CHINA MARKET PROFILE JULY 2020 AUTHORS: LUKE STILLMAN, UM CHINA EDITOR: VINCENT LETANG CONTACT: [email protected] Key Findings Overview Economy TV Digital Print Radio OOH MAGNA ABOUT THIS DOCUMENT • The 2020 China Report was written by MAGNA Intelligence in July, 2020 in collaboration with UM China. • To check for more recent updates, please visit the reports section of our website atlas.magnaglobal.com. • This main purpose of this MAGNA report is both to provide an introduction to and overview of the Chinese media market organized by media category (Digital, Television, etc.) as well as to consolidate the most recent MAGNA findings regarding China. • Access to this report and other MAGNA research is restricted to Mediabrands employees and MAGNA subscribers. • Questions? [email protected] Key Findings Overview Economy TV Digital Print Radio OOH MAGNA EXECUTIVE SUMMARY – KEY FINDINGS (1/2) CHINESE GROWTH RELATIVELY STRONG, BUT STILL IMPACTED BY COVID 1. Chinese media owners’ net advertising revenues (NAR) 3. The COVID crisis will hit all markets, and while China’s will decrease by -6.0% in 2020*, following +8.4% growth economy will remain relatively strong. Chinese GDP is in 2019. expected to grow by +1% this year, the only large market still seeing positive growth. However, China’s advertising 2. This increase will bring the total Chinese market to RMB economy will still suffer. It is typical in recessions for 518bn ($75bn).This makes China comfortably the second advertising spending growth to underperform economic largest market globally, although still significantly behind growth. the US. Chinese Advertising Spending Growth 12.0% 9.6% 8.4% 6.8% 3.5% 3.4% 3.4% 2017 2018 2019 2020 2021 2022 2023 2024 -6.0% 3 / *Source: MAGNA Global Advertising Spending Forecasts (June 2020) (next update: December 2020) Key Findings Overview Economy TV Digital Print Radio OOH MAGNA EXECUTIVE SUMMARY – KEY FINDINGS (2/2) DIGITAL STABLE WHILE LINEAR ADVERTISING TO COLLAPSE DUE TO COVID 4. In China, like in most markets, growth is driven by digital 6. Video and Social ad formats will experience +4% and media formats. In the weak COVID environment, digital +17% growth in 2020 respectively to reach RMB 61bn advertising spending will remain flat (-0.2%) in 2020. ($9bn) and RMB 59bn ($9bn) respectively. The This will result in a digital spend total of RMB 357bn dominance of large multi-product walled gardens in China ($52bn) in 2020, which alone is larger than every other (Baidu, Alibaba, Tencent, etc.) is just as strong as the market globally with the exception of the US. Duopoly in most other markets. 5. Search advertising has one of the highest digital shares 7. Television advertising revenues will shrink by -14% in globally in China, representing nearly 60% of total digital 2020. Television was stagnant for years, but last year advertising budgets. This is because there isn’t only a started to significantly deteriorate in ad spending terms. robust traditional search engine economy in China (with This deterioration was significantly accelerated by the Baidu leading the way), but also a significant amount of COVID downturn. Sales houses continue to be able to non-core search advertising spend, such as Alibaba push through price increases but they are no longer Product Listing ads and advertising on JD.com. enough to offset declines in viewing (in a market where Furthermore, search advertising in China is even more there is already low overall TV viewing in minutes per mobile-centric than search advertising in most western week) even in normal market conditions. markets; mobile represents nearly 90% of total search advertising spend, and desktop spending continues to shrink. 4 / Key Findings Overview Economy TV Digital Print Radio OOH MAGNA THE UNIQUE FEATURES OF CHINESE MEDIA LOCAL BRANDS DOMINATING The Chinese media industry and advertising markets are 3. Digital media usage is heavily mobile-centric and soon- different from other large emerging markets that MAGNA is to-be mobile-only. Although a similar trend can be noticed analyzing, in several key aspects: in mature markets and many emerging countries “leapfrogging” the computer-based internet age, nowhere 1. China is one of the few countries where the supply side of is it more advanced or more radical than in China. the media market is dominated by local digital giants. While Google and Facebook are dominating digital media in 4. Television remains mostly Government-controlled, in other large emerging markets like Brazil or India, similar sharp contrast with the situation in the Western world or to how they dominate in Europe and North America, in in India for instance, where private commercial China the dominant forces are Baidu rather than Google, broadcasters now dominate ratings and ad sales. The Tencent rather than Facebook, and Alibaba rather than State ownership and tight regulation of content and Amazon. advertising may have contributed to the decline of TV viewership and the rapid rise of digital media. 2. The demand side of the ad market is also becoming self- centered. In most emerging markets, Western CPG 5. China has a layer in the TV media buying value chain that companies such as P&G, Unilever, L’Oreal, Coca Cola are exists almost nowhere else: sales houses controlling and typically the largest ad spenders. These CPG companies retailing airtime from broadcasting houses while being are also among top spenders in China but Chinese firms independent from them. This adds an unusual layer of are now dominating the top ten spenders list (although complexity to the television advertising market in China. this shift stabilized in 2019). 6. E-commerce is more dominant than almost anywhere else: it concentrates 35% of retail sales compared to less than 15% in the US and Alibaba’s Tmall controls the majority of those sales. This will only be boosted by the COVID crisis. 5 / Key Findings Overview Economy TV Digital Print Radio OOH MAGNA MEDIA LANDSCAPE OVERVIEW Key Findings Overview Economy TV Digital Print Radio OOH MAGNA MEDIA LANDSCAPE DIGITAL ADVERTISING SHARE IS AMONG THE HIGHEST GLOBALLY Ad Per Capita (USD) Advertising Media Mix 101 OOH Radio 57 62 46 Magazines 65% 52% 49% 78% Newspapers Internet WW 2019 Asia Pacific China 2019 China 2024 31% 29% 24% 15% TV 2019 WW 2019 Asia Pacific 2019 China 2019 China 2024 Ad Spend / GDP 0.60% • The share of digital advertising is the highest anywhere in developing markets and already higher than in most “developed” ad markets. By 2024 it will represent more than 3/4 of total advertising budgets. • Foreign internet companies have made very limited inroads into the Chinese market. Domestic players have secure leading positions. Facebook and Google 0.55% have significantly lower penetration than elsewhere in the developing world, taking a backseat to the Chinese internet giants of Baidu, Alibaba, and Tencent. WW 2019 China 2019 7 / Key Findings Overview Economy TV Digital Print Radio OOH MAGNA LATEST ADVERTISING FORECASTS NAR Growth by Media (%) GROWTH IMPACTED BY COVID IN 2020 0.0% NAR Size and Growth (RMB bn) TV Internet Newspapers Magazines Radio OOH Total 700 612 15% -14.0% -6.0% 600 551 -10.0% 518 10% 500 400 5% -27.0% 300 0% -34.0% 200 2019 2020 -5% -44.0% 100 -6.0% 0 -10% CPM Inflation (%) 15% 2016 2017 2018 2019 2020 2021 2022 2023 2024 Market Size Growth 10% 10% • With RMB 551 billion of net advertising revenues (NAR) in 2019 China is the 9% second largest advertising market globally. Growth will slow significantly to -6.0% in 2020 due to the COVID crisis. This is • 5% the first decline in Chinese ad spending in the past 25 years. Even in 2009, Chinese ad spending grew by +6%. 3% 2% Free TV Radio Newspapers Magazines Display Video OOH 8 / Source: MAGNA June 2020 Key Findings Overview Economy TV Digital Print Radio OOH MAGNA GLOBAL MARKETS RANKING THE SECOND LARGEST AD MARKET IN THE WORLD • China is the second largest global advertising market, and is double the #3 (Japan)’s size. It remains significantly behind the US, however, and is no longer proportionally closing the gap. Election spending in the US provides a boost to growth that is missing in China. • The Chinese market has grown so quickly that it’s now even larger than the #3 market, Japan, and the UK (the #4 market) combined. Rank 2019 $bn 2020 $bn 2024 $bn 1 United States 223 United States 214 United States 255 2 China 80 China 75 China 89 3 Japan 40 Japan 35 Japan 42 4 UK 29 UK 26 UK 31 5 Germany 26 Germany 23 Germany 26 6 France 15 Brazil () 13 India () 18 7 Brazil 13 France 12 Brazil 16 8 Canada 12 India () 12 France 14 9 Australia 12 Canada 11 Canada 13 10 India 11 Australia 11 Australia 12 9 / Source: MAGNA June 2020 Key Findings Overview Economy TV Digital Print Radio OOH MAGNA INCREMENTAL DOLLAR CONTRIBUTION 2020 ($MM) ALL LARGE MARKETS SHRINKING, ALTHOUGH CHINA IS NOT THE WORST PERFORMER United United States Japan China Germany Kingdom France Italy Mexico Spain Australia -1.0 -1.4 -1.1 -1.1 -1.9 -2.7 -2.5 -4.8 All markets will be hurt by the COVID crisis. -5.8 • China will see the third largest decline in ad spending in dollar terms. While it is a significantly larger market than Japan, its growth won’t be impacted nearly as significantly. -9.6 10 / Source: MAGNA June 2020 Key Findings Overview Economy TV Digital Print Radio OOH MAGNA CITY TIERS (1/2) CHINA IS GROWING INCREASINGLY URBANIZED Tier 1 Tier 2 Tier 3 Tier 4/5 •1st tier cities represent 2nd tier cities have •3rd tier cities •These cities represent the most developed become increasingly generally lag behind the majority of CHN’s areas of the country attractive to investors 1st and 2nd tier ones urban population and with the most affluent as well and represent in terms of economic combined income.