According to research released this week by CTR, a joint venture between CITVC and TNS, adspend in China in 2006 grew 18% to $36.9 billion, but that figure accounted for only 1.4% of China's gross domestic product, versus 3% of GDP in the U.S. China now ties with the U.K. as the third-largest ad market in the world, following the U.S. and Japan.
This year, adspend in China is expected to grow 20%, according to CTR, and will continue to surge next year, thanks to the 2008 Olympic Games in Beijing. Ad spending increased across all traditional media in 2006, but TV maintained its dominant position with a 76% share of spending, and 18% growth, in part due to the popularity of the 2006 World Cup. Two categories--beverages and financial services--drove the overall market growth with 48% and 33% increases, respectively.
Ms. Zhao, who joined CTR as a researcher in 1996, spoke with AdAgeChina Editor Normandy Madden about the pace of change in China's advertising market.
AdAgeChina: TV still takes up a major share of the overall advertising pie--76%--even though many marketers complain that it’s disproportionately expensive, and not the most efficient way to reach consumers in certain income brackets or regions. Will TV's influence start to go down in the coming years?
May Zhao: Yes, I believe this will be the case, because of the proliferation of all media types and the greater influence that audiences will have. Television's efficiency in a highly-advanced multimedia environment will be challenged.
At the same time, we need to keep in mind the massive size and complexity of China's market, which is multitiered and quite fragmented, and includes many underdeveloped yet extremely large rural markets along with a reasonably-sized middle class centered in urban areas. A clearly-defined social structure is lacking, which makes it exceedingly difficult to accurately target consumers. So television's extensive coverage and mass audience make it the fastest way to reach most companies' target audiences.
There is an interesting point in this year’s data in that both CCTV channels and city channels show increased advertising revenue, which shows a trend toward polarization in the TV advertising market trend. Overall, we feel that TV will still continue to be a strong mainstream media in the following years without suffering too much of a decline.
AdAgeChina: According to your research, China now ties the U.K. as the third-largest ad market in the world, following the U.S. and Japan. But it’s harder to monitor ad spend in China compared to more developed markets and your spending levels don’t take discounts into account. In your opinion, is the U.K. still a much larger ad market than China?
Ms. Zhao: Generally speaking, I agree with you, it is harder to monitor ad spend in China and discounts are always a very sensitive topic. In fact, both in the U.K. [which is measured by TNS Media Intelligence] and in China, we do consider some discount factors in our research. Looking at maturation levels of both markets, it's clear that the U.K. is a much more mature and standardized market than China at this time. As such, we believe they have a more accurate discount evaluation system. Although China ties the U.K. as the third-largest advertising market, it should be noted this is just for overall market scale, but maybe...the true spending in the U.K. advertising market is still larger than China’s.
AdAgeChina: What is the impact of the 2008 Olympic Games on adspend this year, both for local companies and multinationals?
Ms. Zhao: For international brands, they represent an opportunity for Chinese consumers to get to know and understand them. For local brands, it is also an opportunity to be internationalized. What’s more, all these players are paying close attention to utilizing the Olympic concept to generate real term revenue increases. When it comes to increasing revenue, figuring out how to use the opportunities provided by the Olympics is not just a matter for sponsors, but also for their competitors.
Frequent commercial promotions will most certainly push advertising spending up in 2007, and the 2008 Olympic Games will stimulate all companies active in China, making them all very eager to take part in this worldwide branding event. Sports marketing was already a hot topic in China in 2006. The World Cup in Germany provided a good practice platform for Chinese companies to build on, but 2007 will be a special year and we will see China’s sports marketing speeding up dramatically.
Ms. Zhao: There will certainly be some cases where companies must scale back spending after the Olympics and it will be a challenge to find such an excellent communications platform after the games are over. So it is perfectly reasonable to expect a lower rate of increase in 2009. This is what all host countries probably experience after the games finish. Year-on-year growth from 2008 to 2009 will certainly not be as significant as 2007 to 2008, but China will certainly not experience any real decline.
It’s important to remember that companies are not just investing for the Olympics but to build a base for long-term stable development and strong economic returns. The 2008 Olympic Games should not be seen as a type of fast food for the advertising market, but as a fundamental vehicle for invigorating China’s general economic structure. We see this influence extending past the Olympic games. Advertising expenditure is a part of the overall economic environment and as long as China’s economy continues to grow stably over the long term, the real energy behind the advertising market’s growth will remain intact and the market will continue to develop well.
Ms. Zhao: The spending increase in the financial, investment and banking services sector could just be the tip of the iceberg. You can think of it as a dress rehearsal for 2007. With the overall opening of this sector in 2006, according to WTO regulations, domestic enterprises started to staunchly defend their territory from aggressive actions by international enterprises and this will continue to push the development of advertising in this category.
In addition, the development of China’s stock and fund markets is also a motivating force behind the increase of advertising for investment-related products. It stimulates the Chinese consumer’s ideas regarding investing and financing. For the next few years, we expect financial and investment products in China to be in a fast development stage and an important driver in China's future advertising market.
Currently, ad expenditure of both domestic and international financial advertisers is increasing at a rapid rate with domestic financial enterprises contributing more to this increase, as one would expect considering their size of market share. However, WTO will bring an end to the protection of domestic enterprises, so the market is becoming more wide open and full of potential for all players.
We also see the post and communications category as very worthy of attention. China will likely award 3G licenses in 2007. The operators have no choice but to act once they receive them and the move to 3G will also intensify the sales war already taking place among mobile phone handset producers. All in all, we are looking at a possible advertising multiplier effect on the horizon, as the move to 3G will be followed by a sea of new advertising from a wide variety of players. This, coupled with the growth in the financial, investment and banking services sector, will drive the increase in advertising expenditure in 2007.
Other people news in Greater China
[shanghai] Aegis Group-owned Carat has appointed Shanghai-based Seth Grossman as communication planning director, China. Previously, he was director of strategy for 141 Worldwide, the direct marketing arm of WPP Group's Bates Asia.
[hong kong] Aegis's market research company Synovate has appointed Hong Kong-based Susanna Lam as associate director, media research in Hong Kong. Previously, she was director of communication insights, Greater China at OMD. She succeeds Betty Wu, who will relocate to Singapore in the same position at Synovate.
[shanghai] Event marketing firm Jack Morton Worldwide has appointed Rebecca Lim as managing director of its new office in Shanghai. Previously, she was general manager, Asia for Eventus in Singapore. Jack Morton, owned by Interpublic Group of Cos., opened its first Chinese office in Beijing a year ago.
[hong kong] DDB Worldwide's interactive division Tribal DDB has promoted Hong Kong-based Adam Good to the new post of president, Asia/Pacific from president, Greater China. One of the original founders of Tribal DDB, Mr. Good previously set up and oversaw its Australian offices Sydney and Melbourne.
[beijing] Ogilvy & Mather has promoted Chris Reitermann to president, China of its OgilvyOne division, overseeing OgilvyOne, its one-to-one and digital marketing agency, and Neo@Ogilvy, a digital media agency, in the mainland. He was previously OgilvyOne’s managing director, North China. He succeeds Jennie Fan, who now leads Ogilvy & Mather’s Lenovo account in China.