Overall Global Advertising In 2005 Is Forecast Lower, But the Internet Spend Keeps Going Up With Television Feeling the Worst Pinch of Ad Placements Going Elsewhere

Philip Stone July 21, 2005

The television share of global advertising appears to have peaked at 38% and is now on the way down, led by two of the world’s leading television markets – The US and Japan – according to new report issued by the ZenithOptimedia Group.

And television’s loss it turning out to be the Internet’s gain.

ZenithOptimedia, owned by Publicis, has reduced the 2005 global television spend to $148.2 billion, knocking $1 billion off both the US and Japan, and a further $300 million from other global TV markets. At the same time the company added $1.2 billion to its previous global Internet spend, fueled mostly by the US.

That still leaves the Internet global spend at $16.4 billion, just 4.1% of the world’s advertising spend, but the company says the trend lines are getting firmer – Internet will sustain further increases in 2006 and 2007 and television will continue to lose as advertisers move their spend to not just the Internet but other media such as outdoor billboards and movie theaters.

That research seems to fall in line with a report from Deutsche Bank and MediaPost, carried out by InsightExpress, that online spending was stronger in Q2, 2005, than it was in Q1.  It also noted a scarcity of ad inventory on major sites, fueling the spend surge.

That’s one reason why media companies have been paying out so much cash this year to buy quality Internet sites with very large unique visitor numbers. According to Jordan, Edmiston, a New York firm that specializes in merger and acquisitions advice to media and information industries, during the first half of 2005 there were 266 US media merger and acquisition transactions totaling some $27 billion in value, just 10% shy of the total 2004 value.

The company says newspapers in particular understand that the revenue from their online versions of their print editions are not going to cover the advertising losses print is experiencing, and will experience to even greater effect in the future. The unofficial target for the major newspaper groups now seems to be that the value of the Internet investments should fall somewhere between 10-20% of the net worth of the entire company.

The actual forecast advertising spend in the US for 2006 and 2007 appears to be very healthy. But the unanswered question is where will the money go. As advertisers increase their Internet spend they are also redirecting current campaigns, not only following where they believe the consumer is going, but also taking into account modern technology such as digital video recorders that cut out TV advertising.

At the moment television seems to be hardest hit by all of this, as shown by Procter & Gamble’s cutback. Add to that the increasing millions of dollars flowing into product placement advertising and with advertisers saying that not all that money is new and some is being redirected from more traditional spends, and the woes for television look set to continue.

One quirk, however, in all of these statistics about the increased Internet spend is whether Internet ads beyond search are actually bringing in the desired results. How does the public view them? A new survey just released in Sweden, Europe’s most wired country with 74% of the population having Internet access, indicates Swedes absolutely do not like Internet advertising.

illustration courtesy www.graphicnews.com

The Association of Swedish Advertisers (ASA) reports that that just 8% of Swedes say they like online advertising and 52% put Internet ads on the same level as receiving SPAM.

Those statistics have not stopped Swedish advertisers from increasing their Internet spend, expected to reach double digit growth this year, with the total spend for all sectors in Q1, 2005 up 5.1% over the same period a year ago, according to the Institute for Advertising and Media Statistics. Total ad revenues in Sweden for 2005 are forecast at $3.4 billion, a 6.2% increase over 2004. .

Some 90% of Swedish advertisers consider online advertising a necessary supplement to their more traditional advertising with more than half advertising on search engines. ASA says that half of Sweden’s online advertisers will increase their online budgets this year.

For all that, about 80% of Sweden’s advertisers, perhaps cognizant on how recipients feel about Internet advertising, spend less than 10% of their overall budgets online.

Back in the US, Schonfeld & Associates recently surveyed some 5,000 US companies in more than 300 industries to determine their 2006 spend, and the numbers for many industries looked very good.

Automotive, fir instance, will be the largest spender, with $33.5 billion, a 7.6 increase over 2005 with cable and satellite TV services forecast to increase their spend by 15.9% to $2.4 billion, wireless communications by 9.1% to $12.8 billion, telecommunications by 9.1% and a worldwide spend of some $22.2 billion, and the pharmaceutical industry predicted to grow more than 10% to more than $21 billion.

So the money is there; what has changed is there are no guarantees where it will flow. But the trends indicate that the Internet’s gain looks like television’s loss.