China, the third largest advertising market globally and soon to become the second largest, has opened up many new opportunities for marketers. As an important growth market, China also presents new challenges. In an attempt to understand some of these media nuances and how these challenges could be addressed, Magna Global Intelligence, in partnership with UM China, has brought out ‘China Market Profile’, a part of BRIC Report Series from the IPG Mediabrands’ intelligence unit.
China’s ad market will be the second largest globally by 2015 with USD 57 billion of total spend, which is over a third of the US’ total.
- China’s digital market will be larger than its TV market this coming year, one of only 12 countries globally for which this is true and (along with Australia) one of the only APAC countries.
- Social media ad spend will have the strongest growth through 2018, with an expected CAGR of 67.6 per cent.
- Print only represents 14.1 per cent of the total Chinese market, a number that will decline to 6.2 per cent by 2018.
- Despite China’s programmatic market share being only 5 per cent and increasing to 23 per cent by 2017, it will still be the third largest programmatic market globally in 2017 due to the massive size of the Chinese digital market.
- China contributed the most incremental ad dollars to the global market this past year (USD 4.7bn), as much as the next three (the US, Argentina and Russia) combined.
- There are over half a billion internet users in China, and over 70 per cent of first time users surf the web on a mobile device.
Delving deeper in to some of the key findings from the report:
#1 Economy: The Chinese economy negotiated a soft landing over the past several years, as while growth continues to decline slowly, there has been no precipitous drop in the rate. The IMF continues to expect upper single digit growth rates for China, and with inflation finally under control, the government has room for stimulus if growth should decline further than expected.
#2 Demography: Population growth has slowed down in the last 20 years due to the one-child policy but the 1.3+- billion-strong country is still growing by 7 million a year (i.e. the population of Bulgaria or Massachusetts). Urban population has passed 40%; the average urban household income is increasing much faster than the rest of the population, driving the growth of a middle-class that aspires to Western lifestyles and consumer brands.
#3 Despite economy slowdown, ad spend remains robust. Media owner ad revenue growth, across all media categories, was an estimated 12% in 2013 and we expect growth to remain strong at 14.6%, in 2014, with double digit growth continuing through the end of the forecast period in 2018 (CAGR: 13.1%)
#4 The third biggest ad market. Despite the overall size of the Chinese advertising market (RMB 278 billion or USD 44bn expected in 2013 i.e. the third biggest market in the world), ad spend per capita remain low at USD 32 (compared to $84 as global average). While this might suggest intuitively that the growth potential is significant, that level of spend is right in line with what would be expected given China’s GDP/capita. Gains in ad spend/capita will outpace GDP/capita because there is an exponential relationship, but future gains will come from economic growth and not any ‘catch-up’ spending.
#5 Ad Spend Drivers. China’s market is extremely diverse, with the level of both income and ad spend in urban areas far outpacing that in rural locations. For the levels of ad spend growth that we have seen in recent years to continue, further urbanisation must occur, as the disposable income of many rural inhabitants does not justify much advertising attention. Urban income, on the other hand, has seen a dramatic rise.
#6 Faster-than-GDP growth in marketing and advertising spend will continue to be fuelled by strong demand as the competition between top brands (global and domestic) to establish themselves in the top of mind of the Chinese when or even before they join the ranks of Western-style consumers
#7 Top Categories. Ad Spend in China is dominated by food, health service and health products. An increasing number of the top spenders are domestic companies as well. In the past, western companies have dominated the top 10 spenders lists, but they are being surpassed by the fast growth of Chinese brands (Yili, China Mobile etc.)
#8 Media Costs. The Chinese advertising market is an expensive and inflationary market, due to strong demand and restricted supply. Television CPM reaches nearly USD 30, which is on par with the cost of television in the US or Canada. Recent reductions in prime-time TV advertising, the plateauing of audience and the auction mechanism are exacerbating TV inflation. Television costs should increase by 6.5 per cent in 2014 and newspaper costs will shrink by 8 per cent.
#9 Television remains the dominant advertising media (market share just under 40 per cent), although digital media is soon to be the dominant media category in China. Total ad spend in TV has seen slow growth relative to competing media, as viewing is plateauing and price increases are partly offset by decreases in minutage volumes.
#10 Digital media consumption is already high and this is one of the prime drivers of the Chinese advertising market growth. With a market share of 35 per cent it’s on par with. internet penetration has already occurred among the young and the well educated. Further growth will have to come from expansion to the uneducated (lower school or below equivalent) or the old (50+ internet penetration hasn’t moved significantly in years) in order for similar levels of growth to occur in years to come.
#11 Mobile-based advertising is growing strongly as mobile devices are increasingly popular way of accessing the web and the immensely popular Weibos (micro- blogging social network). It’s already 10% of digital ad revenues and 3.5% of total ad revenues. 11. Out-of-home. As China’s population becomes more concentrated, digital out of home becomes an increasingly significant category. In many ways, China’s digital out of home segment is the global leader at least in innovation (and soon enough spending), driven by population density in Eastern cities, low restrictions, good consumer tolerance, and investment capabilities
This report was based on local market surveys, public information and Magna Global intelligence.
It is authored by Luke Stillman and the Editor for the report is Magna’s Vincent Letang.