Online advertising to account for 50 percent of China's total advertising revenue in 2016 for the first time
With China's economy slowing, net advertising revenue growth slowed from 16 percent in 2014 to 7 percent in 2015. Reaching just 375.2 billion Chinese yuan ($64.1 billion), the industry fell to single-digit growth for the first time since 2010, according to IHS Inc. (NYSE: IHS), the leading global source of critical informational and insight.
While the industry will recover somewhat beginning this year, growth will stay between 9 percent and 12 percent from 2016 to 2020, reaching 639.6 billion yuan of net advertising revenue in 2020, according to the IHS Advertising report. Total net advertising revenue represents revenue generated by media owners from TV, radio, online, print and out-of-home advertising, after deducting agency commissions and production costs.
“Slowing economic growth, an anti-corruption campaign that greatly reduced liquor ads, and tightened advertising regulations for pharmaceutical products all contributed to a drop in advertising revenue this year,” said Qingzhen Chen, advertising analyst for IHS Technology. “Still, the Chinese advertising market, which has reached the size of many mature markets, will continue to grow at rates seen in emerging markets.”
Online advertising was the largest contributor to 2015 ad revenue in China, accounting for nearly half (49 percent) of total net advertising revenue and TV commercials made up 30 percent. Print ads continued to lose share with no sign of recovery, comprising just 8 percent of all advertising revenue.
“Suffering from the continued rise of online advertising, broadcasters in China have been struggling to adapt to the changes in the media landscape,” Chen said. “The majority of broadcasters have their own digital platforms, which include online video websites and TV apps; however, they do not operate as well as online-video hosting platforms, such as Youku Tudou, LeEco and iQiyi.”
The Chinese online ad market, which is expected to account for half of all advertising pending for the first time in 2016, is dominated by Baidu, Alibaba and Tencent. Known as BAT collectively, these three companies represented 68 percent of all net online advertising revenue in 2015, and their share will expand to 76 percent by 2020. While Alibaba has been actively involved in online advertising through acquisitions, such as online video operator Youku Tudou and newspaper publisher South China Morning Post, Baidu, which holds 80 percent of the search advertising market and owns China's second most popular online video platform iQiyi, is expected to retain its leading position as the top online advertiser at least until 2020.
“Although China has begun to realize the importance of media, entertainment and other parts of its cultural industry, the government is still heavily regulating and censoring media,” Chen said. “Recent moves to ban original online content shows that the Chinese government is tightening control of television broadcasting and the Internet, which may have an additional negative effect on advertising revenue.”
