Saturday August 18, 2012
Is the advertising industry worth RM15bil a year?
By Harmandar Singh
AFTER reading last week in this paper that the hairdressing business in Malaysia is a RM10bil annual industry, I started wondering how much really is the advertising industry worth.
Since value is like beauty in the eye of the beholder, I decided to ignore brand value accrued from investment in advertising and stick to tracking which has become a barometer of sorts for the industry. Which brought me to three major areas of consumption of our services as it were: advertising media expenditure, professional fees and production. These three basic pillars could form a picture of where we stand in terms of GDP even though I qualify it is a conservative estimate or guess-timate.
Market research company Nielsen tells us advertising media expenditure (adex) recorded a healthy growth of 12% for 2011 and is expected to breach the
RM12bil mark in 2012.
Prashant Kumar, president of Asia World Markets for IPG MediaBrands, says: “It's useful to put a discount factor on captured spending figures as these figures can be highly inflated due to the difference between rate card and negotiated rates. What this discount factor should be however remains a bone of contention as deals differ widely across advertisers and across mediums.”
Ranganathan Somanathan, president of the Media Specialists Association (MDA), reflects: “At the end of the day, data is data; what one makes of it is based on the agenda of the user of data. Many Digital publishers are compliant to global stock market advisories and might not be allowed by their head offices to reveal local market revenues.
This is evidenced by the lack of participation by the likes of Google and Facebook in our Malaysian Digital Association driven measurement.”
So since most media spending figures are based on rate card prices, and with rampant undercutting, volume discounts and bonus spots, I'd hazard a guess to say 65% of Nielsen's figures are on the mark. Which means the advertising business will chalk up around RM8 billion in media revenue this year. Now add what Nielsen does not record in totality outdoor, digital.
A calculated guess based on asking around key industry players there's probably half billion floating out there that is not captured for these two categories. So we arrive at RM8.5bil.
Newly-minted CEO of Carat Media, Bala Pomaleh, had an interesting approach: “By tracking the company reports for leading media layers in the market, over one calendar year, we found actual media revenues were lower than adex figures. Media Prima, however, showed double over adex, probably because they factored revenue from production while print owners don't have that option.”
With RM8.5bil in hand, let's assume advertising production services (namely print, out-of-home and film) account for 20% of media spend which makes up for another billion, so now we are almost at RM10bil.
Finally, let's look at professional fees, the staple diet of creative agencies these days. This is like guessing how long is a ball of string. So let's take it from the overheads perspective. Salaries remain the major cost for any creative agency.
A competitive agency will need about RM1mil a year to pay staff in order to be a player in the market. But hey, salary surveys show that creative directors at agencies make more than marketing directors. So how do we cut this? Say there are 300 “worthwhile” agencies in the marketplace. I'd say professional fees would be a little over RM1bil a year.
So with a total of RM11bil, if we now factor other advertising-related income from activities like PR, customer relationship management (CRM), direct marketing, events are added into this pie, we could become a RM15bil a year industry right? Which makes us bigger than the hairdressing industry!
Bala concludes: “Many clients are moving towards Events, CRM, PR and other below-the-line activities, some spending close to half of their budgets in these spaces. We did a study on the relationship between adex, GDP and FBM KLCI index some time back and according to the model, if GDP drops by 1%, adex contracts by 2.44%. When KLCI increases by 3%, adex goes up by 1%.”
This week's article is meant to stimulate debate and discussion. This is a thought-starter and hopefully we can arrive at an accurate figure from collective wisdom. I welcome input from learned readers at email@example.com
Harmandar Singh aka Ham is president of the International Advertising Association (IAA), Malaysia which is part of a network of 4,000 members across 76 countries.