The macro landscape in Asia-Pacific appears to be improving after a rocky first half to 2014, promising to boost ad spends that have been on a slow burn so far this year.
Fifa World Cup demand has provided modest, incremental gains in most markets, while elections in India and Indonesia also helped lift spend, although both countries are waiting for more upside.
In Thailand, advertising prospects have nosedived amidst great political volatility.
Much of the expected improvement in the macro environment is due to: (1) Stronger indicators from China, combined with government attempts to better shore up the economy; (2) Export growth and supportive policies in Korea; (3) Buoyant sentiment in India, on the back of a new, reform-oriented government.
Japan should also realize improved second-half economic growth, while prospects in Australia are decent, buoyed by non-mining investment as well as mining exports.
“Globally, 2014 looks set to be a game of two halves,” says Morgan Stanley economist Chris Nicol.
“Following a breathtaking 1H 2014 littered with bad surprises, we see global GDP growth in 2H 2014 re-accelerating back to the 3.7% year-on-year average pace recorded in the last three quarters of 2013, thus leaving recent speed bumps – the US deep freeze, Europe’s bank credit crunch, Japan’s consumption tax hike, China’s sharp slowdown and broader emerging market wobbles – behind.”
According to media buyer ZenithOptimedia, global advertising expenditure will increase by 5.4% in 2014, and by 5.7% in 2015. Zenith breaks up Asia-Pacific into three parts: Japan; Advanced Asia (including Australia, Hong Kong, Korea and Singapore); and Fast-Track Asia (includes growth markets in Southeast Asia along with China, India and Pakistan).
The ad market in Japan is forecast to climb 2% per year between 2014-16, while Advanced Asia is pegged at 3.4% this year before accelerating to 4-5% for 2015-16.
Fast-Track Asia, meanwhile, is expected to enjoy 11-13% ad spend growth between 2014-16.
“These economies are growing extremely rapidly as they adopt Western technology and practices, while benefiting from a rapid inflow of funds from investors hoping to tap into this growth,” says Jonathan Barnard, head of forecasting at Zenith.
Media Partners Asia (MPA), which also publishes Media Business Asia, expects net advertising revenues (measured after discounts) to increase 6.3% in 2014 and 2015, versus 5.7% in 2013.
“A significant chunk of growth is factored into 2H 2014 and 2015,” says MPA director Vivek Couto.
“We remain optimistic about large-scale, mature markets such as Australia and Japan. China, India and Indonesia will continue to grow at a double-digit pace with potentially more upside in India next year, which has been the slowest of the three.”
In Australia, net advertising should grow by 2.3% this year, and by 2.9% in 2015, according to MPA estimates. Macro sentiment remains cautious, however, with some short-term headwinds to be addressed.
Longer-term, a broad-based housing recovery is key, helping the country reduce dependence on its current resources boom. According to media tracker SMI, which represents more than half of Australia’s ad market, agency billings fell 1.4% in 1H 2014, contracting by 2.9% in June, although July has seen some positive activity.
TV has been fairly weak this year (free-to-air and pay-TV), while print remains in secular decline, but digital display is strong.
While Australia’s near-term advertising outlook is modest, growth is expected over the medium term, driven by a recovery in economic activity on the east coast. In general, positive business sentiment and rising employment are encouraging, but consumer confidence is soft following May’s Federal Budget, expected to lead to higher taxes and lower government spending.
A landslide victory for the BJP-led NDA under Prime Minister Modi should be a big positive in India, although July’s government budget met with a lukewarm response, disappointing many.
The new government will need to accelerate the pace of reform to achieve long-term economic growth. This includes improving physical infrastructure and driving urbanization, simplifying taxes with a goods and services levy, and providing more transparency to accelerate foreign investment.
Improved political stability will help boost corporate advertising expenditure and buoy India’s overall ad market, which is expected to increase by 9.8% in 2014 and by 10.2% in 2015.
In Indonesia, more certainty and reform following Jokowi’s election victory should be positive for advertisers, media owners and investors.
While 1H ad demand was buoyed by election-related spend, budgets have generally been pushed back to the second half of the year, and media buyers expect more sustained advertising growth. Estimates from MPA indicate that advertising will grow by 15.2% in net terms this year and by 13.6% in 2015.
One big catalyst for a stronger Indonesia is economic reform. The new government is expected to raise subsidised fuel prices before the end of 2014. This would help reduce budget deficits, freeing up around 1% of GDP to spend on infrastructure and social development.
Although the Indonesian government more than doubled infrastructure spend over the past three years to US$18.5 billion in 2013, this only represents 2% of GDP, compared with 4.6% for Malaysia and 5.4% for India.
Advertising demand in Japan is surprisingly resilient, given that agencies expected a negative impact after April’s consumption tax increase from 5% to 8%.
Most of the new spend is coming from FMCG and tech-related categories, with free-to-air TV and digital media benefiting most.
MPA expects net advertising in Japan to grow at 2.7% this year and next, with digital’s market share set to reach almost 30% by end-2015. TV’s portion will remain stable at 32%.
In Korea, free-to-air TV is under pressure, with its advertising base expected to contract 4-5% per year between 2013-15. Much of the damage is due to free-to-air stations losing share to pay-TV channels (including new entrants) as well as online video platforms.
Significantly, free-to-air networks own both pay channel and online video assets but have yet to monetize the latter, which are not included in official audience ratings.
Korea’s advertising market is also confronted by broader macro challenges. Domestic demand was adversely impacted by this year’s ferry tragedy and consumer sentiment has deteriorated, affecting retail sales, service activities and employment.
The Bank of Korea had been expecting the economy to expand by 4.0% in 2014 (in real terms) but the consensus among economists is that real GDP will come in at 3.7-3.8%.
Encouragingly, a stronger macro environment in 2H 2014, along with the upcoming Incheon Asian Games and Fifa World Cup football, should boost demand.
Advertisers in Thailand are still cautious due to the military coup and uncertainty over the success of a stimulus package implemented by the coup-led government. MPA numbers indicate that advertising will fall by 5.9% in 2014 before rebounding by 8.8% in 2015.
The auto and mobile categories have shored up ad spend this year. The auto sector is looking to boost domestic demand with new launches while telcos are spending on consumer marketing amidst a transition to 3G.
FMCG, the dominant spending category, notably reduced spends in 2014, led by Unilever and Beiersdorf.
“Political tensions during the first half of the year adversely impacted advertising,” says Stephen Laslocky, a senior analyst at MPA.
“Newspapers, magazines and radio were disproportionately impacted. TV was less affected. As the political impasse was unsustainable, the coup is largely seen as a positive, at least in the short term, as it allows the government to pay rice subsidy liabilities and to resume spending on key initiatives such as infrastructure projects in Bangkok and upcountry. Ad spend is expected to grow during most of 2H 2014.”
This article first appeared in Media Business Asia magazine, Q2 2014.