Latest Zenith report reveals internet ad spend to exceed US$200bn, surpassing TV for first time

Zenith forecasts.jpgGlobal internet advertising expenditure will grow 13% to reach US$205bn in 2017, according to Zenith's new Advertising Expenditure Forecasts, published today. Internet advertising will attract 36.9% of all advertising expenditure, up from 34.0% in 2016. This will be the first year in which more money will be spent on internet advertising than advertising on traditional television (which will total US$192bn).

The sheer scale of internet advertising means its growth rate is slowing. Internet ad spend grew 17% in 2016, down from 20% in 2015, and we expect growth to slow to 13% in 2017, 12% in 2018 and 10% by 2019 (though it will continue to add US$23bn-US$24bn a year). In this environment it is vital that platforms and publishers address advertisers' valid concerns about viewability and brand safety to secure sustainable growth. As the market matures, advertisers need to know for certain that their ads are being actively viewed by real people in appropriate environments.
The Australian advertising market finished 2016 with growth of +3.8%, slightly higher than Zenith originally forecast. Digital expenditure continues to be the main driver of total market inflation, with growth of 15% in 2016. Mobile and online video spend in particular fuelled this growth in 2016. TV revenue was down -3.9%, continuing to be under pressure from audience declines and the growth of digital. Print also continued to decline, although the pace is now starting to slow. Press declined by 13.4% in 2016 and is now only 11% of total ad spend versus being more than 25% just five years ago; and magazines were down 17.7%. Out-of-home grew by +7.9%, benefiting from the increase in supply and quality of inventory as static panels are converted to digital formats. Radio also grew by +5.8% with increased spend from big spending categories like retail and automotive

Says Nickie Scriven, CEO, Zenith Australia: "Looking forward into 2017 we are forecasting growth to be at +3.4%. Digital will continue to be the main driver of this growth. Radio and out-of-home growth will moderate slightly and we continue to forecast declines in TV and print.

"Our 2017 revenue forecast is behind 2016's growth but still above overall economic growth in Australia, which will be around 2% in 2017.  Overall consumer confidence is flat, with consumers having a cautious outlook around economic indicators like cost of housing, rising commodity costs and unemployment growth. Despite this, major advertising categories like retail, automotive, finance and travel continue to have modest growth in their spend."

Social media to overtake newspaper advertising in 2019

Zenith forecasts advertising expenditure on social media to reach US$55bn in 2019, overtaking advertising expenditure on printed newspapers, which will total US$50bn. Social media advertising is the fastest-growing component of internet advertising - it grew 51% in 2016, and we forecast it to grow at an average rate of 20% a year to 2019. Newspaper advertising, meanwhile, is shrinking by 5% a year as circulations continue to fall. Newspaper ad spend has shrunk every year since peaking at US$113bn in 2007, and by 2019 will be back to levels last seen in 1985 - and that's without adjusting for inflation. Note that these newspaper figures only includes advertising in printed editions - newspapers' online revenues are included in the internet advertising total.

Long streak of steady global ad spend growth to continue

The global ad market has grown at a steady pace of 4%-5% a year since the beginning of the decade, and we expect it to continue to do so through to 2019. Our forecast for 2017 is for 4.4% growth (unchanged since we last published our forecasts in December), down slightly from 4.6% growth in 2016. We forecast another 4.4% growth in 2018, followed by 4.2% in 2019. These rates are slightly below the growth rates that the IMF forecasts for nominal GDP.

 Advertising growth is concentrated in big cities

In recent years, big cities have been the focus of innovation, migration and trade. Their populations are younger and have higher incomes than populations elsewhere, although they also pay a lot more for their housing. As part of a wider project to identify the value of individual cities to advertisers, Zenith has conducted a study attributing advertising expenditure to individual cities, by estimating the amounts spent targeting the inhabitants of these cities (and their surrounding metropolitan areas) by advertising in local, national and international media.

Zenith's report estimates that just ten cities will contribute 11% of all the growth in global ad spend between 2016 and 2019: in descending order of contribution, New York, London, Los Angeles, Jakarta, Tokyo, Shanghai, Manila, Beijing, Dallas and Houston. Last year US$61bn was spent targeting the population of these ten cities, and we forecast this total to rise to US$69bn by 2019. The top 50 will contribute 27% of total global growth, and the top 250 will contribute 50%. New York is the world's most important city for advertising, where US$15bn will be spent this year, followed by Tokyo (US$13bn), Los Angeles (US$9bn), London (US$8bn) and Chicago (US$6bn).

Says Jonathan Barnard, head of forecasting, Zenith: "Population numbers, productivity and disposable incomes are rising faster in cities than elsewhere. So city dwellers are becoming more valuable for advertisers seeking growth. Big cities are now driving growth in ad spend."

Says Vittorio Bonori, global brand president, Zenith: "Internet advertising has contributed all of the growth in global ad spend since the beginning of the decade, and has stimulated much of the innovation we've seen in the market. Innovation is proceeding as fast as ever, and we believe that this is what will continue to drive brand growth for advertisers."

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