Interactive ad revenue figures have been steadily heading upwards over the past few years in New Zealand and in the latest round of figures, the sector hit its highest ever level, with total advertising spend in Q3, 2012 of $94 million, an increase of three percent from the last quarter and an increase of five percent year-on-year. But, as you'd expect in such a rapidly developing industry, there are still a few issues to contend with, including a fall in display advertising, the use of ad blocking software and discussions around the appropriate methodology for collecting revenue data.
After the last quarter's figures were announced, OMD's managing director Chris Riley said many clients were placing ads on sites that weren't represented in New Zealand or through demand side platforms like Brandscreen and he estimated that as much as 20 percent of online ad revenue could be slipping through the cracks as a result. Another issue is the fact that Google and Facebook don't hand over their figures. Laura Maxwell Hansen, IABNZ chair and general manager of Yahoo! New Zealand, says agencies provide the IAB with Facebook data and some revenue from the Google Display network is also provided, but it has to use an estimation methodology to figure out search revenue (we asked Google's ANZ public affairs manager Henning Dorstewitz why that was the case and he responded with "we don't break revenue down out on a country level. This is a worldwide policy").
She admits that underestimating the sector's ad revenue is a good problem to have and it shows that advertisers are following audiences and have plenty of confidence in the online realm, but she says "I think we need to be clear about what's being counted" and ensure the data is accurate and useful, which is why online video and mobile revenue have recently been added to the report.
"No methodology is perfect ... We need to ensure there's no double counting. It sounds like an easy fix. And we are getting support from the agencies. We're also talking to them about what they'd like to see that they're not seeing now. My biggest motivation is to ensure this report we're putting out is useful for people to plan their businesses."
One issue that the local industry doesn't seem to have discussed too much is the increasing popularity of ad blockers, with a recent article in The Economist saying that "nine percent of all online page views come from browsers that have ad blocking software". With many publishers using an advertising funded model and advertisers paying for those eyeballs, being able to circumvent this creates an obvious problem for both parties. And with plenty of users doing whatever they can to avoid ads, the Economist says this seems to be speeding up the implementation of pay walls for some publishers (on a related note, she says the IAB is in the process of launching a channel to promote "informed consumer choice" that discusses the role of tracking, targeting and ad relevance and discusses ways consumers can opt out if they wish).
Maxwell-Hansen doesn't have any figures for the use of ad blocking software in New Zealand, but, as a publisher, she says it's part of a wider global discussion about content distribution—and what model works best.
What happens to content distribution in the next few years will be very interesting, she says, and, akin to ad blocking software, she says many users are now learning how to access geo-protected content, so she believes many content owners may find the power they once held diminishing.
These issues aside, the worm is still heading upwards. Total online advertising spend to date for 2012 is $265 million, which represents 81 percent of the overall 2011 spend of $328 million, and surpasses the total 2010 spend of $257 million. It's close to doubling total revenue since 2009.
“A recent article by the Australian Financial Review stated 'flat is the new normal' for ad spend [compared to five percent year on year rise for the teacher's pet, which overtook radio last year, annual TV advertising revenue for the 12 months to 30 June was $625 million, up two percent on the previous 12 month period, despite a host of eulogies being written for the medium]. However, interactive advertising continues to show its resilience with growth coming from direct response channels such as search and directories, and high engagement platforms like online video," says Alisa Higgins, general manager, IAB New Zealand.
Maxwell-Hansen says there was a marked hesitance to predict growth on the back of Q3 2011, with the Rugby World Cup having such a positive and unique impact. But she says the growth is good news for publishers. Once again, search, directories and classified advertising were leading the charge, with classified advertising continuing its double-digit year-on-year growth for five consecutive quarters (the founder of Business Insider Henry Blodget puts it well in this series of pretty phenomenal slides about modern business and media consumption when he says Google is like advertising at a shop, Facebook is like advertising at a party).
"It shows advertisers have the confidence in online, that they know they can reach their audiences and at scale," Maxwell-Hansen says. "With sophisticated consumers and a purchase cycle that is no longer linear, marketers who understand the strengths and capabilities of the different online channels alone and in combination will deliver results that knock it out of the ball park."
But in what could be seen as a concern for the traditional publishers, display ad revenue dropped in Q3. PwC partner Chris Peree says this could be attributed to a few factors, such as the holding back of spend in preparation for the Christmas season. But he's expecting the spend in Q4 to "demonstrate the expected growth in the industry".
Of the big spenders in display, automotive slipped into the top three industry sectors, knocking investment, finance and banking into fourth place (the top four represented 43 percent of all display spend), although with the recent surge in bank activity, its bronze medal position could be shortlived when the next figures are released.
- Travel and Accommodation (12%)
- Government departments, Services and Communities (11%)
- Automotive (10%)
- Investment, Finance and Banking (10%)
Elsewhere, year-on-year online video advertising spend increased 23 percent, despite a marginal decrease in video advertising revenue from Q2, but email expenditure dropped 19 percent. Video growth follows a global trend with similar results seen in the US, UK, and Australia.
"With growing audiences and the increased consumption of online video content, this trend is expected to continue as advertisers follow consumers," says John-Paul Randall, digital media sales manager at TVNZ and IABNZ vice-chair. "Additionally, advertisers are taking the opportunity to elicit audience interaction with more video advertising creativity being tailored for the online viewing experience."
Mobile advertising spend was up 157 percent year-on-year to $700,000, but that's coming from a low base. That growth looks set to continue, however, and, according to a recent Frost and Sullivan report, money spent advertising on mobile devices is forecast to grow by 46 percent year on year over the next five years in Australia, eclipsing online video advertising to become the fastest growing form of digital ad spend. Derek Handley's company Snakk Media, which grew 345 percent last year and is listing on the New Zealand Alternative Stock Exchange, plans to align its growth along with the market, which analysts predict to reach $AU177 million by 2017, up from just $15 million last year.
"New players and the changing dynamics of the market provides ongoing opportunity for growth. The increasing popularity of smartphones and tablets is providing advertisers’ with greater opportunities to reach out to consumers. The use of social media and mobile platforms to communicate and engage with consumers is a key driver of growth in the online advertising market.” Chris Perree, Partner, PwC.