winning at China Media Inflation How to better measure value in the world s most complex market 2013 IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
introduction
in an era of hyper fragmentation among China s media platforms, advertisers and agencies are faced with the challenge of crafting a media strategy that extracts greater value. This White Paper from marketing consultancy R3 is designed to give marketers and their agencies some insight into What How What are the chief factors influencing media inflation in China? can China s marketers effectively manage their media mix to generate greater returns? are the trends and areas of growth in China s media market? This report is designed to start, not end a dialog. If you have your own views on Inflation, we welcome hearing about them at : @r3ww @r3jlb @r3china www.r3ww.com IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES 2
METHODOLOGY
TTo prepare this report, we consulted multiple leading marketers and media agencies and we are grateful for their participation. This report covers media inflation forecasts for 2013 in all key media, both nationally and locally. Forecasts from participants have been aggregated into an overall media inflation forecast: Inflation forecasts have been divided into two perspectives to cover national inflation and local inflation of the top 24 cities in China We have analyzed all key media in China, including TV, newspapers, magazines, radio, out-of-home (OOH), digital and mobile > For OOH, we included building LCDs, railway media, bus transit, and more > For digital, we included portals, search engines, video, SNS, Weibo, network community, IM, AD alliance/network and vertical channels, and more Both the rate card inflation and forecasted net inflation figures are shown for each media platform This is R3 s fourth year reporting on China s media inflation since 2010. Because we do not rely on any one single data source, we believe that these forecasts give the most objective and independent view in the marketplace of media inflation for 2013. IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES 4
executive summary
Slowing inflation to match a 0.2% drop in GDP growth In light of China s economic cool down, marketers and media agencies expect an accompanying decline in inflation rates for traditional media. While the Chinese Academy of Social Science scales back predictions from 8.2% to 8.0% for the 2013 GDP growth rate and a higher than expected growth rate for CPI from 3.0% to 3.5%, ad demand and ad spend from both domestic and international brands are expected to slowdown. National media net inflation for radio rises to 21%; drops to 15% for television As traditional media s dominance over the marketplace begins to erode, on-the-go media is becoming the channel of choice among marketers and agencies- with net inflation for radio rising by 3 points to reach 21% and OOH rising by 1 point to reach 9% since 2012. On the national level, the 2013 annual forecast for media show net inflation rates for TV at 15%, digital at 13%, magazines at 8%, newspapers at 8%, radio at 21%, mobile at 13%, OOH at 9%, and movies at 15%. TV, newspaper, and magazines are expected to be in the single or even negative digits for growth, while the prices of OOH and radio are seeing a steady incline due to their mobile nature. Inflation figures for PSTV stations surpass CCTV percentages China s longstanding TV hierarchy may be at the beginning of a turning tide- with all CCTV stations seeing a decline in rate card and net inflation percentages dropping down as low as 11% and provincial satellite TV stations continue to see sharper rates of inflation reaching up to 23% due to strong demand. TV ad spend growth will be driven by a number of factors, primarily by PTV and LTV mergers, limited airtime on in-demand TV programs, a push for high revenue targets, and stricter local policies limiting the volume of bonuses. Mobile media expected to see 50% growth in 2013 Compared to 18.8% growth of digital, mobile is expected to experience dramatic growth of 50% in 2013 for media planning budget growth ratesthe highest growth above all other platforms. As China s mobile market continues to boom, marketers and agencies foresee bigger chunks of the total media budget allocated towards this lucrative channel. IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES 6
DETAILED FINDINGS
DETAILED FINDINGS Foresight on China s Media Market Driving better media strategies with greater return In a market as complex and fragmented as China, the structure of local media and the fluctuations in media trends can be a tremendous challenge for advertisers to tackle. With transparency and measurement posing inherent hurdles to overcome in the race for the best media mix, it becomes essential for marketers and agencies to be ahead of the curve in discerning shifting macro-economic factors and changing patterns in media prices and preferences. Let s talk GDP & CPI Let s start by looking at what the key economic indicators reveal about the local media market. Figures released by the National Bureau of Statistics show that China s GDP grew 7.5% in Q2 2013, which was a slight slowdown from the 7.7% growth in Q1- the lowest GDP growth rate logged since 1990. So what are the driving forces fueling media inflation in 2013? Here s what we found based on the outlook of 16 leading marketers and media agencies: China GDP Growth Rate CASS Prediction 2012 Dec : 8.2 % % 9.6 9.1 10.4 8.9 7.7 8.0 Y 2008 Y 2009 Y 2010 Y 2011 Y 2012 Y 2013 IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES 8
Many organizations and analysts attribute the slowdown to the restructuring efforts of China s economy and weak demand from overseas. As the Chinese government restructures the economy, the country is experiencing a period of stabilization as the country s leadership addresses deeper issues and seeks sustainable areas of growth. In Blue Book of China s Economy published on April 26th 2013, the Chinese Academy of Social Sciences (CASS) released a new forecast on the country s economy predicting GDP growth rate to be down by 0.2%, from 8.2% to 8.0%. As China hunkers down with a longer-term vision in mind, short-term growth will be limited with the restructuring adjustments. As a result, China s ad market is expected to feel the ripples of As China hunkers down with a longer-term vision in mind, short-term growth will be limited with the restructuring adjustments. the economic cool down with a potential accompanying slowdown in ad demand and ad spending from local and multinational brands. China s 2013 consumer price index also saw an adjustment in CASS s Blue Book of China s Economy from 3.0% to 3.5% growth. While there s no linear formula to map out the relationship between consumer inflation and media inflation, the media inflation rate has historically risen consistently faster than the CPI. Economic growth and CPI go hand in hand both helping to fuel the boom in advertising spending a vicious cycle and serious challenge for controlling media costs. China CPI Growth Rate 4.8 5.9 3.3 5.5 2.7 3.5 1.5 Y 2006 Y 2007-0.7 Y 2008 Y 2009 Y 2010 Y 2011 Y 2012 Y 2013 Trading places from traditional to nontraditional media In view of China economic stabilization, prices of traditional national media, namely TV and newspaper, are expected to undergo a slower-than-average growth rate in 2013. Television saw the greatest drop in net inflation, going from 20% in 2012 to 15% in 2013. On the flipside, prices of radio and OOH are enjoying steady growth since 2012- with radio jumping from 19% to 21% net inflation, and OOH gaining a percentage point since last year to end up at 9% net inflation.
National media inflation Y2012 Net Inflation %-2012 Dec Y2013 Net Inflation %-2012 Dec Y2013 Net Inflation %-2012 Jul. % 10 20 30 % 10 20 30 TV 20 18 RADIO 19 18 15 21 DIGITAL 15 16 MOBILe 10 18 13 13 MAGAZINES 5 8 OOH 8 8 8 9 newspapers 10 9 MOVIE N/A N/A 8 15 The net inflation figures suggest a clear shift from a TV-dominant market to a proliferation and expansion of the media scene past the traditional mix. According to marketer and agency projections, the planning budget growth rate for digital media is forecasted to rise by an average of 18.8%, with an even more dramatic jump in the growth rate for mobile at 50%. On the other hand, television and newspaper are seeing significantly slower growth to their nontraditional media counterparts, at 3.8% and -0.2% respectively. 2013 Media planning budget growth rate 50 18.8 % 3.8-0.2 2.1 0.7 6.1 TV newspapers MAGAZINES RADIO DIGITAL OOH MOBILe IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES 10
Comparing across national and local media forecasts, we see little variance in traditional media platforms such as TV, newspapers, and radio- but we see higher net inflation for OOH advertising in local media at 13% versus 9% inflation on the national level. National Media inflation Ratecard Inflation % Net Inflation % NATIONAL LOCAL % 10 20 30 TV 15% 14% TV 15 19 newspapers RADIO 8% 21% 8% 21% DIGITAL 19 13 OOH 9% 13% MAGAZINES 8 12 MAGAZINES 8% --- newspapers 9 8 DIGITAL MOBILe 13% 13% --- --- RADIO 22 21 MOVIE 15% --- MOBILe 18 20 OOH 12 9 Across all media platforms, net inflation is generally slower than rate card inflation due to the growing prevalence of discounts and bonus rates. Movie advertisements came in with highest inflation rates, with 15% net inflation and 25% rate card inflation. With the unique ability to effectively reach and engage a wide range of audiences, movies are seeing heightening demand for advertising. MOVIE 15 25
Over in the digital world, all digital ad opportunities will see double-digit increases in unit costs in 2013 as more marketers boost their spending on digital marketing. Within the digital hierarchy, video and Weibo platforms outstrip all other digital forms of advertising, while social websites are beginning to lose steam. National DIGITAL MEDIA inflation Ratecard Inflation % Net Inflation % % 10 20 30 10 20 30 WEBPOrtals 21 14 WEIBO 21 18 SEARCH ENGINE 14 13 NETWORK COMMUNITY 13 10 VIDEO 20 28 IM 18 14 SNS 16 12 AD ALLIANCE NETWORK 6 18 The rise of flagship TV programs The realm of television advertising is facing a different set of forces unique to China s TV network structure. While the net inflation average across all major and provincial satellite television stations sits at 15%, we see emerging patterns among the different programs: PTV and LTV mergers Limited airtime on high quality TV programs The push for high revenue targets among TV stations Rising prices for flagship programs Stricter local policies limiting the volume of bonuses While all the above mentioned factors are key factors behind the yearly price increases, the rising inflation for flagship programs signify growing demand for provincial satellite TV (PSTV) and the waning of traditionally stronger TV stations. In 2013 media forecasts for CCTV and PSTV, all CCTV programs had ratecard inflation rates no greater than 16% in comparison to PSTV programs which reached and surpassed the 15% net inflation average to reach as high as 23% for ratecard inflation rates. IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES 12
Ratecard Inflation % Net Inflation % 14 11 15 13 13 11 18 17 16 15 16 13 12 12 20 15 16 10 23 20 10 18 NET AVE. 15% CCTV 1 CCTV 2 CCTV 5 CCTV Hunan JIANGSU TV ANHUI TV OTHERS satellite tv STATION ZHEJIANG SATELLITE TV DRAGON TV TIANJIN TV OTHER PSTV Marketers put their money on mobile media In just the past three years, China s mobile internet traffic has increased from 1% of total internet traffic to 10%, making mobile a platform of choice among China s top markets. Since then, thousands of APPs and mobile websites have become accessible to the country s mobile population. Speaking to mobile s growing influence, one 4A agency shares, Internet & mobile are the most influential media for changing people s lifestyles. We re in the age of multi-screens fueled by innovation. Although mobile only contributes less than 2% to the total media budget, almost all the marketer and agency leaders we spoke to foresee a thriving prospect in the coming 1-2 years. Before jumping onto the mobile bandwagon, many brands are taking the time to find the best ways to communicate their message by integrating mobile into the rest of the mix. We are looking forward to see more creativity and innovation from mobile media. We want to know how mobile can help us to communicate our message, shares another 4A agency leader. While 2013 average net inflation for mobile media sits at 13%, we are seeing ratecard inflation percentages for APPs and mobile sites well-surpass the average rate to reach as high as 25%. We hear from an industry expert who tells us, Mobile planning is becoming essential to every digital planner. Many of our clients are still learning about mobile opportunities and their potential performance gains. With demand for mobile advertising seeing no signs of slowing down, agencies are getting into gear through training and working together with clients to maximize the potential of their brand s mobile strategies. National MOBILE inflation Ratecard inflation % Nett Inflation% 25 19 18 13 11 9 NET AVE. 13% % PUSH WAPSITE APP
The call for agile brands Advertisers have an unlimited selection to choose from when it comes to building a media strategybut with growing platform options come greater challenges. Tackling those challenges demands unparalleled levels of agility from today s brands and media inflation trends on the national and local level reveal a growing area of opportunity in nontraditional media and more locally targeted television stations. As China continues to see growth of enterprises and their driving demand for advertising, the brands investing in a well-integrated mix of traditional and non-traditional media to engage with their audiences will be ahead of the curve. About R3 R3 is a global marketing consultancy in the US, Asia, Europe and LATAM. We focus on improving the effectiveness and efficiency of marketers and their agencies. Founded in 2002, we work with eight of the world s top twenty global marketers including Coca-Cola, Johnson & Johnson, and Samsung. Our work involves consulting services in some of the following areas Review Finding the right agency partners Remuneration Paying the right agency partners Relationships Keeping the right agency partner Return on Media Independent analysis of your media strategies, plans, buys and costs Return on Assets Our proprietary consumer study on Brand Engagement in China Return on Investment Consulting on how to optimize your marketing fitness. For more information, visit www.r3ww.com or write to greg@r3ww.com About R3 s China Media Inflation Report This report is the Topline of a deeper Subscriber-Only report from R3 on China Media Inflation. Published every year, the R3 China Media Inflation Report covers not only the factors driving inflation and a media inflation outlook on a national scale, but also a more in-depth projection of local media inflation and detailed forecasts covering China s top markets. The Full Report covers 50+ pages of Competitive Materials, Analysis and Research Results, and is valued at RMB5,000. For more information, write to fora@rthree.com RETURN ON INVE STMENT Through a partnership with Marketshare we offer consulting insight and discipline into Marketing Resource Allocation and improved measurement. RETURN ON MEDIA We offer professional analysis of the media process, planning and buying with proprietary benchmarks and tools to set and measure performance. AGENCY RELATIONSHIP S We help in evaluating and improving agency relationships as a third party using an R3 proprietary online tool and process, along with our consulting skills. Im proving the effective ness & efficie ncy of marke ters & their agencie s RETURN ON ASSETS We invest in research on sports, celebrities and pre and post campaign tracking to validate marketingp erformance independently AGENCY REMUNE RATION We analyze agency process and compensation in detail, and help to establish incentive and fee based compensation structure, using our benchmarks from 40 countries. AGENCY REVIEW 14 We assist in identifying, reviewing and compensating the best possible agency, be it a creative, media CRM, BTL, PR or interactive agency. IMPROVING THE EFFECTIVENESS & EFFICIENCY OF MARKETERS & THEIR AGENCIES
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