FACEBOOK and other global digital media companies will corner 33 per cent of the Australian advertising market by 2017, leaving domestic companies to compete over a smaller available advertising pool, a new 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 million to $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 finds.
By 2020, the dominant global new media companies - Google, LinkedIn and Facebook - will attract one-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] - $50 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.
"And where consumers go ... we know surely businesses/corporates and advertising dollars will follow."
There is debate in the US over the effectiveness of Facebook advertising. "Advertisers need more proof that actual advertising on Facebook offers a return on investment," the market researcher Debra Aho Williamson said. "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 the venture capital firm Hercules, said Facebook's quarterly earnings report - out on Thursday - is a 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. Seven West Media is the worst performing stock, halving since the start of the year, followed by Ten shares which have fallen by more than one-third, and Fairfax Media, which has dropped more than 23 per cent.