FACEBOOK and other global digital media players will corner 33 per cent of the Australian advertising market by 2017, leaving domestic companies to compete over a smaller available advertising pool, a report finds.
Morgan Stanley has warned that investors "may be underestimating the implications of the leakage of ad spending out of Australia" saying the shift is escalating as "ad spend moves to online and to mobile".
Basing its new figures on analysis suggesting that if Facebook achieved the same market share in Australia that it is forecast to earn in the US, it would attract $400-$600 million in Australian advertising by 2017 double Morgan Stanley's original expectations.
"Our thesis is the addressable market for domestic media companies is not growing, is not steady but is actually shrinking," the report says.
By 2020, the dominant global new media players Google, LinkedIn and Facebook will attract a third of an estimated $16.7 billion local advertising market, Morgan Stanley forecasts.
"In Australia we estimate the advertising revenue number generated by social networks was much smaller [than in the US] $A50 million in 2011, but . . . growing fast . . . With 44 per cent of the Australian population estimated to be on social media in 2012, Australia ranks as the fourth highest worldwide behind the US, Canada and South Korea, but ahead of the UK, Russia and Spain," the report says.
"And where consumers go . . . we know surely businesses/corporates and advertising dollars will follow."
However, the report comes amid debate in the US over the effectiveness of Facebook advertising. "Advertisers need more proof that actual advertising on Facebook offers a return on investment," said market researcher Debra Aho Williamson. "There is such disagreement over whether Facebook is the next big thing on the internet or whether it's going to fail miserably."
Manuel Henriquez, chief executive of venture capital firm Hercules, said Facebook's quarterly earnings report to be issued on Thursday would be a key test. "If they can show effectively their ability to monetise domestic subscribers at an increasing rate, they'll have a lot of legitimacy."
The Morgan Stanley report also argues that newspapers and magazines are likely to lose the most market share, although radio and television also face a decline.
Traditional local media stocks are down on average more than 20 per cent this year, with Seven West Media the worst performer, halving since the start of the year, followed by Ten shares, which have fallen by more than a third, and Fairfax Media, which has dropped more than 23 per cent.
Frequently Asked Questions about this Article…
How much of the Australian advertising market will global digital players like Facebook capture by 2017?
Morgan Stanley estimates global digital media players (including Facebook) will corner about 33% of the Australian advertising market by 2017. The report also suggests Facebook alone could attract between $400 million and $600 million in Australian advertising by 2017 if it achieved US-like market share.
What does 'ad spend leakage' mean for Australian advertisers and investors?
The report warns of 'ad spend leakage' — advertising dollars moving out of traditional Australian channels into global online and mobile platforms. Morgan Stanley says investors may be underestimating how this shift will reduce the addressable market for domestic media companies.
Which global companies are forecast to dominate local ad revenue by 2020?
Morgan Stanley forecasts that by 2020 dominant global new media players — specifically Google, LinkedIn and Facebook — will together attract about one-third of an estimated $16.7 billion Australian local advertising market.
How will the shift to online and mobile advertising affect traditional Australian media businesses?
The report argues the addressable market for domestic media companies is shrinking rather than growing. Newspapers and magazines are expected to lose the most market share, while radio and television also face declines as advertising moves online and to mobile platforms.
How have traditional local media stocks performed amid the shift to global digital advertising?
Traditional local media stocks were down on average more than 20% that year. Seven West Media was the worst performer, roughly halving since the start of the year; Ten shares fell by more than a third; and Fairfax Media dropped by more than 23%.
What role does social media usage in Australia play in advertising forecasts?
The report notes social media usage is high in Australia — about 44% of the population on social media in 2012, ranking fourth worldwide. That high usage underpins the expectation that advertisers and advertising dollars will follow consumers to social platforms.
Is there debate about the effectiveness of Facebook advertising for Australian advertisers?
Yes. The article cites US debate over Facebook ad effectiveness, with market researcher Debra Aho Williamson saying advertisers need more proof that Facebook delivers a clear return on investment. Morgan Stanley and others say Facebook's ability to monetise users will be a key test.
Why might Facebook's upcoming earnings report be important to investors watching ad shifts?
Venture capital CEO Manuel Henriquez said Facebook's quarterly earnings would be a key test: showing whether the company can effectively monetise domestic subscribers at increasing rates would lend legitimacy to forecasts that it can capture substantial ad spend in markets like Australia.
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