A mature and dynamic advertising sector known for its creativity and innovation thrives in South Africa. The world’s leading agencies are present either directly or in association with South African firms, and the industry benefits from investors’ rising interest in emerging markets. The media monitoring and market research segment is also well-developed. While print advertising has suffered as a result of the global economic crisis and declining readership, radio, television and out-of-home formats remain strong. Digital advertising, various online schemes and advertising delivered to mobile devices are all likely to be important growth areas.
AN EVOLVING SECTOR: The South African advertising and communications industry is a growing network of leading international agencies and established homegrown firms. The Association for Communication and Advertising (ACA), the main industry body, has over 100 members, including operators of the “big four” holding firms: Omnicom’s TBWAHuntLascaris; Net#work BBDO and DDB South Africa; WPP’s Ogilvy Africa, Ogilvy South Africa and subsidiaries; Publicis South Africa and Saatchi & Saatchi South Africa; and Draftfcb South Africa, owned by Interpublic Group of Companies (IPC). Young & Rubicam Brands and JWT are also important players, while South African independents such as Volcano Advertising and the Jupiter Drawing Room are surprisingly strong contenders, given their size.
“Local creative agencies punch above their weight,” said Kanthan Pillay, CEO of youth radio station YFM and former chairman of the McCann Worldgroup South Africa. International networks also find success with their South African subsidiaries. Many global players are increasingly seeking to extend their stake and involvement in the local advertising sector.
LEADING FIGURES: When ranked by estimated revenue, Draftfcb Johannesburg topped the individual agency ranking between July 2010 and June 2011 with 15% revenue growth at R150m-200m ($18.4m-24.5m). TBWAHuntLascaris Johannesburg and Y&R South Africa were close behind with similar revenues, and Volcano’s revenue increased 14% at R100m-125m ($12.2m-15.3m). DDB South Africa, JWT Johannesburg and TBWAHuntLascaris Durban all occupied fifth place with revenues of R75m-100m ($9.2m-12.2m). Ogilvy South Africa and Draftfcb South Africa topped the ranking, both with earnings above R400m ($49m).
Leading media agencies include Omnicom’s OMD Media Direction South Africa; the MediaShop, an independent group in which IPC has a stake; a variety of offerings from WPP’s GroupM; and Starcom MediaVest Group’s Starcom South Africa. OMD is the country’s largest media agency, with annual billings of $580m and market share of roughly 18.6% in 2010. The firm reported 10% growth in billings over 2009. GroupM’s Mindshare billed $450m in 2010, representing a market share of 14.5%, while MediaShop came close behind, billing $440m with 14.1% market share. GroupM’s MEC placed fourth, with a market share of 10.1% and billings of $315m, while Aegis Group’s Carat South Africa closed out the top five, with a market share of 8.5%.
REGULATORY & INDUSTRY DEVELOPMENTS: The local advertising industry self-regulates via the Advertising Standards Authority of South Africa (ASA), a body it established and funds. Members of the ASA adhere to the Code of Advertising Practice, which aims to protect public interest and the consumer. In 2009, the ASA received 2,095 complaints, of which 20% were formally investigated. Of those, 31% of consumer complaints and 25% of competitor complaints were upheld.
The government seems set to proceed with a proposed ban on alcohol advertising, despite warnings that this could incur massive job and revenue losses in the sector. In 2011 the government mooted the ban, which would not prohibit alcohol advertising outright but would introduce stringent restrictions as part of a bid to reduce violence caused by excessive drinking. According to independent estimates, this could cost media companies up to R1.8bn ($220.3m) per year.
A study by Chris Moerdyk, an independent marketing analyst, shows that the ban would cost the South African Broadcasting Corporation (SABC) roughly R400m ($49m) per year and DS tv and e.tv some R500m ($61.2m), while radio, lifestyle magazines and newspapers would lose R900m ($110.2m). Moerdyk says that well over 2500 jobs would be lost, depriving nearly 30,000 people of an income. “The proposed regulation on alcohol advertising could quite dramatically affect our business,” Dawn Rowlands, CEO of Aegis Media South African and sub-Saharan Africa, concurred.
KEEPING TABS: Media monitoring and market research are well developed. Most companies are members of the South African Marketing Research Association (SAMRA), the voluntary industry body that enforces a code of conduct and organises regular events and training. Alongside South African players, leading international market research firms, such as Frost & Sullivan, Synovate and Nielsen, are present through local offices. In April 2011, Australia-headquartered Effective Measure replaced Nielsen as the traffic measurement partner of the Digital Media and Marketing Association (DMMA), producing audited rankings of websites according to South African and total traffic.
Advertising agencies prefer online traffic measurements – such as the DMMA/Effective Measure rankings and statistics generated by third-party trackers like Google Analytics and Alexa – over data relating to print circulation and readership. A 2007 scandal over Media24’s circulation figures, in which the company admitted that the circulation numbers of 12 of its 60 magazine titles had been falsified, eroded trust. While agency representatives admit inevitable inaccuracies in distribution figures and adjust accordingly, Media24 reported that there had been “deliberate manipulation of figures by certain individuals” and that in some case figures were inflated “by nearly 50 percent”.
The Audit Bureau of Circulations (ABC), founded by advertisers, agencies and media owners, provides the industry with print circulation figures. The South African Advertising Research Foundation (SAARF), which groups representatives from marketing, media and advertising and is financed by an industry levy, monitors ratings across media formats and commissions surveys on readership. “Media research in South Africa is strong, though there is a need to upgrade measurement of television audience figures,” Robin Parker, managing director of industry website Bizcommunity.com, told OBG.
BIG SPENDERS: After advertising expenditure stagnated in 2009, the following year saw an overall ad spend increases of 18%. The hosting of the 2010 FIFA World Cup drew attention to South Africa as advertisers followed the audience. Advertising expenditure across television, print, radio, cinema, out-of-home and video games grew by 10.4% in 2010 to R24.29bn ($3bn), after declining by 8.6% in 2009 to R22bn ($2.7bn) as the recession hit. PricewaterhouseCoopers forecasts suggest that in 2011 the sector continued to grow, albeit at a slower pace, and compound annual growth of 8% is expected through 2012 and beyond. Advertising spend is forecast to exceed R30.01bn ($3.7bn) by 2013.
Internet advertising posted the largest percentage growth, increasing by 25.5% to R483m ($59m) in 2010, up from R385m ($47m) in 2009. Although growing from a relatively small base and representing just 2% of total advertising expenditure, the 2010 increase reflects significant potential for online advertising.
“The market recognises the value of online advertising, and it has moved beyond simple products,” said Parker. “The number of digital agencies has grown rapidly, and online advertising and related media are increasingly driving campaigns. The assessment of market value in online advertising remains rudimentary, so it is likely that more money is spent online than is evident.”
LUCRATIVE NETWORK: South Africa’s internet advertising spend is forecast to increase at a compound annual rate of 33.6% to R2.1bn ($257m) through 2015. Mobile’s share is expected to grow from 10% in 2010 to 37% in 2015, edging out wired internet advertising. Wired internet advertising grew by 19.2% in 2010 to R435m ($53.2m) and is forecast to increase to R1.3bn ($159m) by 2015 at an annual compound rate of 24.5%. Sponsored search is the largest contributor to wired online advertising spend, accounting for R231m ($28.3m) of the 2010 total, with expectations that it will keep growing at a compound annual rate of 24.5% through 2015. The fastest-growing category in 2010 was display advertising, largely used on social networking sites, which increased by 20.5% compared to search’s growth of 19.7%. Currently search is 53% of wired internet advertising spend, while display and online classifieds represent 32% and 15%, respectively.
Advertising spend on mobile devices more than doubled between 2009 and 2010, rising to R48m ($5.9m). Social networking sites help drive the sector, and advertisers are attracted by the relatively low costs of mobile advertising as well as the opportunity to target a younger audience. Creative digital marketing strategies that use targeted formats and techniques are on the rise. South African companies like GraphicMail are taking advantage of the opportunity for direct engagement with the consumer, offering products like bulk SMS marketing, and short code campaigns. Companies are also succeeding with viral video campaigns, while growth in location-based advertising, which allows advertisers to target consumers in the vicinity using the GPS location data transmitted by their smartphone, is likely.
CHANNELLED GROWTH: A significant bulk of advertising expenditure goes to the broadcast segment. Television and radio represented 35.4% and 12.4% of advertising spend in 2010, respectively. Both segments had relatively strong growth in 2010 following poor performances in 2009 when advertising budgets were cut. Television ad spend increased by 14.7% in 2010 up to R8.61bn ($1.1bn) from R7.51bn ($919m) in 2009. Radio advertising expenditure grew by 13.3% from R2.67bn ($326m) in 2009 to R3.02bn ($369.5m) in 2010.
Television advertising will increase as new stations and higher viewing levels attract expenditure. The migration to digital terrestrial television (DTT) should stimulate competition in the television market, with positive effects for advertising. Radio remains ubiquitous, and there is lucrative potential for innovative advertising on community radio stations.
Decline in print circulation and migration towards online advertising have helped drive down the share of advertising spend in the print segment. Newspaper advertising spend, which still accounted for 31.4% of total advertising expenditure in 2010, grew by 7.3% to R7.64bn ($940.4m) after a significant decline in 2009.
“We need to address audiences in very different ways. We intend to produce multiple content streams for different devices, as well as retail business products,” Steve Matthewson, editor of business news website BusinessLIVE, told OBG. “We have to rethink the way we monetise content. In part, that needs to be about removing limitations. Space and platforms are increasing in number, which is important for advertisers.”
Out-of-home advertising, which includes billboards, street furniture and vehicle advertising, also offers significant opportunity for growth. It is estimated to reach 85% of the South African population, second only to radio in the percentage the population it reaches. Spending on out-of-house advertising increased by 13.8% in 2010 to R1.22bn ($149.5m), or 5% of total advertising expenditure. A 2010 assessment put the reach of store advertisements at 80% of the adult population, with advertising on trucks second at 76%. Taxi advertising is believed to reach 76% of the population, while billboards, still the largest format in terms of revenue, were estimated to reach 71% of the population.
“Out-of-home advertising can be a massive area of growth in South Africa,” said Rowlands. “Many people live in remote areas, with limited access to electricity, and reaching them can be difficult by other means.”
The biggest advertising spenders in South Africa reflect continental trends, with telecoms, food and beverage, and personal and household goods firms leading the pack. In first place with a total annual spend in 2010 of R891.7m ($109m) was Unilever, the multinational producer of consumer goods including food, beverages, cleaning and personal hygiene products. Also in the top 10 were three of South Africa’s leading telecommunications firms, Vodacom (Vodafone), MTN and Cell C; as well as Standard Bank; two supermarkets, Shoprite Checkers and Pic ‘n’ Pay; and three alcoholic beverage companies, SABM iller, Brandhouse and Distell. In total, the top 10 biggest ad spenders in South Africa paid out R5.31bn ($650m) in 2010.
BEYOND BORDERS: South African agencies are expanding their business across the continent. Ad spend in Africa is expected to rise significantly, with key clients being telecoms companies, financial services firms, and household and personal care companies. The economic slowdown in industrialised countries has helped amplify investors’ appetite for risk, while the continent’s massive consumer base is increasingly being recognised, as are its robust GDP growth rates.
Leading networks are confident of the region’s potential. Miles Young, CEO of Ogilvy & Mather, stated in April 2010 that “sub-Saharan Africa is one of the last great frontiers in global communications – and … one of the most fertile”. Young was speaking at the time of a deal between Ogilvy & Mather and Scangroup, an East African marketing services company, to create Ogilvy Africa, a pan-African joint venture designed to build on Ogilvy South Africa’s efforts to develop a communications network across the continent.
Firms like OMD South Africa are working with its sister operation Omnicom Media Group Africa to capture pan-African business. In February 2012, South African agency The Jupiter Drawing Room (TJDR) announced a new partnership with a Zimbabwean agency Jericho to facilitate TJDR’s expansion into the country.
Media executives in South Africa see potential for the advertising industry to benefit from continental expansion. “It’s vital that we don’t hesitate about moving into these spaces and we must be proactive in our approach; there is so much opportunity,” Rowlands said.
OUTLOOK: The advertising and marketing industry is well-established, but fast technological developments and a restructuring away from traditional media offer ample opportunity for innovation and growth. Online advertising, and in particular advertising targeting mobile devices, holds significant potential, while traditional formats will continue to play an important role and perform well in a promising economic climate.
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