• by May 31, 2002

While most industry pundits predict another down year for global advertising, one industry watcher sees a second-half recovery that should lead to a modest uptick in global ad sales for all of 2002.

According to a new forecast by Nielsen Media Research (International), projected spending in the world's developed countries - including the United States - will rise slightly in the second half. This will offset a first-half decline to yield essentially zero growth for the year in these markets. However, spending in emerging countries - including China, one of the world's fastest-growing ad economies - will grow an estimated 10% for the year. The net effect, says Nielsen, is that the world's advertising spending should grow by about 2% in 2002.

"What we're seeing is what I like to call the yin-and-yang effect," said Ian Garland, managing director of product marketing and development for Nielsen Media Research (International). "There are really two distinct worlds - developed and emerging - that shape the global advertising economy. Although the United States is by far the world's largest ad market, what happens here can't always be taken as a proxy for global advertising on the whole."

Ad Spending Fell 5% in 2001, But Emerging Markets Were Surprisingly Strong

Nielsen's study, which was recently presented to members of the advertising community in New York and is reported on in today's editions of The Wall Street Journal, focused on 14 countries that together represent about half of the world's total advertising spending. In 2001, according to Nielsen, spending in these 14 markets fell by 5%.

However, the overall decline in these countries masks the robust growth that the emerging markets saw in 2001. In fact, while the developed markets in the Nielsen study (Australia, Canada, Germany, Italy, Spain, the United Kingdom and the United States) saw spending shrink by a collective 7%, spending in the emerging markets (China, Hong Kong, Indonesia, Malaysia, Singapore, South Africa and Thailand) grew in total by about 15%.

"We found that ad spending in the emerging markets was surprisingly buoyant, led by a sizeable increase in China. These markets shrugged off the effect of September 11, which significantly dampened ad spending in the West, and actually grew at their most robust rate in the final quarter of last year," said Garland.

China Moves Up on List of World's Biggest Advertising Economies

China, Garland said, has emerged as a major global force in advertising, especially within the last year. Growing at more than 15% in 2001, China moved from 10th place among the world's largest advertising economies in 2000 to finish last year in a virtual tie with Germany and the United Kingdom for the number three spot, behind the United States and Japan. China's double-digit growth, coupled with declines in other top-10 markets, allowed the world's most populous nation to make a rapid ascent up the charts. According to Nielsen estimates, more than $11 billion was spent on advertising in mainland China last year.

"If China were to continue growing at its present rate, we estimate that it could overtake Japan as the world's second-largest advertising economy by the end of this decade," Garland said.

China's surging ad growth wasn't fed by big Western marketers like Procter & Gamble or Unilever, Garland said, but rather was the product of growing TV advertising by local companies. Interestingly, of the top eight product categories advertised in China in 2001, five were in the area of "personal care," including such products as tonics and vitamins, over-the-counter medicines, and hair shampoos and conditioners.

"Personal care was really big in China last year, and local companies and brands dominated," said Garland. "Of the top eight advertised products, all were local brands and most were what we would call tonics and vitamins. In China, as in many emerging markets where populations are generally younger and still growing, advertising tends to focus more on basic human needs like health, food and drink."

Overall, the Nielsen study showed that personal-care categories racked up the biggest increases in advertising spending last year, fueled in large part by spending in the emerging markets. Advertising for cosmetics and toiletries grew 8%, and healthcare advertising rose 6%, making them the two fastest-growing categories in the Nielsen study.

Among declining categories, tobacco took the biggest hit last year, down 27%, followed closely by the telecommunications sector, where advertising dropped 26%. Not surprisingly, lower spending in the developed economies was largely to blame for the fall off in these and other declining categories, such as financial and business services and information technology.

U.S. Sees Signs of Life in Early 2002

The United States, ranked number one in the world with some $143 billion in advertising spending last year, remains a bellwether for the global advertising economy. Yet it was one of the world's hardest hit markets in 2001. According to data from Nielsen Monitor-Plus, advertising spending in the United States dropped 7% last year, with all media affected by the downturn. The one bright spot on the U.S. advertising scene was Hispanic television, where strong performances by such networks as Univision and Telemundo fueled a 30% increase in advertising sales.

The events of September 11 had a dramatic effect on U.S. advertising, with an estimated loss of $300 million in network TV advertising in the week after the terrorist attacks alone. The situation was exacerbated by an unfavorable comparison with the previous September, which saw ad sales spike due to the Summer Olympics in Sydney.

In absolute dollars, the largest drop-off in U.S. advertising volume during 2001 occurred in the telecommunications sector (down 28%), followed by retail (- 9%), financial services (-6%), automotive (-4%) and professional services (-15%). The largest increases, again in absolute dollars, occurred in the areas of direct response (up 18%) hotels and restaurants (+13%), records and tapes (+21%), schools and camps (+15%) and liquor (+4%).

"With the rise in infomercials that sell everything from exercise equipment to music CDs, it's no wonder direct response was such a hot growth category in 2001," said Garland. "Liquor advertising - along with consumption - was also up, not a surprise in these recessionary times."

According to Nielsen, there are some early signs in 2002 that the U.S. is coming out of its tailspin. During the first quarter, ad sales increased 1.8%, according to preliminary figures from Nielsen Monitor-Plus released on May 17. The picture remains somewhat mixed, with some media, such as network TV, showing growth, but others, such as magazines, still down. But the full-year trend shows that the U.S. could experience modest growth of 2% for all of 2002.