Australian Advertising Market Forecast
Annual Update - 2013
2
nd
September 2013
© Venture Consulting 2013
TV and radio: the next media to feel the pressure of the rising digital tide
In the past four years we have witnessed newspaper publishers, once the giants of media, falling
to their knees. We believe that free-to-air (FTA) and radio are at risk of digital-driven structural
changes over the next four years, with a significant adverse impact on their advertising revenue.
So, the speed at which media consumption and advertising has shifted for newspapers should be
alarming for these other traditional media segments.
TV has been a very successful medium in terms of reaching a mass audience quickly. In contrast,
online video only reaches relatively small audiences today, and therefore advertisers largely see it
as a complement to TV advertising rather than as a direct substitute. However, as online video
grows in scale and is able to reach a mass audience effectively, it will begin to compete directly
with traditional TV, triggering brand advertisers, the pillar of FTA revenues, to migrate some
funding to online video, at the expense of broadcasters.
With few audio only alternatives available to advertisers, radio has held its revenue well in recent
years despite losses in audience. However, in the coming years, radio will face a similar threat to
the impending challenges for TV broadcasters – the rise of new digital alternatives. Music
streamers will continue to improve their product and grow their audience, enabling these new
players to become a viable medium for larger advertisers. For example, these streamers are now
striking deals with car manufacturers, which may lead to radio losing a significant proportion of
listeners if they are displaced from the car.
Advertising Market Forecast
Exhibit 1:
Australian Advertising Market Forecast 2012 - 2016 ($Million)
Media Segment
Free to Air
Pay TV
Radio
Newspapers
Magazine
Outdoor
Cinema
Online
Total
2012A
3,452
439
1,012
2,863
653
503
89
3,343
12,354
2013E
3,393
471
1,001
2,359
523
516
93
3,928
12,284
2014F
3,263
499
967
1,907
414
526
97
4,572
12,244
2015F
3,159
530
938
1,618
347
542
100
5,361
12,595
Source: 2012 actual advertising spend is based on CEASA report; 2013-16 forecast is based on AAFM
2016F
3,026
560
893
1,375
292
562
104
6,251
13,062
Exhibit 2:
Compound Annual Growth Rate (CAGR) by Media Type
2008 - 2012 CAGR
8.5%
2012 - 2016 CAGR
6.2%
-8.7%
-10.8%
-16.8%
Free to Air
Pay TV
Radio
0.5%1.4%
-2.0%
-3.1%
-3.2%
3.9%
2.6% 2.8%
1.0%
0.3%
18.2%
16.9%
-18.2%
Newspapers Magazine
Outdoor
Cinema
Online
Total
Source: 2008 - 2012 actual advertising spend is based on CEASA report; 2013-16 forecast is based on AAFM
Exhibit 3:
Share of Advertising Market by Media Type
Free to Air
27.6%
27.9%
3.6%
8.2%
3.8%
8.1%
23.2%
19.2%
26.6%
25.1%
23.2%
4.1%
7.9%
4.2%
7.4%
4.3%
6.8%
27.1%
32.0%
2012
2013
2.2%
4.3%
2.8%
4.3%
3.4%
4.3%
Radio
10.5%
12.8%
15.6%
4.3%
4.2%
5.3%
4.1%
Pay TV
Newspapers
Magazine
Outdoor
37.3%
42.6%
47.9%
Cinema
Online
2014
2015
2016
Source: 2012 actual advertising spend is based on CEASA report; 2013-16 forecast is based on AAFM
Venture Consulting updates its Australian Advertising Forecast Model (AAFM) annually, based on
macroeconomic factors, market cyclicality and structural change analysis. AAFM adopts a unique bottomup, analytical approach that incorporates multiple market sensitive drivers such as media consumption
and substitutability. Our forecast of the 2012 advertising market outperformed other market forecasts by
an average of 30%.
1
1
Based on comparison of accuracy of sector-by-sector growth against four other forecasts (from analysts/brokers and
consultancies) produced at a similar time to Venture Consulting’s 2012 advertising forecast.
Television
While there has not yet been a noticeable displacement effect of online video advertising on free to air
(FTA) TV, we believe the broadcasters are under threat in the medium term. TV has been a very
successful medium in terms of reaching a mass audience quickly. In contrast, online video only reaches
2
relatively small audiences today, and therefore the majority of advertisers (56% ) see it as a complement
to TV advertising rather than as a direct substitute. However, as online video grows in scale and is able to
reach a mass audience effectively, it will begin to compete directly with traditional TV.
FTA broadcasters have been heavily reliant on brand advertisers for revenues. However, with increased
scale and improvement in behavioural targeting technologies, online video will become a cost effective
alternative for brand advertisers. As a result, the rise of online video will begin to trigger brand
advertisers, the pillar of FTA revenues, to migrate some funding to online video at the expense of
broadcasters. We expect this effect to take hold within the next forecast period.
To defend and grow revenues, FTA broadcasters need to invest in digital diversification. This means
leveraging their core TV assets to extend franchises through digital, developing video-related verticals
and examining media-for-equity investment opportunities. ProSiebenSat.1 (P7S1) in Europe, for example,
3
began investing in online video, games, music, eCommerce and digital ventures in 2007. As of second
quarter 2013, P7S1 achieved 66% year on year revenue growth in digital with diversification constituting
18% of its total revenue.
In contrast to FTA, the pay TV advertising market is expected to maintain a high growth rate in the next
few years. In Australia advertising revenue constitutes just 12% of the total pay TV industry revenue –
much smaller than other markets (see Exhibit 4). Therefore, there is still significant potential for Pay TV
advertising to grow further. In addition, we expect Foxtel to refresh its product strategy to drive pay TV
penetration growth and reach audiences on new platforms, also supporting the advertising growth.
Exhibit 4:
Advertising Revenue as % of Total Pay TV Revenue vs Pay TV Penetration
Advertising Revenue as % of Total Pay TV Revenue
80%
Pay TV Penetration
79%
54%
29%
45.9%
US
44.7%
UK
34.9%
Canada
11.8%
Australia
Source: PwC
2
Source: Adap.TV: 2013 State of the Video Industry
3
Detailed case study on ProSiebenSat.1: http://www.ventureconsulting.com/assets/Digital-Diversification-Case-Study.pdf
Radio
Radio is facing continued audience decline, as audiences have shifted to substitutes such as music
streaming services (e.g. Pandora, Spotify). This has particularly been the case for younger
demographics. For example, in the Sydney market, we estimate that the percentage of audience aged
4
between 10 and 39 has declined from 40% in 2010 to 35% in 2013. Likewise, in the US, it is reported
that the average time on radio has been falling fastest amongst young adults aged 25 – 34.
Exhibit 5:
US Weekly Time Spend on Radio (Minutes per Week)
2011
-5.7%
-3.3%
859
900
831
Radio Listener 12+
849
Men 25-34
2012
-5.4%
775
733
Women 25-34
Source: Inside Radio, based on survey RADAR 113 and RADAR 109
As demographics have shifted, the impact of declining audience has not been uniform across stations.
The market share of pop-music orientated Southern Cross Austereo's 2Day FM has dropped to 8% from
5
its peak of 10%-11% in 2010; radio stations such as Triple M have had to tweak their playlists to
increase the playtime of older-skewing classic hits, to compensate for the drop-off of younger audiences.
As traditional radio formats lose ground, talent based radio shows are becoming increasingly important in
retaining listeners.
Personalised streaming services will continue to improve their product. For example, these streamers are
now striking deals with car manufacturers to give them access to the heartland for radio. In June 2013,
6
Pandora reached 2.5m car activations globally, quadrupling since the same time last year. Our concern
is that radio stations may lose a significant proportion of their listeners over quite a short period if they are
displaced from the car. Furthermore, as streaming services continue to gain scale, we expect the logical
next step for these disruptors is to expand into local content streaming such as news. As these services
continue to innovate their product offering, radio could see further cannibalisation of their audiences, thus
have a significant adverse impact on radio, particularly those stations targeting a youth audience.
With few audio only alternatives available to advertisers, radio has held its revenue well in recent years,
despite losses in audience as shown in Exhibit 6. However, in the coming years, radio will face a similar
threat to the impending challenges for TV broadcasters – the rise of new digital alternatives. However,
with the growth of personalised audio streaming services, we expect that these services will become
viable alternatives for larger advertisers. Therefore, the radio usage trend and advertising trend will begin
4
Source: Venture analysis
5
Source: Nielsen Radio Survey
6
Source: http://news.cnet.com/8301-1023_3-57590852-93/pandora-hits-2.5m-in-car-activations-quadruple-last-years-mark/
to converge in the near future. As such, the radio advertising share of total advertising market will
gradually decline over time, with the growth of competing formats.
Exhibit 6:
Weekly Time Spend on Radio (Hours per Week) vs Share of Radio Ad Spend
% of Ad Spend
Share of radio ad spend as % of toal non-classified ad spend
Hr / Week
No. of hour spend on radio per week
15%
20
15
10%
10
5%
5
0%
0
2005
2006
2007
2008
2009
2010
2011
2012
Source: Roy Morgan Single Source, CEASA
Print
In the past 6 months, the print market has been turbulent. Fairfax has shifted its metro titles from
broadsheet to tabloid and announced a broad cost reduction programme, whilst its competitor, News
Corp., has announced a $1.4 billion write-down of its global publishing division. To make matters worse,
decline in metro newspaper circulation is accelerating. Newspapers now not only contend with the
continued digital migration, but also the switch to portable, current and often free news on mobile devices.
According to a 2013 Nielsen survey in the US, more than 40% of respondents are now checking a
7
national newspaper on a mobile phone daily. With more competition than ever, the circulation decline is
unlikely to slow down.
Exhibit 7:
Australian Metropolitan Newspaper Circulation
8.4
Dec-08
Metro Newspaper Average Net Paid Sales (Millions)
Year on Year Growth of Average Net Paid Sales (%)
8.2
8.0
7.6
-2.3%
-3.0%
-4.0%
Dec-09
Dec-10
Dec-11
7.1
-7.3%
Dec-12
Source: Audit Bureau of Circulations, AdNews Online
We recognise that print advertising will experience continued decline over the next 4 years, but the story
is two-fold. As digital classified platforms demonstrate greater effectiveness print classifieds, particularly
7
Source: http://paidcontent.org/2013/04/16/naa-study-shows-newspapers-readers-are-engaged-but-local-papers-need-to-do-more-
on-mobile/
those targeting metro areas, will see a rapid decline as advertisers dollars shift to digital. Display
advertising, on the other hand, will experience a relatively slower decline, in line with the shrinkage of
readership and audience time.
Exhibit 8:
Classified Newspaper Advertising as Percentage of Total Newspaper Advertising
29%
29%
28%
27%
25%
2012
2013
2014
2015
2016
Source: 2012 actual advertising spend is based on CEASA report; 2013-16 forecast is based on AAFM
The demise of the print newspaper is no longer a question, but the question is how it will play out. As
metro newspapers in print form approach the final stage of their life, we expect to see an interesting
competitive dynamic forming between News and Fairfax. Our hypothesis is that the first party to close
down their metro titles will see advertising dollars funnel across to its opponent which, in turn, would
prolong the survival of competing titles. Hence, the competitive motive may drive the publishers to keep
their metro newspapers on life support, even though doing so seems uneconomical.
Online
For online display advertising, a large portion of the growth will be driven by mobile and video advertising
formats. Undeniably, mobile advertising is still nascent and needs to prove its effectiveness. Mobile
advertising spend is currently lagging far behind time spent on consuming mobile media. However, as
advertising delivery technology evolves ad effectiveness will improve dramatically, driving CPMs higher.
Location-based advertising technology, for example, is suggested to have potential to improve ad
effectiveness by up to 48% based on a study by Business Insider in mid-2013.
Exhibit 9:
Mobile Banner Click-Through-Rate Uplift vs Distance to the Advertised Business
48%
40%
26%
5%
Less than 1 Mile
1 to 2 Miles
2 to 5 Miles
5 - 10 Miles
Source: Business Insider (http://www.businessinsider.com.au/location-data-is-transforming-mobile-2013-77)
In Australia, mobile display advertising spend has surged over 200% year on year to $46m in 2012,
8
representing 5% of total general display advertising. We expect this proportion will continue to grow
rapidly as mobile advertising develops its effectiveness and becomes better understood by advertisers.
Video advertising will continue to enjoy strong growth as online video services grow in scale and begin to
compete with TV advertising. The growth will also receive a boost from programmatic buying - a
technology that enables ad planners to bid in real-time, to reach tightly defined audiences using a
targeting platform. An Irish broadcaster, RTÉ, has begun selling its premium US and UK video inventory
through its own private ad exchange, leading to 90% increase in monthly UK video ad revenue and near
9
100% sell-through rate. In addition, trading programmatically has enabled RTÉ to develop new
geographical markets without additional sales offices.
Facebook is also expected to make an impact on the online video advertising landscape. Facebook is in
the process of launching 15-second video ads that come with a frequency cap of one play per day. It is
reported that the daily rate could grow to over $2 million per day in the US - roughly the equivalent of a
Super Bowl spot. If the format proves to be successful, it will not be long before it rolls out in Australia.
Online classifieds will soon reach a crossroads. Although online classifieds will continue to ride the wave
of print-to-digital migration, the tailwinds will subside, as the majority of the classifieds’ dollars is expected
to migrate out of print within the next 4 years. As a result, in the absence of further action the online
classifieds’ growth will slow down and becomes more aligned to underlying sector activity.
Outdoor
Competition is heating up in the outdoor sector. With oOh!media’s acquisition of Eye Corp, APN is now
facing a much stronger competitor, particularly in metro billboard and airport space. Furthermore, with
50% of APN Outdoor (APNO) sold to Quadrant Private Equity earlier this year, there is more competitive
tension from Adshel, which itself is a joint venture between APN and Clear Channel. This could lead to a
growing price pressure in outdoor products in the short-term.
Exhibit 10:
Outdoor Advertising Market Share by Revenue
Pre EYE acquisition
Other
small
operators
JCDecaux
Post EYE acquisition
JCDecaux
Other
small
operators
APN +
Adshel
oOh!
media
APN +
Adshel
oOh!
media
EYE
8
Source: IAB Online Advertising Expenditure Report – December 2012
9
Source: http://www.videoadnews.com/2013/07/26/rte-selling-almost-100-of-vod-inventory-programmatically/
Looking forward, digital signage will continue to proliferate, enabling operators to display additional ads
without the need to erect new billboards in premium locations. As of 2012, digital outdoor constitutes only
7.5% of total outdoor advertising spend in Australia. There is still a large growth potential for digital, based
on our observation of international outdoor markets (Exhibit 11). Outdoor is taking a technology agnostic
approach, placing NFC and Wi-Fi alongside each other, with QR codes as options for advertisers, but
they have yet to prove themself as the game changer. Resilient to digital disruption by its nature, outdoor
advertising is expected to maintain a steady growth over the next 4 years, contrasting declines for other
traditional media.
Exhibit 11:
Digital Out-Of-Home Revenue as Percentage of Total Outdoor Revenue (2012)
32.4%
20.2%
7.5%
Aus
UK
US
Source: OMA, OAAA, PQ Media, Outdoor Media Centre
Bottom Line
In summary, we believe the following trends will become more evident in the next six months and should
be observed closely:
 Print: acceleration of circulation decline; publishers losing classifieds at a faster pace than display
 Radio: change in demographics and shrinking usage; rise of competing streaming services
 Television: FTA loss of brand advertising dollars; bundling strategies to drive pay TV penetration
 Online: rise of mobile monetisation and programmatic buying; growth of classifieds to slow down
 Outdoor: heightened competitive pressure; rapid growth of digital outdoor advertising
It is a time of great change in the Australian advertising market. The rise of competing digital formats and
ongoing changes in audience behaviour continue to drive advertisers to new media at the expense of the
old. The clock is ticking for traditional media companies; they need to rethink their growth strategy
urgently, as structural change is happening faster than many may think. In another recent Thought Piece,
Paywalls Alone are not a Panacea, we suggested that the newspaper industry needs a radical rethink of
the business models they use to return to profitability. In the coming years it will become abundantly clear
that similar advice applies to TV and Radio broadcasters too, as they need to carefully choose the right
model to future-proof their businesses.
Venture Consulting is the region’s leading specialist digital, media and telecoms consulting firm.
We offer strategy, financial, business development, performance improvement, due diligence, regulatory,
operations, technology and implementation support to our clients. We have offices in Sydney, Melbourne
and Singapore.
We advise, we invest in, we build digital businesses.
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