Advertising Winter Enters Deep Freeze 中国广告行业进入严冬
Leading Chinese media company CCTV has been trumpeting the results of its annual advertising auction for 2013 held over the weekend, which saw spending increase by 11.4 percent despite the recent slowdown that has hit the sector. But from my perspective, these results look very gloomy indeed for reasons I’ll explain shortly, meaning advertising-dependent Internet leaders like search engine Baidu (Nasdaq: BIDU), web portal Sina (Nasdaq: SINA) and video sharing site Youku Tudou (NYSE: YOUKU) won’t have much to cheer about in 2013.
Let’s take a closer look at the CCTV results, seen by many as a barometer of the broader industry since they reflect sentiment among advertisers for the year ahead. This year’s annual auction netted spending commitments worth 15.88 billion, or about $2.6 billion, up 11.4 percent from last year’s 14.26 billion. (English article) CCTV, China’s only broadcaster with a broad national footprint, highlighted the fact that the increase continued to outpace China’s economic growth, which is expected to come in this year at 7-8 percent.
But a closer look at the numbers is far less encouraging, especially for Internet companies whose main audience tends to be a younger demographic of age 35 or less. For starters, the 11.4 percent growth is the slowest in more than a decade, and well below growth rates of 15-18 percent that were seen before the slowdown began to accelerate last year.
But even more worrisome for the Internet firms was a look at the companies that were the main drivers of next year’s growth. Based on the media reports, the biggest spenders for next year were liquor makers, specifically producers of famous baijiu brands including Moutai (Shanghai: 600519) and Wuliangye (Shenzhen: 000858). Such companies already charge ridiculous premiums for their products to status-conscious Chinese, and apparently they have plenty of money to spend on advertising to maintain their premium status.
The biggest spender at the weekend auction was another liquor company that I’ve never heard of named JNC Group, which spent 608 million yuan for advertising on CCTV over the next year. In total, liquor companies accounted for 3.66 billion yuan in spending at the auction, or about a quarter of the total. What’s more, spending by liquor companies was nearly double their level from last year. That means that without the big spending boost by these liquor companies, CCTV’s total ad sales for 2013 would have been roughly flat compared with 2012.
The reason I’m spending so much time focusing on this liquor element of the equation should be obvious to anyone who uses the Internet in China. Put simply, liquor advertisements are aimed almost exclusively at the older generation, usually people age 50 or more, who still drink the high-alcohol beverage and like to impress their friends and business associates by serving such drinks at banquets. Few of these people are regular Internet users, and thus little if any of this spending bonanza by liquor companies is likely to trickle into the pockets of big advertising-dependent Internet companies.
Since CCTV is a premium name itself, its advertising growth is usually better than that for smaller companies. That means that many Internet companies can probably expect to see their advertising revenue actually contract next year. We got a taste of what’s to come last week, when leading social networking site Renren (NYSE: RENN) reported its ad revenue contracted 13.7 percent in the third quarter of this year. (previous post) Even premier names like Baidu and Sina can expect to see sharp slowdowns into the single-digit growth range as this advertising winter enters its deep freeze stage.
Bottom line: China’s advertising-dependent Internet companies will see little or no growth next year as ad spending remains flat or event contracts for many mid-tier and smaller players.
Related postings 相关文章:
