APAC ad revenue growth predicted to slow to 5.7%, weighed down by China

Ad revenue for Asia Pacific is predicted to grow at 5.7% versus the prior estimate of 9.3%, according to GroupM's "This year next year" 2022 mid-year global forecast. Although China represents 56% of the region, GroupM said that relative weakness in the country is a drag on the region's total. Excluding China, regional ad revenue growth is now forecast to hit 9.0% compared to 8.1% previously.

China, which represented 20% of global advertising in 2021, is now predicted to grow by only 3.3% versus 10.2% in GroupM's previous forecast. According to the agency, deceleration of this scale is driven by real underlying changes in expectations relative to six months prior.

With a zero COVID-19 strategy, lockdowns were a prominent feature in the Chinese economy during much of the first half of the year, and the policy limits the extent and speed of economic recovery in China.

GroupM's report explained that China's GDP targets and economic policies are now focused on promoting consumption, infrastructure investment and growth in smaller cities, which should help drive growth in advertising in those areas as marketers broaden their geographic focus. However, advertising will be curtailed by policies that are restricting activities in real estate and education and are generally attempting to curtail celebrity-focused "fan" culture. Efforts to regulate the digital platforms in China are also likely to limit growth in general.

According to GroupM, changes to its estimates in China alone represent more than 1% reduction in its global forecasts and explain why the weighted average growth rate for the world excluding China is similar now versus its December forecasts (9.6% on an excluding U.S. political basis, excluding China in the current estimates versus 9.7% previously). The median market is down only slightly with 8.2% growth now compared to 9.1% previously.

Ad revenue in Hong Kong is expected to grow 5% to US$1.9 billion this year while Singapore is expected to see a 19% growth to US$2.7 billion. Indonesia's ad revenue is predicted to grow by 6.2% to US$4.37 billion in 2021, while Malaysia is predicted to grow by 3.9% to US$1.5 billion.

These figures exclude the effects of US political advertising and GroupM confirmed that they are all in US currency. At the same time, GroupM predicts Japan to grow at a faster pace than previously anticipated, an 8.5% growth versus 5.6% previously, and without the benefit of a broadly inflationary economy.

Expectations in India are relatively unchanged with 22.1% growth forecast for 2022 as underlying growth there remains strong. There is also significant potential for long-term expansion still in place in India, where the population is broadly similar in size compared to China, but India’s advertising market is less than one-tenth as big, GroupM said. 

On current estimates, India is positioned to rise from its position as the world’s 10th-largest market to become the seventh-largest — ahead of Canada, Australia and Brazil — by 2025. Australia is expected to grow more modestly — up 5.8%, down from 6.2% previously — although GroupM notes that current levels of inflation are more moderate there than in North America or Europe.

Additionally, South Korea is expected to grow at a much slower pace, up only 1.0% under current expectations versus 1.8% previously. Growth has been more moderate in South Korea in recent years relative to other advanced economies, arguably because a lack of pandemic-era lockdowns limited the degree to which new digitally-focused businesses with high advertising-to-revenue ratios emerged as they did elsewhere.

Globally, the world's largest ad markets face several problems including the consequences of the war in Ukraine, additional global supply chain disruptions associated with pandemic-driven lockdowns in China, ongoing input cost inflation, and higher prices for consumers in several parts of the world.

In China, inflation most recently ran at 2.1% while in Japan and Australia it was 2.5% and 3.7% respectively. This wasn't as severe as in the West, with prices in the US rising by 8.3% while the Euro Zone rates rose by 7.4%. Inflation in the UK was 9.0% while Canada was 6.8%.

On a weighted average, the markets tracked in GroupM's report are expected to experience inflation of 6.9% this year, up from 3.7% last year and above levers that more typicall ran in a 2% to 3% range in recent decades.

Three key secular drivers of advertising

Different types of advertisers are surfacing these days and according to GroupM, new economy advertiser examples include ride-sharing, delivery, gaming, online travel, and D2C consumer goods. The agency also reiterated the three key secular drivers of advertising it identified in 2021 — Chinese marketers advertising abroad, new business creation, and venture capital aka growth at any cost.

1. Chinese marketers marketing abroad

This group of marketers, especially those using self-service ad tools on global platforms, appears most likely to serve as a drag on growth this year, GroupM said. It is difficult to know the degree to which lockdowns in China directly caused a negative impact on advertising globally, if they did at all.

While directly connecting those globally-oriented Chinese manufacturer-marketers to current advertising trends is difficult, GroupM points to Chinese exports as an illustrative data point conveying the growing role of China in global markets, despite broader de-globalisation trends in some markets. Exports grew by a mere 3.9% in April and just over 12% for the first four months of the year.

According to GroupM, this represents a noteworthy deceleration of growth from 2021 when monthly export volumes typically expanded well in excess of 20%. However, to the extent the deceleration is temporary, as conditions begin to revert toward “normal” in June, export activity may yet see more meaningful growth.

2. New business creation

There is an ongoing increase in the numbers of businesses in various countries, with levels that have been elevated since the end of the first full quarter of the pandemic. While growth rates have declined year-over-year during each month of 2022, they are still substantially above levels observed in 2019. New business formation is an important engine of advertising growth because individual businesses typically budget some amount of advertising. 

More importantly, it seems likely that these newer cohorts of small businesses have higher advertising-to-revenue ratios than older businesses, serving as a boost to advertising growth (and one that should continue, albeit at a more moderate level). While this is a theory, to be clear, it appears to be supported by anecdotal observations of the increasingly online nature of newer businesses relative to older ones, and the propensity of businesses that are based online to spend money in pursuit of website traffic to a greater degree than offline businesses do with offline media.

3. Venture capital aka growth at any cost

GroupM noted the role of venture capital as one of the factors that would drive advertising, as these pools of capital have helped fund significant numbers of massively scaled companies, with many of them similarly possessing advertising expense-to-revenue ratios that are much higher than incumbent competitors.

It appears increasingly clear that venture investors, and many of the companies they fund, will be more disciplined when it comes to their investment choices and operating costs in the current environment of economic risk and higher capital costs, i.e.g interest rates. There has been more than one example of this in recent news, and yet these marketers will undoubtedly continue to invest in advertising in order to drive growth, at least so long as it is profitable growth in the near-term.

What are the global predictions?

Advertising is predicted to grow by 8.4% globally to US$837.5 billion, excluding the impact of US political advertising. According to the agency, this is slightly below its prior 9.7% forecast from December and this change was mainly driven by the deceleration in China, which is now forecast at 3.3% versus 10.2% in December 2021.

Pure-play digital platforms are predicted to grow by 11.5% on an underlying basis during 2022 versus GroupM's previous 13.5% forecast. The secular factors — business formations, venture capital and China-based advertisers — remain as growth drivers but shifts from existing advertisers — incumbent brands or those who historically prioritised television — are a secondary source of the growth. Overall, digital advertising on pure-play platforms (not including spending by advertisers on digital extensions of traditional media and excluding US political advertising activity) represents 67% of the industry’s total this year and should amount to 73% in 2027.

GroupM highlighted that total ad activity has more than doubled in size over the past 10 years, driving most of digital advertising growth to a figure that is estimated to amount to more than US$563 billion this year, covering all digital-only platforms. Under a broader definition of digital advertising, which includes traditional media’s digital extensions, GroupM estimates the industry will account for US$618 billion in 2022 or 73% of its total.

Within digital advertising, GroupM expects retail or eCommerce-based media growth to outpace all other major forms of digital media in the years ahead. The larger social media platforms globally will likely grow on pace with the broader digital media sector as a whole, although TikTok at minimum should continue to take share so long as its usage levels remain high and national security concerns are not acted upon. Search continues to solidify its role and size, with Google continuing to account for almost all related activity, Google said. 

TV

TV is expected to produce more limited, if still solid growth (excluding the impact of US political advertising) with a 4.4% gain for the medium overall during this year. The incremental growth can be attributed to the advent of connected TV and overall, it is estimated that global CTV+ advertising amounts to US$21 billion this year, up by 24% over last year and accounting for 12% of all TV globally. However, GroupM does not see this to be a major step-change in the growth trajectory of TV.

TV growth, including CTV+, is expected to flatten in the coming years. CTV environments, including digital ad inventory from streaming services, will capture shares of existing budgets much more than they will drive new ones into the industry. 

Although companies such as Disney and Netflix have announced ad-supported tiers, GroupM said it is unlikely that most users of streaming services will do so on an ad-supported basis. At the same time, ongoing declines in TV viewership paired with increasing levels of cord-cutting continue to compromise the relative utility of the medium, as TV has been historically relied upon by the world's largest marketers to reach consumers with their campaigns.

While TV remains a better alternative compared to other channels for the purposes of satisfying reach and frequency goals, GroupM said its reduced effectiveness will only encourage marketers to explore alternative media and marketing strategies. For example, many marketers will turn to YouTube as a substitute to TV, at least for those who believe their traditional TV creative is appropriate to use on YouTube, and for those who care more about customer segments rather than the need to borrow brand equity of the content where their advertisements run.

However, GroupM said that ongoing challenges in the form of integrated measurement across linear, streaming and YouTube, as well as marketing operations and workflows, may limit the flows of spending across these media types.

OOH

OOH advertising is predicted to continue to rebound as it progresses toward pre-pandemic levels in most parts of the world. Early 2022 has been strong as audiences have returned, with consumers heading out of home and markets opening up. However, the economic challenges still present risks. Although a slight decline in OOH advertising is forecasted, GroupM said this is entirely because of the current weakness in China, formerly the world's largest OOH market.

Excluding China, growth should amount to 14.3% this year as many markets have approached or are soon to exceed their pre-pandemic highs. Digital OOH inventory continues to represent the bulk of growth now, with nearly a third of share at present. OOH is expected to exceed its 2019 volumes in 2024, according to GroupM, indicating that much of the growth it is seeing at present can still be characterised as recovery driven.

Audio

Audio in its broadest definition may still need more time to fully recover, if it ever will, as the industry remains substantially oriented around locally constrained advertisers who increasingly represent a shrinking share of the broader economy. For reference, in the UK, radio has an 80-20 national-to-local advertiser split, and in the US the ratio is approximately reversed. Still, there is much to be positive about the broadly defined medium, especially with the evolution of newer digital services from traditional broadcasters, including Spotify and others that offer podcast advertising, for example

Newspapers and magazines

According to GroupM, many marketers are at least conceptually supportive of print-based media owners. At the same time, publishers have also diversified their digital offerings to include podcasts, experiential and improved audience matching capabilities that help to ensure viability and long-term growth, especially for publishers with a national or global orientation. Audiences are therefore robust and available across a much larger spectrum of platforms.

However, GroupM said that the broader factors causing decline previously — heightened competition from digital platforms in particular — will continue to weigh on the sector and many individual publishers that continue to effectively harvest their businesses (i.e. focusing on drawing cash out rather than investing more in) will constrain results for years to come.

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