Advertising & Branding Industry Market Research How to Buy
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 for ads on social media sites has been added to the mix.
The advertising industry has been enjoying strong revenues, with a good rebound since the global recession ended in 2009. Analysts at ZenithOptimedia estimate that the global market totaled $509.0 billion for 2013, and will grow 5.3% to $532.0 billion in 2014. They further estimate that growth will accelerate to 5.8% per year in 2015 and 2016.
America is by far the world’s largest advertising and media market. ZenithOptimedia estimates that the 2013 total for advertising spending in the U.S. was $166.9 billion, and that it will grow to $190.2 billion in 2016. However, the fastest-growing markets include the China-India area at 10.5% growth for 2014, Latin America at 9.7% and the Eastern Europe/Central Asia region (including Turkey and Russia) at 9.5%.
The European market has been a big problem for the advertising industry, with only 2.4% growth forecast for 2014. 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. Germany, the largest market by far, has been faring better, as has Austria. 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.
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 global market by 2017. However, economic growth has been slowing 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.
Both the online audience and the level of sophistication in online advertising continue to increase dramatically. Advertisers large and small have made the Internet a significant part of their advertising strategies. eMarketer reported $42.3 billion in U.S. online ad spending for 2013 (including online and mobile platforms), up from $37.3 billion for 2012. Double-digit growth is expected to continue through 2014. Online advertising spending in 2013 accounted for 24.7% of all ad media spending in the U.S. By 2015, eMarketer estimates that online ad spending will account for almost 28%.
For 2013, global digital ad spending reached $117.6 billion, according to eMarketer. This was an increase from $102.83 billion the previous year.
Advertising is irrevocably linked to media, whether traditional media like the 15,500 broadcast radio stations in America (about $17.6 billion in annual revenues); 2,000 commercial broadcast TV stations plus myriad cable and satellite TV outlets (totaling about $68.5 billion in advertising revenues); the 1,300 daily newspapers (about $17.1 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 $21 billion yearly in the U.S.; magazines, at about $15.1 billion in revenues; and outdoor (“out of home”) advertising, at about $6.9 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, people 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 makes 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 26 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 2.79 billion broadband Internet users worldwide, including fixed and wireless, as of the beginning of 2014. The global base of cellphone and wireless device subscriptions now tops 7 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.