Global ad pie to grow in 2008 despite credit squeeze: ZOM study

While the credit squeeze is dampening economic growth around the world, the ad market will continue its unabated upward movement for several reasons, reveals a study on global ad spends by ZenithOptimedia. As per the study forecast, global ad expenditure will grow 6.7 per cent in 2008, up from 5.3 per cent in 2007.

ZenithOptimedia highlighted role of the developing markets as the main contributors to global growth, compensating for the slow growth in the developed markets. The most striking prediction in the report is that Internet ad spend will grow 69 per cent in the next three years, which will ensure that the Internet takes over from magazines to become the world’s third largest advertising medium.

The report claims that unlike in the periods leading up to the last two ad recessions, advertisers have not been increasing their budgets faster than warranted by the economic growth. “The last ad recession also followed a period of heavy, one-off expenditure by dotcom and telecom companies convinced that all they needed to do was establish their brands, and profits would inevitably follow. These companies spent their investment capital on advertising instead of building up their business, and when the inevitable crash came, this money disappeared for good. There are now lots of dotcom startups seeking investment capital again, leading some to worry whether this is another bubble. If it is, it won’t have the same effect on the ad market. Most of them are basing their business model on selling advertising: Instead of adding demand for advertising space, they are increasing its supply,” says the study report.

As per the report, the housing downturn and credit squeeze will certainly hit property and finance advertising in advanced economies like the US. But the media agency is hopeful that the ad market will be boosted by $6 billion in spending from the quadrennial events in 2008: $3 billion from the Olympics, $2 billion from the Presidential and congressional elections in the US, and $1 billion from the European football tournament, Euro 2008.

Perhaps, most significantly, as per the report, weaknesses in developed markets no longer guarantee a global downturn, since developing markets have taken over as the biggest contributors to ad spend growth.

“North America is growing at a disappointing 3- 4 per cent a year, Western Europe is growing at 5 per cent a year, and Japan is barely growing at all (0-2 per cent a year over our forecast period). By contrast, developing markets (by which we mean all markets outside North America, Western Europe and Japan) are growing at double-digit rates.

“Between 2007 and 2010, we forecast developing markets to add an extra US$49.5 billion to the world ad market, while the developed markets add US$37.5 billion. We expect developing markets to contribute 26 per cent of global ad spend in 2007, and 31 per cent in 2010,” says the report.

The report pointed to Russia’s ad market, which is relatively new but still currently the 14th largest ad market in the world and expected to jump eight places in the next three years. “Many of the fastest growing countries are essentially new advertising markets where ad spend is growing from a very low base,” says the report.

The report also reveals how the Internet would nearly double its share of global ad spend between 2006 and 2010, at the expense of most of the other media. The report predicts Internet advertising will be worth $36 billion this year – $5 billion more than the predicted in December 2006.