Start-ups urged to follow “global leakage” of ad spend to social media

Start-ups are being advised to redirect their advertising spend from traditional media platforms to social networks, which are tipped to make up a third of the local advertising market by 2020.

According to a “global leakage” report by Morgan Stanley, Facebook and other global digital media players will make up 33% of the Australian advertising market in the next eight years.

Facebook is forecast to grow North American advertising revenues from $US2 billion to $US6 billion, increasing Facebook’s share of total US advertising spend from 1.1% to 3.1%.

“Hypothetically, if Facebook were to achieve the same ad market share in Australia, it would extract ad revenue of $400m-$600m from this market by 2017,” the report said.

“In 2011 we estimate global media players – such as Google, Facebook, LinkedIn – collectively extracted $1.7 billion or about 13% of the total pool of Australian ad spend worth $13 billion.”

“The key point is these ad dollars, which are all internet/digital based, are growing at a much faster rate.”

“So by 2020, we estimate, now factoring in Facebook, global media players will extract $5.7 billion or 33% of the total $16.7 billion ad spend pool.”

Morgan Stanley estimates 44% of the Australian population is already on social media. This puts Australia fourth behind the United States, Canada and, surprisingly, South Korea.

“Where consumers go… we know surely businesses/corporates and advertising dollars will follow,” the report said.

“It is interesting to note that Australian businesses have significantly increased their own social media presence over the last 12 months.”

Facebook appears to be the most popular social network amongst Australian businesses with a presence on social media (82%), while Twitter is also popular (71%).

Others mentioned include LinkedIn, Google+, YouTube and blogs.

“Importantly, users of social media in Australia have been found to be mostly either oblivious to advertising or happy to see ads and other offers on their social media sites,” the report said.

“In fact, 44% enjoyed seeing ads on social networks, while 29% reported clicking on social ads to find out more about the products being promoted.”

According to Morgan Stanley, every dollar spent on social networks will eventually be reallocated from other media platforms, suggesting start-ups should make the transition now.

“In Australia we believe newspapers/magazines are most challenged and will continue to lose share, but we also consider TV and radio will be losers; they are not immune,” it said.

“Facebook is not a substitute for Seven, Nine and Ten, but it is an alternative and more choice for building brands lessens the traditional strong pricing power of TV in our view.

The report offers a snapshot of each major advertising platform:

Television advertising spend is forecast to increase by 3% per annum to 2020, based on steady media consumption/usage.

Newspaper advertising spend is tipped to decrease sharply by 4-5% per annum to 2020, based on continuing declines in readership and circulation, and falling consumer usage.

Magazines are forecast to decline by 5-6% per annum to 2020, based on even sharper observable declines in readership and circulation.

Radio advertising spend is tipped to experience modest positive growth of 2-3% for the next three years, then declines of 1-2% in later years.
“We expect internet streaming players such as Spotify and Pandora will have a negative impact on broadcast radio’s growth,” the report said.