Chapter 4 Status of China’s Advertising Market
4.5. New Media in China
4.5.2 Urban Popular Media: Buildings LCD TV
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In recent years, the first steps toward mobile phone advertising have begun to be taken, and some mainstream independent WAP sites and advertising companies have also become involved in the mobile phone advertising market. 3G portals, air networks, a large number of mobile phone networks independent WAP sites have emerged. These independent WAP sites, which can not only provide information browsing, but mobile search, video broadcasting, online music, such as a variety of wireless Internet services, they have a relatively large group of users and a certain brand, which has become the new media platform. Mobile and Internet media together produced RMB 114 billion (US$15 billion) in revenue in 2006, which accounted for one third of the overall revenue of the nation’s media industry. This was a rise of 56%
from the previous year, and mobile media, such as cell phones, short messaging services and cell phone broadcasting, generated RMB 88.8 billion in 2006, which was a rise of 41.3% from 2005 (Shanghai Daily, 2007).16
4.5.1.1 Popularity of Cell Phone in Major Cities
The number of mobile phone users has rapidly increased with the popular demand for communications services, which has made mobile phones in China not a luxury, but an essential tool for daily living. According to the results of a survey, the percentage of residents in Beijing and Shanghai who own mobile phones has reached more than 80% (Table 4-11), and cell phone short messages have grown 25 times within three years, with the total short messages reaching 40 billion in 2006 (Table 4-12).
4.5.2 Urban Popular Media: Buildings LCD TV
Among the many new media in China, buildings LCD TV is one of the most
16 The cell phone became a mass media channel in 1998 when the first ringtones were sold to cell phones by Radiolinja in Finland. Soon other media content appeared, such as news, videogames, jokes, horoscopes, TV content and advertising.
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considered media at present. Nielsen Media Research studied this media in 2005 and the results showed that buildings LCD TV are very well accepted by urban residents in China. For instance, in Beijing, 66.5% of people like buildings LCD TV as an advertising media, and more than 80% of residents in Beijing, Shanghai, Guangzhou and Chendu consider that Buildings LCD is a reliable form of media which can inspire the desire for consumption (Table 4-13).
Table 4-11: To use or not to use Mobile Phones
Cities Indicators Yes No Total
Number 440 71 511
Beijing
Percentage (%) 86.1 13.9 100
Number 416 90 506
Shanghai
Percentage (%) 82.2 17.8 100
Source: Du (2008)
Table 4-12: Accumulation of Short Message Services in China: 2004-2006
Year 2004 2005 2006
Month Jan. Jun. Dec. Jun. Dec Jun Nov Accumulation
(Billion) 15.66 99.63 217.76 139.25 304.65 202.96 389.12
Growth Rate
(%) 91.2 71.0 58.8 39.8 39.9 45.8 41.8
Source: Du (2008)
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Table 4-13: Attitude toward Buildings LCD TV in Major Cities City Very Like
According to another survey of residents in these four major cities, buildings LCD TV has became the major information source of cell phones, IT products, cars, traveling, and cosmetics for high-end residents, and its recall rate is noticeably higher than that of tradition household TV (Table 4-14).
Table 4-14: Recall Rates of Household TV & Building LCD TV Recall Rate of Commercials (%)
Household TV Building LCD TV
Shanghai 3.0 3.4
Ever since China entered World Trade Organization in 2003, foreign investors have
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gradually been allowed to hold 100% pure foreign advertising companies in China, which has resulted in the Top 10 advertising agencies in China changing rapidly. In 2004, 60% of the top 10 agencies were excluded from the list within two years, and more than 80% of new members on the list in 2006 were foreign companies. Only one domestic company, the Beijing Future Advertising Agency, which is operated by CCTV, was listed as 8th in 2005 and 10th in 2006.
A Japanese advertising group, Beijing Dentsu, is the top advertising agency in China with an average 20% annual growth rate of revenue and this is followed by Jiangsu Dahe International and Saachi & Saachi Great Wall. Along with the Shanghai Advertising, only these four companies remained in the top 10 list from 2003 to 2006, but the outdoor media, the Tom Outdoor Media Group, joined the list in 2003 and 2004, and exited with another five companies in 2005, instead of Leo Burnet Advertising, Lintas, Framedia, J.Walter Thompson-Bridge Advertising (Shanghai), Beijing Samsung Advertising, and the CCTV operated advertising company, the Beijing Future Advertising Agency (Table 4-15).
4.7 2008 Beijing Olympics
The Olympic Games commercial was expansive but expected to be effective. At the time the Beijing 2008 Olympics were being aired in August 2008, thousands of miles away, the nominees for the US presidency, Senators McCain and Obama, spent about the same amount on advertising as was spent on the Olympics TV advertising, i.e.
between US$5 and US$6 million. This expenditure was the single biggest purchase of broadcasting network advertising time by a US presidential candidate in several decades (Kaplan, 2008). Although the expenditure of the US presidential candidate has no relationship with the Chinese advertising market, the PWC’s entertainment and
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media practice predicted that the advertising spending related to the Beijing Olympic Games was expected to double in 2008, and that this growth would be visible across all media delivery platforms, including print, radio and television. Group M, the largest media advertising-buying agency under the WPP Group, made an even bolder prediction, of 29 percent growth in advertising spend in 2008. In addition, CTR expected the 2008 Beijing Olympics to drive the growth of advertising spending until 2009.
On the other hand, more than 160 million Chinese people had access to first hand news of the Olympic Games from the Internet. According to statistics of the Internet traffic monitor company, the Alexa Institution, during the period of the Olympics, the flow of the internet traffic of the four major Chinese Internet portals more than doubled, or even increased more than tenfold. The Tencent net daily average flow of traffic broke one trillion, and in order of magnitude, and those which hit the most Internet traffic, it ranked first of the four major portal sites, followed by Sina, Netease and Sohu, the Olympic sponsors (China Economic Weekly, 2008).
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Table 4-15: China’s Top 10 Advertising Agency Ranking by Revenue: 2003-2006 Unit: RMB Thousand
2003 2004 2005 2006
Company
(Ranking)
Beijing Dentsu 3,900(1) 5,000(1) 5,700(1) 7,100(1) Saatchi & Saatchi Great Wall 3,500(2) 4,100(2) 4,300(3) 4,800(3) Tom Outdoor Media Group 1,600(6) 3,900(3)
Jiangsu Dahe International 2,400(5) 3,100(4) 4,700(2) 5,300(2) McCann Erickson
Guangming 2,600(4) 2,700(5)
Jiangsu Post Advertising 2,900(3) 2,700(6)
Dalian Tiange Media 2,600(7)
Shanghai Advertising 900(9) 2,600(8) 3,500(4) 3,700(5)
Top Result 1,200(7) 2,400(9)
Shanghai Art Design 1,200(8) 2,200(10)
Leo Burnet Advertising 4,300(4)
Lintas (Lever Int’ Advertising
Service) 2,800(6)
Framedia 2,700(7)
J.Walter Thompson-Bridge
Advertising, Shanghai 2,700(8)
Beijing Samsung Advertising
Co., Ltd 2,300(9)
Beijing Future Advertising
Agency 2,100(8) 2,200(10)
Source: Dentsu Annual Report (2004-2007)
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4.7.1 Sponsors, Partners and Exclusive Suppliers of Beijing Olympics
The Beijing Olympic Games had 12 worldwide partners, including the domestic personal computer enterprise, Lenovo Group, and another 11 domestic partners, 10 sponsors, including the Taiwanese company, Uni-President, and 15 exclusive suppliers (Table 4-17). Although the Chinese Government took action to protect the rights of the Olympic sponsors, 17 as a result of not understanding the Olympic-related rules, many domestic commercial suppliers produced Olympic-linked advertising and infringing goods, which were illegal and went against the Olympic intellectual property rights, especially in terms of outdoor advertising. The Beijing Industrial and Commercial Sector increased the intensity, and supervised a total of 142,576 incidents of infringing content advertisement, including the cleaning up of 2,020 infringing outdoor advertisements.
17 Chinese government released “Regulations on Protection of Olympic Symbols” on 1st Apr. 2002 for the purposes of strengthening the protection of Olympic Symbols, protecting the lawful rights and interests of the owners of the Olympic Symbols, and ensuring the dignity of the Olympic Movement.
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Table 4-16: Sponsors, Partners and Exclusive Suppliers to the Beijing Olympics Sponsors Companies
Worldwide Partners
Partners
Sponsors
Exclusive Suppliers
Source:Official Website of the Beijing 2008 Olympic Games, http://en.beijing2008.cn/
4.7.2 Advertising Spending During the Olympics Period
In August 2008, although sponsored advertising grew by 40%, advertising spending grew only by 7% in comparison with China’s advertising spending, which grew by an average of 19% in the seven months leading up to the Olympic Games. According to
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Nielsen, many advertisers suspended advertising in August, causing the overall advertising spending to tumble to level in May 2008, when the Sichuan earthquake hit and advertising was suspended for three days (Nielson Wired, 2008). The fall in advertising spending in Aug 2008 may have been caused by so-called “ambush marketing (hidden marketing).” Although Chinese officials protected sponsors from been “ambushed” by infringing advertisements, this was widely recognized as “a waste of money” by many marketers, and the Olympic organizers removed many billboards around the sites of the Games (Pfanner, 2008).
4.7.3 Winners of Olympic Advertising
The “Economic blue book, 2008”, published by the Chinese Academy of Social Sciences in 2007, forecast that the Beijing Olympic Games would accelerate the development of the economy and cause the beginning of a period of breaking out, and continue to increase investment in leading roles. It was estimated that the Beijing Olympics would bring in US$16 million of direct revenue, that the marketing revenue would be more than US$2 billion, and that the Beijing Olympic Games would be far better than the Sydney and Athens Olympics. The Beijing Olympic Organizing Committee estimated the profits from the exclusive coverage of TV broadcasting would reach US$833 million. China’s Audit Office published financial accounts of the Beijing Olympic Games in June 2009 which showed that the Olympic venues would produce 20.5 billion, expenditure of 19.343 billion, and the balance would be more than RMB 1 billion. Both Chinese and foreign TV companies would profit simultaneously from the extraordinary revenue from the Olympic Games. According to the CCTV rating survey in 2008, the revenue of CCTV Olympic Games’
broadcasting was estimated at RMB 2 billion. Moreover, the National Broadcasting Company (NBC), which had exclusive coverage of the Beijing Olympics in the
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United States, produced 3600 hours of Olympic programming on television, cable channels and on-line player, which brought more than US$900 million of revenue (China Review News, 2008). In China, CCTV caught the attention of most people, and with a ratio 52.19%, CCTV captured half of the national ratings. From the August 8th Olympics opening ceremony to the 24th closing ceremony, CCTV’s Olympics reports attracted a 1.12 billion audience to watch the Games. The opening ceremony attracted more than 800 million viewers, which broke the record of 300 million for the New Year’s Eve Evening Show (Wenweipo, 2008).
Just as important as TV, the overall number of internet users on the day of the Olympic Games opening ceremony reached 161 million people, which revealed the potential of internet communication. Research by AC Nielsen points out that the Internet and television had both become the most important media for users to access information about the Olympic Games (XinhwaNet, 2008). 18
4.8 Summary
Ever since the advertising market was first developed in China, media has dominated the market and the legislative restriction on operating media in China means that, although foreign investors may never be able to operate in the business of the media, foreign advertising agencies are performing well in China’s advertising market with revenue shares increasing year by year. The top advertising companies in China are mainly foreign companies, and this demonstrates that foreign transnational companies are playing an important role in China’s advertising market.
18 PPS.TV, the most popular online television service simultaneously broadcast all of the 2008 Olympic Games which, it is estimated, attracted 100 million Olympic online viewers in China.
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As a result of competition and progress under the 30 years of the prosperous development of the advertising market in China, although TV, especially CCTV, obtained most of the advantages of the market, the Internet caught up and played a relatively important role during the Olympic Games. TV and the Internet have both been considered to be the most important media for users to access information of important events. Thus, the potential of the Internet cannot be ignored.
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C hapter 5 Perspective of China’s Advertising Market
As mentioned in Chapter 2, a survey indicated that the media advertising of twelve Asia-Pacific region countries rose to US$83.5 billion in 2006, mainly driven by three big countries, China, India and Indonesia. The boom of China’s advertising growth is surprising, sharing more than half of the region’s total amount. From another perspective, without China’s advertising boom, the growth of the whole region would have fallen from 15% growth rate to 5% in 2006. Compared with the other nations in the region, Hong Kong experienced 8% of the high growth rate, and the remaining nations, such as Thailand, Malaysia and the Philippines all grew by 4%. Australia, and South Korea both grew by 2%, while Taiwan and New Zealand respectively declined by 3% and 2% (Nielsen Media Research, 2007), which highlights the fact that China has became the superstar of the Asia-Pacific Region.
5.1 Online Advertising Attracts Advertisers
There has been a great many opposing views about the impact the global financial crisis will have on China. On one hand, it is believed that many large companies will reduce their advertising spending, including the Internet, due to the slowdown of the economy. On the other hand, some point out that the financial crisis will drive online consuming, with a concomitant increase in online advertising. In 2008, more and more companies are showing an interest in online advertising in China, which is much cheaper and more effective than advertising on TV and newspapers, since TV advertising fees have increased and newspaper circulation figures are falling.
Although the global economic downturn affected the GDP growth rate of China, in
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the sphere of the Internet at least, there is still optimism about the development of the advertising business. In fact, China’s online advertising market revenue continued to increase by 70% year-on-year in the first two quarters of 2008, since the financial crisis drove people to seek entertainment, an ideal choice of which is free music and games. On October 10th, Analysis International reported on China’s online advertising industry, which gave a positive outlook to the market, and Optimedia China predicted that the volume of China’s advertising market would reach RMB 19 billion (US$2.78 billion) by the end of 2008 (Chen, 2008).
As early as the initial stage of the financial turmoil, one of the world’s Internet giants, Google, launched a series of similar activities to attract advertisers in China, which helped to boost the company’s Chinese branch revenues by RMB 973 million in the first three quarters of 2008, with a market share which increased from 23.4% in 2007 to 26.9%. Although some start-up Internet companies are closing down due to a lack of foreign investments, the impact of the global financial crisis on the Internet industry is much less than estimated (China Daily, 2009). Since the second half of 2008, due to the financial turmoil, China’s exports declined rapidly, and many domestic companies turned to the Internet to expand the domestic market.
Simultaneously, because it is cheap and convenient, purchasing goods on the Internet is more and more popular in China nowadays, and the revenue from web buying is expected to reach RMB 126.3 billion in 2009. In the previous year, the total revenue of Asia’s largest network of retailers, Taobao, reached RMB 99.96 billion, which was a growth of RMB 43.3 billion, an increase of 131% compared with 2007 (Xinhua Net, 2009).
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5.2 Children are the Future Market
China is the most densely populated country in the world with 1.3 billion people, including 325 million children, 110 million of which live in urban cities, and more than 200 million live in rural areas. This is the largest population of children in the world. According to the fifth census statistical bulletin issued by Chinese officials in 2000, the average family monthly consumption for 0-3 year-old infants was about RMB 900, and the annual baby and children’s supplies market in China was estimated to be more than RMB 100 billion (China Milk Powder Market, 2008). Moreover, China is facing a new stage in its baby boom. In 2006, AC Nielsen observed that the largest number of newly-weds in China led to an increased birth rate the following year. Since the mid 1980s, due to the “one child” policy, the birth rate in China was sustained at 0.18%, but the boom of newly-weds increased the birth rate to 0.21% in 2006 and 2007, which was almost a 9% growth compared with 2005. 19 According to statistics issued by the China Investment Advisory Network, in 2005 and 2006, the amount spent on children’s clothing in major shopping malls in China increased over the previous year by 15.50% and 11.63% respectively. Moreover, the CIAN predicts that the number of new born babies will double and the growth of China’s birth rate will peak at 15% in 2010 and will be maintained in consecutive years. Another study by McNeal and Yeh estimates that Chinese children influence 68% of household purchases, 23% higher than households in the US. Another study by McNeal and Zang in 2000 indicates that children largely exert a direct influence on family purchases of US$60 billion per year, and combined with their indirect influence, this has been approximated at US$125 billion, and that children’s influence on household spending will grow commensurately (Chan and James, 2008). This data shows that a
19 Although Chinese government statistics show that the average family birth rate is currently 1.8 compared to 5.8 in the early 1970s, population experts are predicting a mini-baby boom before 2010.
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focus on children will be the major future strategy of the advertising market in China.
Table 5-1: New Product Information Images of Chinese Children Source TV Parents Store
visits Friends Newspapers RadioOutdoor
Advertisings Magazines
Ranking 1 2 3 4 5 6 7 8
Percentage 77% 47.7% 41.3% 39.6% 33.8% 25.2% 14.2% 12.2%
Note: Multiple Choices of Different Media Source: Kara and James (2004)
5.3 Trend of Growth in the Advertising Market
According to a forecast by the Center for Studies of Media Development of Wuhan University, based on a yearly growth rate of 14.2%, advertising revenue is estimated to reach RMB 267.5 billion in 2010, and RMB 519.6 billion in 2015, three times more than in 2006.
Table 5-2: Advertising Revenue Forecasts Based on 14.2% GDP Growth Rate
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Advertising
Revenue (RMB Billion)
157.3 176.9 205.1 234.2 267.5 305.5 348.9 398.4 455.0 519.6
Source: Chang (2007)
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Table 5-3: Advertising Revenue Forecasts Based on 9.5% GDP Growth Rate
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 GDP
(RMB Trillion)
20.94 22.93 25.10 27.49 30.10 32.96 36.09 39.52 43.28 47.39
Advertising Revenue (RMB Billion)
167.5 183.4 200.8 219.9 240.8 263.7 288.7 316.2 346.2 379.1
Source: Chang (2007)
On the other hand, according to estimates based on an average 9.5% growth rate of GDP, the advertising revenue of 0.8% share of the GDP, China’s GDP will reach RMB 30 trillion in 2010, and its advertising revenue will increase to RMB 240 billion, 379 billion in 2015, 17% less than the estimate based on the average growth rate of advertising revenue. Moreover, the annual auction for prime-time advertising slots on CCTV in 2009 has hit a record RMB 9.26 billion. The auction jumped 15.4%, and the largest buyer, Procter & Gamble (P&G), was estimated to have spent roughly RMB 515 million, up 6% from last year (Normandy, 2008). 20
In order to overcome the impact of the financial crisis of 2008, China plans to invest four RMB trillion to expand domestic demand, especially consumer demand, within two years for the best achievement, including investing RMB 600 billion to promote technological innovation, and RMB 850 billion to promote the medical and health
In order to overcome the impact of the financial crisis of 2008, China plans to invest four RMB trillion to expand domestic demand, especially consumer demand, within two years for the best achievement, including investing RMB 600 billion to promote technological innovation, and RMB 850 billion to promote the medical and health