AdEx to grow 12.6% in 2020: GroupM

09 Dec,2019

 

By A Correspondent

 

Adspends in India will grow 12.6% in the year 2020, a slight increase from the 12.4% in the year 2019. This was part of the global ‘This Year Next Year’ report released by GroupM at a global level. It may be noted that GroupM presents its India-specific numbers every year in early February, which can hence be expected two months from now.

 

According to the numbers released, for India, the growth in television will be 11.1%, whereas for radio it will be 8%. The growth forecast numbers for newspapers and magazines are 1% and -10% respectively. While the growth for outdoor and cinema is pegged at 8.1%, that for internet will be 26.3%.

 

Prasanth Kumar

Said Prasanth Kumar, CEO, GroupM South Asia: In 2020, India faces challenges and uncertainties across sectors, just like other markets. However, this also brings opportunities for brands to innovate. This will be propelled by greater use of technology and better content across media.”

 

Meanwhile, here’s the rest of the report:

 

The global economy has weakened in 2019 and will remain similarly soft in 2020. By our calculations, based on Refinitiv data, the gross domestic product (GDP) of the countries we track in “This Year, Next Year” is growing by only +2.6% this year in real (inflation-adjusted) terms.

 

Growth in 2020 is expected to be similar (+2.5%), with only slightly faster growth (+2.8%) in 2021 and beyond. For reference, +2.5% would be the slowest pace of growth in any non-recession / non-recovery year over the past two decades. In nominal terms (including inflation), 2019 growth for these countries is expected to be +4.9%, down from growth of +5.8% in 2018 and +5.7% in 2017. 2020 looks somewhat similar to 2019, and marginal improvements follow in subsequent years.

 

Nominal growth rates are important to track because they are the most directly comparable figures to those with which marketers and media owners work in determining their own financial plans.

 

Personal consumption expenditures are holding up better. One factor that has probably helped sustain marketing growth so far this year is growth in personal consumption expenditures (PCE). As consumer spending represents more than half of all economic activity, PCE can be more important to monitor than GDP. Global growth in nominal PCE is holding up as well in 2019 as it did in 2018 at +5.5% in both years. Growth is expected to slow, but only modestly in the years ahead. Of course, changes in inflation levels diminish these figures, with expectations for real (inflation-adjusted) PCE growth at incrementally slower levels each year over the next five years.

 

Industrial production often correlates more tightly with advertising growth trends. Industrial production (IP) figures are another key set of metrics to monitor, as IP often correlates better with advertising activity than either GDP or PCE (manufacturers generally only make things for sale if they are planning to spend money on advertising them). Weighted against GDP in the markets captured here, we see pronounced weakness in 2019 and 2020 (+1.2% and +1.5%, respectively) relative to 2017 and 2018 levels (+3.5% and +3.1%, respectively). Recovery toward slightly higher levels is anticipated for 2021 and beyond.

Trade and other factors are key sources of uncertainty. As the Organisation for Economic Co-operation and Development (OECD) has pointed out, slowing global trade is clearly dragging on economic activity, and seemingly heightened geopolitical uncertainties are similarly unhelpful. All of this would worsen if the U.S. experienced a recession, although the U.S. economy has remained resilient, likely aided in part by low interest rates and corporate tax reductions, alongside a federal deficit of nearly $1 trillion during the most recent fiscal year. This was equivalent to more than a quarter of all government expenditures and nearly 5% of the overall economy, or more than double its recent trough in 2015.

 

Mean and median growth rates may tell different stories. We note the difference between mean and median growth rates, with larger economies expected to perform relatively better than smaller ones in the years ahead.

 

Global Advertising Growth Summary

 

In this environment, deceleration in advertising growth should be generally unsurprising. Global advertising, excluding U.S. political advertising (large enough to distort global growth rates by +/-1% each year), expanded by +5.7% in constant currency terms during 2018, capping the third year of better than +5% growth and the best year of the current economic cycle. However, 2019 appears set to grow nearly a percentage point slower at +4.8%, and growth is expected to slow by another percentage point in 2020 and 2021. We forecast +3.9% growth next year and +3.1% growth the following year. Growth is expected to range between +3–4% through 2024. Although much worse than recent years, we note that this would amount to a similar pace of growth to what was observed during 2012–2014. We estimate that the total global advertising market during 2020 will amount to $628 billion as we define advertising here, but would likely approach $700 billion on a broader definition that includes spending on direct mail and directories around the world.

 

Notably, a substantial share of global advertising is now accounted for by digital-first brands that are endemic to the internet. Based upon their securities filings, we can see that Alibaba, Alphabet, Amazon, Booking.com, eBay, Facebook, IAC, JD.com, Netflix and Uber are each now $1 billion+ advertisers, accounting for $36 billion in spending during 2018, up by a quarter over 2017 levels; growth in 2019 was presumably very similar. Adding a couple dozen companies from the next tier of comparable marketers would easily add tens of billions of dollars of additional activity. Combined, this small group of companies accounts for a majority of the world’s growth in spending on advertising. To the extent that these companies tend to take shares of consumer spending from others and do not directly cause the global economy to expand, at some point their growth converges with global averages, resulting in slowing growth in spending as well.

 

The median growth rate has exhibited sharper deceleration in 2019 than the mean. For the countries we have tracked with consistent data back to 1999, the median growth rate in 2018 was +5.2%. It is expected that 2019 will be +2.1%, followed by +2.7% growth in 2020, with generally slower growth than the weighted average. The difference between the mean and median highlights that growth is driven by a small number of large countries and that the typical small country is experiencing worse growth trends, bringing down the worldwide average. By contrast, median country growth was typically well above the mean as recently as 2013, reflecting a period where much of global advertising growth was driven by smaller countries. This maps to the aforementioned global economic trends.

 

The U.S. remains the largest global advertising market, with $246 billion in advertising as we define it here, and growing above global averages. With nearly 40% of the world’s total and a still-robust advertising market in 2020 and beyond (at +4–5% growth excluding directories, direct mail and political advertising), the U.S. is helping raise global averages. Our forecasts anticipate a slowing economy as well as the gradual maturation of the digital brands that have driven so much recent growth. On the basis described here, normalized U.S. advertising should slow from +7.6% in 2019 to +5.0% in 2020, +3.4% in 2021, and similar levels in subsequent years.

 

China’s $90 billion media market is maturing and beginning to slow, but is still more than two times the size of the number-three market, Japan. After many years of rapid growth, China is now solidly the world’s clear number-two market for advertising, with 16% of total media-owner ad revenue, nearly matching the country’s 17% share of global GDP. However, macroeconomic concerns—including issues referenced above and a general maturation of the Chinese advertising market—are weighing on growth

 

this year and beyond. We forecast growth of only +3.7% in 2019 and +1.4% in 2020. Similarly, low levels of growth are anticipated in subsequent years despite faster levels of economic expansion for the overall Chinese economy. Japan remains a solid number three, with 7% of global advertising ($41 billion in 2020) and 6% of GDP, but growth is expected to be tepid there as well; +1.7% growth in 2019 is expected to be followed by +1.8% in 2020, and closer to +1% in subsequent years.

 

The U.K. is still growing at a remarkably fast pace. Among larger advertising economies, the U.K. and the U.S. stand out for their healthy growth expectations. For the U.K., it is a feat made more remarkable given how much uncertainty has persisted over the past three years since the Brexit referendum. Five years ago, the U.K. was essentially tied with Germany as the number-four market for global advertising, but since that time the U.K. has grown by +44% while Germany has only expanded by 7%. The factors driving the U.K. are likely similar to those that have helped make the U.S. a strong market, including a substantial presence of digital brand spending as well as the expanding availability of ad inventory (in digital environments, primarily), which help make it possible for smaller marketers to use media. Although we do expect growth to taper off from the high-single-digit levels we have observed since 2014, solid mid-singles (+6.7% in 2020 and +5.5% in subsequent years) are now expected.

 

Germany and France are growing at below-global average rates; so is much of the rest of Europe. Brazil should be above average, while India is the world leader among larger media markets. Germany and France have certainly underperformed U.K. and U.S. levels of advertising growth in recent years, but remain in the number-five and number-six positions for now. France appears set to grow at a slightly faster pace than Germany, with a +2.8% five-year compound annual growth rate (CAGR) through 2024 for France versus a +1.6% CAGR for Germany. By 2024, Germany should still be the fifth-largest advertising market, but France will likely be overtaken in importance by both India and Brazil, currently number six and number seven, respectively. Brazil should grow at a solid +4–5% level through 2024 after a soft 2019 (we believe the ad market there grew by only +3.3% in 2019), but India should continue to be stellar, maintaining double-digit growth rates (we estimate +12–13% each year from 2020 to 2024, similar to 2019 levels). Of course, inflation is an issue for both of these countries, negating much of Brazil’s growth. However, in India the effect will only mean that real growth is in high-single digits rather than low doubles.

 

Canada and Australia are similarly sized markets, but they are growing in different directions. Canada and Australia round out the world’s $10 billion+ ad markets in 2019, with Canada expected to grow slightly faster over the next five years and growth likely largely tied to the health of its southern neighbor. Australia’s trends will likely differ, as we see at the present time with that country’s economy soft and facing a real risk of recession for the first time in decades. The Australian ad market was likely only stable in 2019 versus 2018 and probably grows only slightly in 2020, for a +2.0% gain expected next year. By contrast, Canada is expected to grow +5.0% in 2019, and should slow toward a high 3%+ growth level next year and in subsequent years. Overall around the world, 14 territories are expected to decline during 2019, with Italy the largest among them: We anticipate Italy will fall by -0.4%. Other large markets among this group include Mexico and Switzerland, which are expected to decline by -4.6% and -8.0%, respectively. Next year, fewer markets are expected to decline, with Switzerland the most significant among them

 

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