Better days ahead in adland

The next five years should bring moderate to good growth for the advertising industry, along with further rationalisation. By JASON BAKER of IBISWorld.

By Jason Baker

The advertising services industry in Australia has seen mixed results during the past five years. However growth is expected in the coming years.

Advertising agencies are sensitive to economic conditions, especially changes in retail sales, as well as on cars, houses and travel.

In the three years to 2003, the industry suffered declines in revenue, in part because of the events of September 11 in the U.S. The switch from main media advertising to more direct advertising and including outdoor advertising also contributed to the fall. Some big companies reduced their advertising budgets.

In 2004, the industry started to recover thanks to stronger economic growth, both in Australia and internationally, reduced geopolitical tensions and increased business and consumer confidence that all flowed through into increased retail and other sales and budgets for advertising and promotion.

The coming five years, to 2011-12, look promising for the industry, with moderate to good revenue growth. Over the five years to 2011-12, industry revenue is expected by IBISWorld to increase at an average annual real rate of 3.4%.

The forecast continuing improving economic growth from 2008-09 onwards, apart from 2009-10, is expected to lead to stronger industry revenue and employment growth, although profits will continue to be squeezed by fixed fee advertising contracts with clients.

There has been a trend toward advertisers searching for specialists in each area of service, which has provided some growth for the small and newer niche/specialist agencies against the high overhead, long established agencies. Small and newly established creative agencies, with people formerly from the larger agencies, are actively competing and winning some accounts against the larger and more established ones.

Some of these smaller agencies can now guarantee that senior people will be assigned and actually work on clients’ accounts and are more responsive to their clients’ needs.

There is also continuing to be some dissatisfaction with the larger agencies among some clients. Due to all of the above factors further significant rationalisation of this industry is expected to continue over the outlook period.

Industry consolidation is expected to continue, partly related to increasing mergers of major companies internationally, but also due to local conditions, as companies seek out further revenue growth. Also the Australia-US Free Trade Agreement and the relaxation of some direct investment conditions, may lead to increasing investment/acquisitions by American agencies in the local industry.

So for enterprises in this industry that manage to survive a period of consolidation, gains are there to be had, and as the economy grows it may just disprove the saying, “in good times business people want to advertise. In bad times they have to.”

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au