Advertisement earnings have not disappeared, despite the large reduction in stock values, with the Dow Jones Industrial Average (DJIA) dropping 14.23 percent between July 21 and Aug. 30, NASDAQ dropping by 14.78 percent, and the S&P 500 by 15.80 percent.
Forecasting advertisement earnings growth is rather precarious, as the economic landscape could change from one day to the next. However, growth has not disappeared, but it will be at a slower pace. October predictions indicated that global advertisement earnings will increase by 3.6 percent for the remainder of 2011.
The October forecast was lowered from the 4.1 percent prediction made in July. In July, a global annual expenditure of $471 billion was predicted, a rate that was 1 percent below the pre-economic turmoil, because firms reduced their advertisement budgets due to worries about the European debt issue.
“The slowdown in economic recovery in the developed markets, coupled with rising fears of double-dip recession, have caused some advertisers to trim back budget increases planned for the end of 2011,” according to the latest report from ZenithOptimedia, a global media services firm based in London.
Advertisement Outlays in Numbers
For 2011, total global advertisement outlays will be around $466 billion, up $16 billion from 2010, a 3.43 percent increase.
Therefore, the good news is that “there has been no sign of the cancelled campaigns and sharp budget cuts that signaled the beginning of the last advertising downturn in 2008,” ZenithOptimedia said.
According to ZenithOptimedia, the year 2012 will experience a 5.3 percent increase in advertisement expenditures over 2011, a slight decrease from the 5.9 percent that was predicted at the end of July.
The year 2012 will be a great year for advertisement savvy firms, given a number of events that call for an outlay of advertisement dollars. In addition, Japan is recovering from the devastating earthquake in 2011 and advertising has returned to normal. The total effect for advertising earnings will be $7 billion more in 2012, with $6.2 billion coming from next year’s events.
“2012 is a ‘quadrennial’ year and will benefit from the summer Olympics in the UK, the European Football Championship in Poland and Ukraine, and the Presidential elections in the US,” according to ZenithOptimedia.
Advertisement Growth Potential
“The sheer size of the US—3.3 times the next-largest market—means it will contribute the most new ad dollars to the global market over the next three years (US$14.3 billion), despite its slow growth,” according to the ZenithOptimedia report.
The United States spent $152 billion in 2010 and is predicted to spend $167 billion in 2013 for advertisements. The second largest advertisement market is Japan, having spent a mere $46 billion in 2010 and predicted to spend $48 billion in 2013.
Advertisement in developing economies is predicted to grow at a faster pace than in developed markets. Latin America’s advertisement expenditures are predicted to increase by 7.1 percent during the coming two years. Asian markets are predicted to expand even more over the next two years, growing by about 10.1 percent.
“There is certainly a risk of further economic downturn ahead, but the current consensus is that the developed economies face a sustained period of below-potential growth instead of decline, while developing markets will continue to grow rapidly,” according to the ZenithOptimedia report.
Predicting Fastest to Lowest Advertisement Growth
“The internet is growing much faster than any other medium, at an average of 14.6% a year between 2010 and 2013,” the ZenithOptimedia report predicted.
Display advertisements, as seen online, as well as on streaming video and social networking sites, are forecasted to grow by 17.2 percent annually and considered to be the fastest growing area for advertisements.
Online classifieds are not expected to grow at an accelerated rate, but are still predicted to increase by 9.2 percent annually. Around 46 percent of all advertisement dollars will, if predictions hold true, be allocated to television advertisements.
The newspaper and magazine sector has experienced declining advertisement dollars over the past five years. Most likely, the waning of print media advertisements will continue.
“Magazines are suffering less than newspapers, because the experience of reading a magazine is less easy to replicate online, and because they do not rely so much on the timely delivery of information, where the internet has a big advantage over newspapers,” according to the ZenithOptimedia report.
Probing for Cause and Effect
“A crash in stock market values does not by itself mean ad expenditure is about to decline—there needs to be a causal connection between the two,” according to ZenithOptimedia.
ZenithOptimedia has at its disposal advertisement statistical information spanning back 31 years and from 79 countries. Thus, it can evaluate the cause and effect of growth and decline in media expenditures during prior economic downturns or upturns.
For example, during the declines in stock market pricing because of the Asian financial turmoil in 1997 and the dotcom bubble mayhem in 2000, advertisement expenditures were curtailed significantly.
Before the dotcom bubble, advertisement expenditures increased quickly, accounting for .96 percent of GDP (Gross Domestic Product) at the end of 1998 and 1.05 percent at the end of 2000. Since then, advertisement cost outlays were at a much slower pace and today, expenditures amount to no more than .73 percent of GDP.
GDP represents the value of all goods and services produced during a given period in a market economy.
Growth in advertisement expenditures continued despite the Black Monday stock market crash in 1987 when the DJIA dropped by 22.61 percent, starting in Hong Kong and spreading to Europe and the United States. Apparently, advertisement expenditures grew at a faster pace in the United Kingdom, Canada, and the United States at the time.
Researchers at ZenithOptimedia found that a correlation between the decline of advertisement expenditures and a stock market crash “can either be that an overvalued stock market is supporting excessive advertising (as was the case in 2000), or that the market correctly anticipates a sharp downturn in global economic activity.”
