China’s Advertising Market Entering a Transition Period

With China’s economy slowing down, net advertising revenue growth dropped from 16 percent in 2014 to 7 percent in 2015. Reaching just 375.2 billion Chinese yuan ($64.1 billion), the industry saw a single-digit growth for the first time since 2010, according to IHS Inc.

While the industry begins to recover from the beginning of this year, growth will stay between 9 percent and 12 percent from 2016 to 2020, reaching a net advertising revenue of 639.6 billion yuan in 2020, according to the IHS Advertising report. The net advertising revenue is generally contributed by media owners in the fields of TV, radio, online, print and out-of-home advertising, with the deduction of agency commissions and production costs.

The sluggish economy and an anti-corruption campaign (it greatly reduced liquor ads and set tight advertising regulations for pharmaceutical products) have led to a drop in advertising revenue this year. Still, the Chinese advertising market, which has reached the size of many mature markets, will continue to grow at rates seen in emerging markets.

Online advertising was the largest contributor to China’s total ad revenue in 2015, accounting for nearly half (49 percent) of total net advertising revenue. TV commercials made up 30 percent. Print ads continued to lose share with no sign of recovery, constituting just 8 percent of all advertising revenue. Suffering from the continued rise of online advertising, broadcasters in China have been struggling to adapt to the changes in the media landscape.

eMarketer predicts China's digital ad spend will reach $40.42 billion in 2016—a 30% increase from last year’s spend. eMarketer expects this number will at least be doubled to reach $83.59 billion by 2020.

China’s shift from traditional media to digital media is also reflected in the declining spend on TV and print. In 2016, TV spend will account for 24.2% of total media ad spending, namely $18.92 billion. That’s less than half of the digital’s share. Meanwhile, print spend will account for just 7.0% of media spend, namely $5.50 billion.

As the media habits of Chinese consumers increasingly shift towards mobile, mobile video in particular is expected to be a significant growth area and will take 55.0% of all digital video spend, namely $3.09 billion, in 2016. By 2020, mobile video will account for 73.0% of all digital video ad spend in China, which means to spend about $9.15 billion.

Baidu, Alibaba and Tencent will together occupy 72.8% of China’s mobile internet ad market in 2016. eMarketer predicts that Alibaba will continue to claim the largest share of mobile internet ad revenue in China, taking $9.16 billion in 2016.

Although China has begun to realize the importance of media, entertainment and other parts of its cultural industry, the government is still conducting tight media policy. Recent initiatives to ban original online content show that the Chinese government is tightening control of television broadcasting and the Internet ads, which may have a negative effect on advertising revenue.