Cautious Advertisers Find Good News in China

Media Spending Grew 5.8% in Early 2009, Despite Short-Term Planning and Sharp Drop in Categories Like Auto, Property and Luxury

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BEIJING ( -- Global marketers looking for good news have something to smile about in China, where ad spend in major media in China grew 5.8% during the first four months of this year to 148 billion RMB (US$21.7 billion), according to CTR Media Intelligence.
Fast food chains like KFC are still spending
Fast food chains like KFC are still spending
Tian Tao, VP of CTR's market research division in Beijing, believes spending will grow "between 5% and 8% in 2009."

That's far below the double-digit growth China has experienced in the past few years, but more optimistic than some forecasts made in early 2009.

"Anything over 5% is a fantastic. Not many markets in the world are showing positive growth right now. This news is very encouraging," said Nick Binns, Shanghai-based partner of The Exchange, Mindshare's tactical planning and buying division.

The rise in spending "doesn't really surprise me," said Mark Heap, managing director, China at Omnicom Group's PHD division in Shanghai. "More and more brands are looking to broaden their geographic footprint to lower-tier markets and TV is still king in delivering relatively accountable, mass-market coverage and, of course, is a powerful creative platform."

Positive growth hides mixed spending patterns
Despite the higher-than-expected growth, media executives in China aren't popping champagne bottles, Mr. Heap added. The figures are "a very mixed bag containing some major inconsistencies."

The personal products category is a good example "of how inconsistent the market is, and therefore how difficult it is to make predictions and generalizations."

Spending on many of the top brands in that category, including Procter & Gamble Co.'s Olay, Pond's and Crest, and Colgate-Palmolive's Colgate declined between January and May of this year. During the same period, spending on other brands such as L'Oreal and P&G's Pantene grew substantially.

Overall, spending on fast-moving consumer goods, food and beverages, and quick service chains such as KFC have been largely unaffected by the global recession. But spending by advertisers of luxury goods, real estate and cars has dropped significantly.

So has spending on dairy brands, previously one of the largest ad categories in China, mostly because of the scandal last year over tainted dairy products.

Short-term planning is another big concern.

"We've seen fairly big growth from FMCG companies like L'Oreal, Unilever and Procter & Gamble," said Mindshare's Mr. Binns, but marketers are still taking a short-term view. "They are reviewing budgets on a quarterly basis and looking at the market campaign by campaign, and then deciding how much to reinvest in the next campaign. That has a big impact on the full-year results and means forecasts are very fluid."

"There was some hesitation by marketers to confirm plans in the early part of the year and some people wait until after Chinese New Year to launch campaigns anyway. That's an expensive time to advertise in China," said Doug Pearce, director of Accenture's media services business for North Asia, based in Shanghai.

TV spending tops 7%
Television advertising grew by 7.2% to 117 billion RMB ($17.1 billion) this year through April, according to CTR. Magazine spending was up 3.6% to 3.6 billion RMB ($531 million) and radio by 15.6% to 2.9 billion RMB ($422 million).

China's TV stations have become very aggressive, Mr. Pearce said. "Especially in the big cities like Shanghai and Beijing. They are asking for big increases, holding out for them and often getting them. They are very bullish about annual increases."

Spending on outdoor and subway advertising each increased 0.7% to 5.9 billion RMB ($868 million) and 1.2 billion RMB ($178 million), respectively. Newspaper advertising was the only media category to decline, falling 1.2% to 17.4 billion RMB ($2.5 billion).
Spending on magazines has gone up, but newspaper advertising is down
Spending on magazines has gone up, but newspaper advertising is down
The scope and fragmentation of China's enormous media market and the lack of reliable research in smaller cities and towns pose another challenge in determining reliable forecasts. Research companies also find it hard to estimate under-the-table discounts and rebates offered to large advertisers and media agencies.

Mr. Heap said CTR's radio spending estimates "are a little high, but an increase makes sense as the rate of private car ownership continues to rise [and so does the number of] people listening to radio while commuting in their car. [That trend is] bringing new opportunities to the medium which only a few years ago had a pretty poor image, but is now jostling for a place on media plans of brands targeting affluent Chinese."

"I wouldn't say the worst is over. There's still an element of caution and people are looking to save money and improve efficiencies where they can," Mr. Pearce said. "But the market seems to be stabilizing and most people are very upbeat about China right now."

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