New Consumers In Lower Tier Cities Will Fuel Ad Budgets

Olympics Will Boost Chinese Media Spending By 22% Says GroupM's Lucy Zhang

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Lucy Zhang
Lucy Zhang
The 2008 Olympic Games will boost China's ad market by 22% to $35 billion this year. The surge in advertising spending in China is expected to continue even though the games are over, due to buoyant domestic demand and increasing media costs. In 2009, China will record a 19.5% year-on-year ad expenditure increase to $42 billion.

Rising domestic demand and limited supply of airtime lie at the root of the thriving ad economy in the post-Olympic years. Consumption in this heavily-populated country shows few signs of slowing, due to rising incomes and consumer price inflation.

Disposable per capita income in China grew 120% in urban areas from $816 to $1,812 from 2000 to 2007. Retail sales growth has jumped to an eight-year high, reflecting robust buying power.

On the other hand, beyond China's tier one cities like Beijing and Shanghai, multinational brands are reaching for opportunities in new markets covering more than 600 smaller cities throughout China.

New consumers across the region will attract more funds from marketers seeking ways to add to their market share and strike a balance between new markets and developed ones like Shanghai.

Also, soaring media costs suggest further growth in investment. Big media groups like CCTV, Beijing TV and Shanghai Media Group have tremendous bargaining power over pricing at the commercial and political level.

CCTV controls more than one-third of national advertising expenditure in China. The rising clutter of multinational brands flooding into China and the country's limited commercial television airtime makes this a "seller's market."

It is costly to see more players in a resource-limited ad market. Consequently, the advertising price for TV time in 2008 is estimated to increase by 18%. So even after the games, marketers in China will face media inflation.

Television and the internet are the core of China's growing ad market. TV continues to dominate China media investment with a 63% revenue share in 2008, and it thus sets the pace of total media investment.

In the broadcast sector, money flows to state-controlled media outlets, such as the national television network CCTV, the exclusive owner of broadcasting rights for the 2008 Olympic Games. CCTV took in an extra $400 million in ad revenue as a result of the games.

With more than 250 million web users, it's not surprising that the internet is China's fastest growing medium. Online ad sales revenue grew 65% in 2008 and I believe it will grow another 40% in 2009.

Online gaming is emerging as one of the most vital areas for marketers. In 2007, 120 million online gamers fueled enormous growth in China's in-game advertising industry. Likewise, despite the low penetration of credit cards or a credit system, e-commerce retained its solid growth. China will have over 100 million online shoppers by 2010, up from 46 million in 2007.

A sense of national strength, or "soft power," iwas strengthened by the Olympic Games. Apart from the $40 billion investment in infrastructure including sports and entertainment venues, better roads and more control over pollution, China's reputation and self-confidence have been greatly enhanced.

Overall, China's ad market is sophisticated in terms of its scale and diversity. But the Olympic Games have given China more exposure to international perspectives on branding, marketing and advertising, which will be of great benefit moving forward.

Lucy Zhang is the futures director of GroupM's knowledge center in Shanghai.

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