are nonetheless seen as outstanding advertising markets for the long term, due to rapid improvements in household incomes, consumer spending and business investment, along with the continuing spread of media access via consumer electronics ranging from smartphones to flat-screen TVs.
Among the best growth areas in advertising are advertising on mobile devices, which is still in its infancy, and advertising online. Analysts at Gartner expect mobile advertising to reach $24.6 billion worldwide by 2016. ZenithOptimedia estimates that global digital advertising, including online search, will reach $101.5 billion in 2013.
Advertising is irrevocably linked to media, whether traditional media like the 15,302 broadcast radio stations in America (about $16.5 billion in annual revenues); 2,034 commercial broadcast TV stations plus myriad cable and satellite TV outlets (totaling about $66.4 billion in advertising revenues); the 1,382 daily newspapers (about $18 billion in annual advertising revenues); or new media like the tens of thousands of Internet sites that now accept advertising. The advertising sector also includes direct mail, at about $25 billion yearly in the U.S.; magazines, at about $15.1 billion in print-edition revenues; and outdoor (“out of home”) advertising, at about $6.4 billion. In addition, there is significant activity in specialty and alternative advertising, everything from ballpoint pens printed with a message to t-shirts to small airplanes towing advertising banners. Branding, marketing and public relations activities and services generate billions more in revenues.
Advertisers are faced with daunting new realities when considering the various media they might use to get their messages across. Traditional media are losing control over their audiences. That means that advertisers can no longer feel secure that their ads on TV, on the radio or in print are going to receive mindshare. Gone are the days when television and radio programmers enjoyed captive audiences over a handful of networks, who happily sat through ad after ad, or planned their schedules around favorite shows. Consumers, especially consumers in younger demographics, now demand more and more control over what they watch, read and listen to, and thus more control over the advertising they might be exposed to.
Issues and Options Related to Control and Pricing of Entertainment Content:
· Free, advertising-supported content versus paid content
· “Sponsored” content as opposed to traditional advertising support
· Illegal downloads of content versus authorized downloads
· Paid one-time downloads of content for permanent use, versus one-time pay-per-view, versus continuing subscription required to view
· Portability (including the ability for a consumer to download once, and then use a file on multiple platforms and devices such as iPods)
· Delayed viewing or listening (such as Video-on-Demand, or viewing TV programming at the consumer’s convenience via recording devices such as TiVo)
Source: Plunkett Research, Ltd.
Nonetheless, for advertisers willing to adapt to today’s rapidly evolving environment, there is good news. Effective advertising today targets consumers based on things they are passionate about, rather than simply their tendency to watch network TV on Friday night, their age or their household income bracket. That is, the increasing range of niche media now available enables carefully crafted messages to be designed for and delivered to specific consumer “passionate interest groups.” For example, consumers who read Bon Appétit magazine (gourmet food and lifestyle coverage), watch the Food Network on cable TV and hold Platinum American Express cards are likely to respond to messages that are centered on dining and entertaining well. Obviously, a niche campaign could be created around direct mail to these upscale credit card holders, combined with print ads in the magazine and cable TV ads on the Food Network. This is a target marketer’s dream come true. The product might be fine wines or Viking ranges, but it could just as easily be ads featuring Lexus luxury automobiles shown being used to bring home gourmet food ingredients, drive to a gourmet restaurant or arrive at the Aspen Food & Wine Festival. The campaign might be topped off with special ads or an online contest on the Epicurious gourmet foods web site (www.epicurious.com) and links to special offers, contests, how-to-cook streaming video demonstrations or useful news on the advertiser’s own web site.
Blogs, interactive magazines in the form of apps, social networks like Facebook, cable TV programming on-demand and cellphone-based entertainment are booming. Never in history have there been so many unique opportunities for targeted marketing based on consumers’ tastes, interests, locations, special needs and passions. In fact, asking consumers to respond by going to a specific web page may finally make advertising truly trackable and results-based—long the holy grail of marketers.
Cutting-edge cable TV technology makes television advertising directed at specific neighborhoods possible for the first time—a boon to advertising by local retailers, local services and political candidates. Interactive television services are growing rapidly, leading to new opportunities for direct-selling via TV. With interactive cable TV, subscribers can order movies on demand and other unique services. They also have the ability to respond to direct sales offers via their cable systems. For example, viewers watching a pay-per-view music concert may be able to order souvenirs such as t-shirts via interactive cable. Cable TV offers another unique advantage to direct sellers and other advertisers. Since the cable system knows the address of the cable subscriber, that address information can be matched against demographic databases to create a unique profile of the subscriber based on likely household income, value and size of the home and other data. Ads displayed by the cable system can then be custom tailored to match the viewer’s profile.
A true sea change in the way that television is watched and used is occurring as consumers purchase the first wave of Internet-enabled television sets manufactured by Sony and others. A direct link from the screen to a set-top box or other controller (e.g. media center PC) to the Internet means that interactive viewing will be brought to new levels. It also means that the download and local storage of content will be more convenient than ever.
Meanwhile, the use of ads that are intensely targeted to “passionate interest groups” is long past-due. By one count, Americans are subjected to 3,000 commercial messages daily—most of which, such as billboards, occur randomly. A study by Yankelovich Partners found that two-thirds of Americans feel “constantly bombarded” by ads and nearly as many respondents felt that these ads have little or no relevance to them.
The competition among entertainment delivery platforms has intensified. Satellite radio delivery of subscription-based music and talk programming has reached more than 23 million subscribers at Sirius XM. Telecommunications companies such as AT&T are now delivering television programming to the home via telephone wires, battling cable and satellite TV firms for market share. Millions of cellphone owners are subscribing to mobile video, enabling them to watch news, entertainment and sports on color cellphone screens.
Today, electronic offerings such as DVDs, digital video recorders (DVRs), video-on-demand (VOD) and MP3 players have vastly altered the way consumers enjoy entertainment. People watch and listen according to their own desires and whims. Miss the finale to a favorite television show? Rent or buy it online, or record it to watch later. Interested in only one track from a recording artist’s new CD? Buy and download just the one song via the Internet at iTunes. Love a prime-time drama on a major network but hate commercials? Record the show while ignoring the commercials with a DVR.
The implications of these changes are staggering. The business models upon which most media have traditionally run are becoming obsolete. Revenue from advertisers is in jeopardy at traditional outlets, while advertising at new media, including online, is soaring. Television programming schedules are losing relevance while electronic program guides are becoming more and more vital. Media companies and the advertisers that rely on them are being forced to radically change to deal with new technologies and new demands from consumers.
Rapid changes in viewing habits are already occurring. Network TV news, radio news and newspapers all find that they have to compete fiercely against Internet-based news content. A large portion of sports programming has migrated away from “free” broadcasts on TV and onto paid cable channels and pay-per-view systems.
Meanwhile, media platforms and ad delivery are evolving quickly. Multipurpose cellphones are now used for more and more entertainment purposes. Game machines are going multipurpose with the ability to connect to the Internet. Broadband to the home has grown to vast, mass-market numbers, while high-speed wireless connections are enhancing the use of entertainment and media on the go. A serious evolution of access speeds and delivery methods will continue at a rapid-fire pace, and media companies will be forced to be more nimble than ever.
Globally, more and more households are gaining access to the Internet, creating even more opportunities for online advertising, with an estimated 2.4 billion broadband Internet users worldwide, including fixed and wireless, as of mid-2012. The global base of cellphone and wireless device subscriptions now tops 6 billion.
In magazine publishing, some niche publications have been enjoying high advertising page counts. Fashion magazines and bride’s magazines, for example, remain robust. However, news magazines, business magazines and other broad interest publications are losing advertising clients to online and cable TV media, and are becoming thinner than ever. Newspapers are finding it increasingly difficult to compete against Internet news and advertising delivery rivals. In 2008 and 2009, during the recession, there were significant closings of major newspapers in the U.S., such as the Denver area’s Rocky Mountain News. The Seattle Post Intelligencer stopped making printed editions and went online only in March 2009, after slashing the size of its news staff. Other newspapers have reduced the size and frequency of printed publication. The Detroit Free Press put an end to daily home delivery. Classified ads are migrating quickly to web sites such as Craigslist.com. Traditional radio broadcasting is suffering also, finding it increasingly difficult to gather listeners for advertising-based radio programming due to online music platforms such as Pandora and Spotify, as well and Apple’s iPods and iTunes music store. On a brighter note, advertising, long the main revenue source for much of the media industry, is supporting an entirely new industry: paid Internet search and online advertising, which will reach about $42.5 billion in the U.S. for 2013, according to eMarketer.
Top-Tier Global Advertising Agencies
Omnicom Group, Inc.
Fiscal 2012 Sales: $14.2 billion
Fiscal 2012 Profits: $998 million
Omnicom was created in 1986 through the merger of BBDO, a marketing and communications firm, Doyle Dane Bernbach, a major advertising agency, and Needham Harper, whose client list included such big names as McDonald’s. Steady acquisitions followed, including TBWA, one of the foremost European advertising agencies, and Gotocustomer Services India. In 2012, the firm acquired ITOCHU Corporation, a Japanese digital medical communications agency.
Fiscal 2012 Sales: $16.1 billion
Fiscal 2012 Profits: $1.27 billion
Martin Sorrell founded this British holding company in 1985, when he bought the public company Wire & Plastic Products (WPP) plc. WPP made its first major acquisitions with JWT (J. Walter Thompson) Group, a global full-service agency, and MRB Group, a market research company. It went on to buy Ogilvy Group, as well as a plethora of companies engaged in advertising, consulting and public relations, information technology and healthcare. Today, the combined companies work out of 3,000 offices in 110 countries. In March 2013, the firm acquired john st. advertising, a Toronto-based creative agency.
Interpublic Group of Companies
Fiscal 2012 Sales: $7.0 billion
Fiscal 2012 Profits: $435.1 million
Interpublic acquired its first company in 1960, the advertising powerhouse McCann-Erickson. Interpublic lost some steam in the economic slowdown of 2001 after making some expensive acquisitions, including Foote, Cone & Belding. In a five-year buying binge the company collected 300 properties. After its numerous acquisitions, Interpublic restructured in order to reduce expenses and offer more efficient turnkey services to its clients. In July 2012, the firm, in association with Pitney Bowes, launched ORION Printing, a print management company that will focus on supplying printing solutions to IPG companies.
Publicis Groupe SA
Fiscal 2012 Sales: $8.7 billion
Fiscal 2012 Profits: $973.9 million
Founded in 1926, Publicis has long-standing relationships with several major companies. It has served clients such as Colgate-Palmolive and L’Oreal, as well as publishing houses and broadcasting stations. The company made its first major acquisitions in the 70s with Dutch-based Intermarco and the British firm, McCormick. It achieved “Super Agency” status with the acquisitions of Saatchi & Saatchi in 2001, one of the largest advertising networks in the world, and Bcom3 in 2002. Bcom3 is the parent company of Leo Burnett, another well-known advertising firm. Yet another major toehold came from a strategic alliance with Dentsu, the largest advertising agency in Japan. In 2012, Publicis acquired Rokkan, Monterosa, AR New York, iStrat, Marketgate, Outside Line, Arachnid, NEOGAMA, Resultrix and BBR Group. In 2013, the firm acquired Indian digital marketing and consulting agency Convonix.
Fiscal 2012 Sales $2.3 billion
Fiscal 2012 Profits $167 million
Havas is a global advertising and communications services group. Headquartered near Paris, Havas has two principal operating divisions: Havas Worldwide (operating through its largest group Euro RSCG Worldwide) and Havas Media. A multicultural and decentralized group, Havas is present in 75 countries through its networks of agencies and contractual affiliations. The group offers a broad range of communications services, including traditional advertising, direct marketing, media planning and buying, corporate communications, sales promotion, design, human resources, sports marketing, multimedia interactive communications and public relations. During 2012, Havas acquired a majority stake in Victors & Spoils; ignition, an experiential marketing agency; Creative Lynx, a leading digital health and wellness communications agency; and Boondoggle, a digital ad agency in the Benelux region.
Video Introduction to Advertising & Branding Industry