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What will drive global adspend over the next three years?

The rise of mobile advertising and social media, and the transition to programmatic buying of digital display, will help the global advertising market grow 5%-6% a year over the next three years, according to ZenithOptimedia’s new advertising expenditure forecasts.

Global adspend has been forecasted to grow by 4.9% to reach US$ 545 billion in 2015; a .4% downgrade, from the previous forecast in September with small downward revisions across many regions of the world. This indicates a minor but widespread decline in advertiser confidence, related to conflict in Ukraine and weak economic growth at the heart of the Eurozone.

Furthermore, the global economy is expected to improve (the IMF predicts 3.8% global GDP growth in 2015, up from 3.3% in 2014), but advertising faces a tough year-on-year comparison after the Winter Olympics, World Cup and US mid-term elections in 2014. Adspend growth will therefore be slightly below 2014’s 5.1%.

2016 will be a quadrennial year – with the Summer Olympics, US Presidential elections and the UEFA European Football Championship – and these events are expected to propel adspend to 5.6% growth that year, before it slips back to 5.2% in 2017, according to ZenithOptimedia.

See all the results here:

Growth of advertising expenditure and GDP 2014-2017 (%) Source: ZenithOptimedia/IMF

Growth of advertising expenditure and GDP 2014-2017 (%) Source: ZenithOptimedia/IMF

Chart 2_ZO
Growth in adspend by regional bloc 2013-2014 (%) Source: ZenithOptimedia

Growth in adspend by regional bloc 2013-2014 (%) Source: ZenithOptimedia

Average annual growth in adspend by regional bloc 2014-2017 (%) Source: ZenithOptimedia

Average annual growth in adspend by regional bloc 2014-2017 (%) Source: ZenithOptimedia

Top ten contributors to adspend growth 2014-2017 (US$m) Source: ZenithOptimedia

Top ten contributors to adspend growth 2014-2017 (US$m) Source: ZenithOptimedia

Top ten ad markets. Source: ZenithOptimedia

Top ten ad markets. Source: ZenithOptimedia

Internet adspend by type 2014-2017 (US$ billion) Source: ZenithOptimedia

Internet adspend by type 2014-2017 (US$ billion) Source: ZenithOptimedia

Contribution to global growth in adspend by medium 2014-2017 (US$ million)

Contribution to global growth in adspend by medium 2014-2017 (US$ million) Source: ZenithOptimedia

Transition to mobile plays to the strengths of social

As the main driver of global adspend growth, mobile is forecasted to account for 51% of all new advertising dollars between 2014 and 2017. In addition, mobile advertising is expected to grow by an average of 38% a year between 2014 and 2017, driven by the rapid spread of devices, innovations in ad technology and improvements in user experiences.

However, mobile’s share of adspend remains well behind its share of media consumption. Mobile will account for 6.2% of all adspend in the US this year, while eMarketer estimates it will occupy 23.3% of media consumption time. This is partly because a lot of conventional display advertising does not work well on mobile. Compared to desktop display, mobile banners take up more screen space, are considered more intrusive, and are more likely to annoy consumers than engage them. Because mobiles don’t accept cookies, retargeting and tracking from the ad to the purchase is usually impossible.

Social media is one area on mobile that digital display has proved very successful in. Facebook and Twitter have rapidly restructured their operations for mobile consumption and advertising, and between them are on track to capture 33% of all mobile adspend in 2014. This is well above their 10% share of all digital adspend. Their ads are designed to blend seamlessly into the content feed – they look native rather than intrusive. They can track all their users’ media consumption within their apps, and can tie that into their desktop activity through their login details. Social media provides a great example of how to adapt to mobile.

Transition to programmatic has given a sharp boost to traditional display

Agencies are swiftly adopting programmatic buying, which allows them to target display ads accurately and efficiently. The technology has recently evolved to deliver better premium, brand-building experiences. This has provided a sharp boost to ‘traditional’ digital display, as well as video and social. Growth in traditional display leapt from 14% in 2012 to 18% in 2013, and we estimate it at 26% in 2014, its fastest rate of growth since 2007.

Around half of all display is bought directly by advertisers, most of them small local companies spending only a few thousand dollars a year. These currently have little access to the programmatic marketplace. Most programmatic technology has been designed for large-scale campaigns, and while a few companies are trying to adapt programmatic buying for small businesses, these attempts are at early stages. As technology evolves to bring the advantages of programmatic buying to small businesses we can expect another boost to traditional display spending.

Eurozone slowly improving – periphery growing again – held back by the core

Global adspend growth is being restrained by weakness in Japan and the Eurozone. Japan’s seemingly intractable economic problems limit its ad market to 2% to 3% annual growth, and we don’t expect it to improve over our forecast period. The Eurozone, however, is poised to end 2014 with its first year of growth since 2010, with further improvement likely over the next few years.

Adspend across the Eurozone fell by 15% between 2007 and 2013. The worst hit markets were at the periphery – Greece, Portugal, Spain and Ireland lost 49% of their adspend over this period – France and Germany held their ground, shrinking by just 3%.

However, Greece, Portugal, Spain and Ireland all began to make strong recoveries in 2014, and over the next few years we expect them to substantially outperform the Eurozone average, growing at 5.4% a year through to 2017. Their recovery will help Eurozone adspend grow 0.8% in 2014, a substantial improvement on its 2.9% decline in 2013. Meanwhile the core economies of France, Germany and Italy (which together account for about two thirds of the Eurozone economy) are stagnating. It is forecasted that adspend in France will shrink at an average rate of 0.3% a year between 2014 and 2017, while Germany grows by just 1.3% and Italy by 1.5%, below the Eurozone average of 2.0%.

Falling oil prices exacerbate conflict in Russia and Ukraine

The Ukraine crisis has disrupted advertising in Eastern Europe. Russia has had trading sanctions imposed on it, and has retaliated with its own. International investors have withdrawn their capital, and the government has imposed restrictions on foreign involvement in the economy. This has coincided with a sharp drop in the price of oil, Russia’s main export. After many years of double-digit adspend growth, Russia’s ad market is forecast to grow just 1.8% this year and 1.1% in 2015, followed by 4.6% growth in 2016 and 9.2% in 2017.

The crisis has unsurprisingly had a much greater effect in Ukraine, where violence has disrupted distribution chains and frightened away foreign investors, including big advertisers. We expect adspend in Ukraine to fall 49% this year and 10% in 2015, followed by 6% recovery in 2016 and 2017 from a greatly reduced base.

Steven King, CEO, Worldwide, ZenithOptimedia, said:  “Mobile technology is creating new opportunities for brands to build relationships with consumers, while programmatic buying is making brand communication cheaper and more effective. Social media provides a strong example of how to advertise effectively on mobile platforms, and we expect mobile marketing to develop further as other media learn from this example.”

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