Mumbai: A slowing economy in 2012 could put a speed breaker on advertising growth rates. The Rs 30,600 crore advertising industry, including print, broadcasting, radio, digital and outdoor media, grew 12-15% in 2011, riding a robust first half. However, in the new year, the growth rate will slip into single digits—8-9%, according to a clutch of advertising chief executives from India’s leading media agencies.
“Media expenditure growth, which today stands at around 12-13%, will fall to a single digit,” said chairman of Leo Burnett India, Arvind Sharma. “Many clients will certainly tighten their belts.”
Advertising gurus also forecast growth in non-traditional media such as shopper marketing, analytics, ground activation and digital.
A file photo of hoardings advertising products using celebrity brand endorsements in Delhi and NCR
The allocation for digital is expected to go up as advertisers will tread cautiously in traditional print and television media, said Alok Agrawal, chief operating officer, Cheil Worldwide, South West Asia, a marketing and communications agency. Digital media should see as much as 40% growth in 2012, he said.
In recent months, media firms have been bracing for harsher times as economic uncertainty prompts companies to revise advertising budgets and realign strategies. The debt crisis in Europe, a US economy still struggling to recover, and high inflation, rising interest rates and slowing economic growth at home have dampened domestic consumer sentiment, as was evident in the Diwali season.
According to media analysts, advertising yields have fallen 10-15% over the last three-four months, Mint reported on 11 November. Yield is a measure of profitability used in businesses such as aviation and advertising, where there is a finite availability of products or services that can be sold.
Categories with big advertising budgets such as automobile companies, telecom, real estate and financial sector firms will cut back on expenditure. Even cricket spending is set to decline by as much as 15-20%, said several media buyers. In 2011, the industry spent over Rs 2,000 crore on cricket properties, including the Indian Premier League, they said.
“Cricket ratings have been a downer this year and should see some sense dawning on rates and ratings,” said Ambi Parameswaran, chief executive of DraftFCB-Ulka. Mona Jain, chief executive of VivaKi Exchange, the media-buying arm of the Publicis Groupe, said cricket rates will see rationalization in 2012. “Most advertisers will nip cricket budgets because of falling ratings.”
Global marketing communication companies will continue to scout for Indian agencies, and, with revenue under pressure, more agencies will be tempted to sell. Parameswaran said that with global agencies looking towards India for acquisitions, more mergers and acquisitions are on the cards.
In 2011, Japanese advertising company Dentsu Inc. bought out its 26% India partner Sandeep Goyal. JWT, part of WPP Plc., also acquired a majority stake in Hyderabad-based Mindset Advertising, while the $12.5 billion Omnicom Group Inc. got a controlling stake in Anil Ambani’s Mudra Group.
However, mergers and acquisitions by multinational companies will likely coincide with the rise of independent agencies.
“This trend of independents (such as Salt Brand Solutions) has brought a lot of fresh energy into the market, making the big boys relook their offering. Hope the new boys help take the price table up, and not down,” Parameswaran said, adding that the coming year will determine if the start-ups will gain ground or get gobbled.
More consolidation among media-buying firms is expected in 2012, according to VivaKi’s Jain. Omnicom Group owns media brand OMD in this market and plans to launch its second media brand PHD soon. Jain expects Omnicom to further consolidate (since media brand Mudra Max under Mudra continues to remain separate).
“It is generally a good time for global networks to buy good assets at a reasonable price,” Leo Burnett’s Sharma said. “So we may see even more M&A activity in 2012.”
While ad budgets will be tightened, practitioners say that brands will be creatively bolder in their campaigns to achieve greater impact in the face of such constraints.
“The impact that Anna Hazare’s fast achieved with practically no funding was unprecedented,” said Sharma. “Anna’s success demonstrates that going forward, the game will not just be about budget...it will be about designing participative acts that get people engaged. And it will be about masterful use of paid, owned and earned media.”
In 2012, the economic backdrop is likely to be tougher, Sharma said.
Advertising experts expect brands to invest more in activation and analytics. They will look for platforms where they get returns on investment (RoI).
“So, wherever RoI is measurable, spends will not be reduced. This explains why radio and out-of-home will be more hit than print and TV media,” said Ashish Pherwani, associate director, media and entertainment, at audit firm Ernst and Young.
“The top five TV channels and newspapers which deliver proven returns on investment for advertisers will continue to get advertising, but for others, it will be tough. Volumes may drop. A fallout of a drop in volumes is falling ad rates. A lot of the smaller media and advertising companies could either fold up or merge,” he said.
Parameswaran hoped brands don’t get into “over-correction” of advertising budgets.
The quarter from January to March will be particularly slow, according to Pherwani, with advertising budgets staying flat. “We expect the economy to be weak till June definitely and that means an adverse effect on the advertising industry,” he said.