Marketing services: faster growth
Marketing services have grown more quickly for two reasons.
- First, network television pricing has risen faster than inflation, to the disquiet of big advertisers. Procter & Gamble, the world's biggest advertiser, Unilever, Coca-Cola and American Express have all registered voluble protests in recent times. They are sick and tired of paying more for less.
In 2003, in the upfront network buying season, cost per thousand rose by an estimated 15-22% against an expected 7-12% – this against general price inflation of 3%. In 2004, upfront pricing continued to outpace inflation, cost per thousand rising by 6-7%. 2005 saw more softening, but prices still grew faster than inflation at around 4-5%. NBC was particularly hit hard – dropping $900 million in revenues, with pricing, programming and late bargaining issues combining to cause significant issues.
Although the pressures on network television intensified in 2006, network cost per thousand probably rose by 4-5%, still faster than general price inflation of 3%. In 2007, network cost per thousand rose about the same as general price inflation at approximately 3%, but is forecast to be greater again in 2008. Imagine what would happen in the car industry if the price of steel rose consistently by 10% against general price inflation of 3%. Manufacturers would use less steel or find a substitute. That is what is happening in our industry, too. Marketing services and other traditional media such as radio, outdoor and cinema advertising are becoming more acceptable substitutes.
Network television will, however, remain an important medium. It will not disappear. If we were starting a multinational packaged goods company from scratch, we would still use network television to influence the largest number of people in the shortest time at the lowest cost. Clients still need reach. In the US, for example, primetime network television used to claim 90% of households. A few years ago it was 50%; today it is perhaps only 33%. There are, of course, still programs with significant global or national reach, such as the Super Bowl, the Academy Awards, the Olympic Games or the World Cup. Of those, the World Cup final reaches about 600 million people, the Olympics 400 million, the Super Bowl 90 million and the Academy Awards around 30 million (except after the writers strike this year!).
The largest live event audience, however, is for the Chinese New Year Gala on CCTV in China, Asia and elsewhere, watched by more than 1 billion. These events remain in relatively fixed supply with the pools of money chasing them stable or growing. As a result, their prices are bid up. That is why a 30-second Super Bowl advert costs $2.7 million and an Academy Awards slot $1.7 million.
This is not a situation that can last, particularly when significant segments of the population seem to go missing. For instance, US audience ratings show that young men have disappeared on Monday nights – perhaps gaming on the internet or watching out-of-home in bars. Equally, housewives have defected from soap operas. Recent changes in Nielsen and our own AGBNielsen Media Research and IBOPE technology now include out-of-home and internet audience figures, too.
- The second reason marketing services have grown more quickly is media fragmentation. The old media have become more sophisticated and the new media have proliferated. Technology has improved the effectiveness and development of cable and satellite television, newspapers and periodicals, radio and outdoor, while spawning new media in direct, interactive and the internet. Many of these new media are more measurable and more targeted.
Media consumption habits change with every generation. Look at what a four-year old can do with a computer in a few hours or what bloggers and hackers do with a clear conscience and different value systems. Decision-makers in media owners and agencies tend to be in their fifties and sixties; their sons and daughters and grandchildren are shifting in ever greater numbers to multi-tasking on the web, personal video recorders (PVRs), video-on-demand, iPods, video iPods, iPhones, mobiles, podcasts and internet games. The declining newspaper readership statistics, particularly among younger age groups, are alarming.
Many executives are in denial. They believe – or hope – that such changes will not happen on their watch. Yet I know my consumption habits have altered radically over the past few years – more daily newspapers, fewer periodicals. More cable and satellite television, less network. More web surfing and BlackBerry® e-mail. More continuous streaming of CNBC or Bloomberg.
I am less willing to wait for detailed analysis in weeklies or fortnightlies. I want news, together with commentary now. Why should I wait for 10 days or so for in-depth analysis of the Procter/Gillette merger announced on a Thursday night? Although, in contradiction, women seem to be increasing their magazine readership and The Economist powers ahead, having gone well past one million circulation with increasing advertising revenues.
Similarly, the US has hitherto accounted for about half of worldwide advertising and marketing services spending, with the most prominent non-American markets being Japan, Germany, Britain, France, Italy and Spain. That is changing. Asia Pacific, Latin America, Africa, the Middle East, and Central and Eastern Europe are becoming more and more significant, as multinational corporations build their businesses where populations are large and growing faster – seeking to drive top-line like-for-like sales growth, a primary driver of total shareholder return.
In 2007, Russia was again WPP's fastest-growing country at 37%, with the Middle East area at 21%. The 'neo-BRICs' of Pakistan, with a population of 165 million, Vietnam with 85 million and Indonesia with more than 230 million – of which 200 million are Muslim – are all growing faster and became more influential in 2007. Goldman Sachs now focuses on the 'Next 11' – Bangladesh, Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam. With the exception of Indonesia and Iran, WPP has leadership positions in all these countries.
Non-US markets will be increasingly important. Extrapolate WPP's current revenues in the BRICs countries (Brazil, Russia, India and China) or BRICI (including Indonesia) at the rates of GDP growth predicted in recently published Goldman Sachs research and assume moderate rises in advertising to GDP ratios. The result is that Asia Pacific, Latin America, Africa, the Middle East, and Central and Eastern Europe will take a growing share of our business: possibly 38% by 2015, excluding acquisitions. Perhaps we should look at our activities on a network television and non-network television basis, and a US and non-US basis.
Increasingly, the marketing world is becoming two-paced or even three-paced, geographically and functionally. Asia Pacific, Africa and the Middle East, and Central and Eastern Europe are outpacing the US and Spain (post-Franco Spain remains a standout market in Western Europe, despite the implications of the current construction bubble). In turn, the US and Spain are outpacing the rest of Western Europe. Moreover, the internet and other new technologies are outpacing network television, newspapers and periodicals.
WPP was founded some 20 years ago by two people in one room to try to capitalise on such trends and provide co-ordinated advertising and marketing services throughout the world.
Percentage contribution to growth by media* in major markets 2002-2008 %
TV still dominates in faster-growing markets. The internet is driving growth in the mature markets
|Central & Eastern Europe||2002||2003||2004||2005||2006||2007f||2008f|
|Asia Pacific (all)||2002||2003||2004||2005||2006||2007f||2008f|
|North Asia (China, Hong Kong, Korea, Taiwan)||2002||2003||2004||2005||2006||2007f||2008f|
|ASEAN (Indonesia, Malaysia, Philippines, Singapore, Thailand)||2002||2003||2004||2005||2006||2007f||2008f|
|Middle East & Africa||2002||2003||2004||2005||2006||2007f||2008f|
* Seven main media excluding 'Other'.
(Figures rounded up.)
Top global marketers* spending by region
measured media bought in 2006 and 2005 $m
Source: Advertising Age