With a seemingly endless range of products being beamed into Turkish homes by local TV stations it is obvious that the country's advertising sector, and the economy at large, is doing fairly well. With foreign direct investment (FDI) up this year and accession talks with the EU beginning in October, advertising executives are sporting smiles worthy of Colgate.
The reasons for the optimism are clear. Growth in advertising revenue has been impressive in 2005, with an increase of 25% over last year's earnings, according to Geoffrey Medina, chairman of the Union of Ad Agencies. Year-end income from advertising is expected to hit $2.2bn, thanks to the healthier state of the Turkish economy. Whilst 2004 registered a 36% rate of growth compared to 2003, the size of the market last year was worth a comparatively modest $1.2bn.
However, there is a long way to go before the sector realises its true potential, or is able to be compared with what is being achieved in European countries. Turkey's advertising revenue/GDP ratio was 0.4% in 2004 according to ZenithOptimedia, the media services group. This compares badly with the European average of 0.80% and the 1.36% recorded in the US.
That said, few in the sector are concerned. The inflow of FDI in 2005 and an expected continuation of the trend in the years to come will place increased pressure on local firms to dig deeper into their pockets and invest more in advertising campaigns, analysts contend. Warding off some of the foreign competition through more elaborate marketing and advertising campaigns could well be the ticket.
The positive impact that the entry of new players can have on overall ad spending in a given sector is clear. In 2000, shortly after entering Turkey, mobile phone operator Avea's spending on advertising came to $11.4m, increasing to $12.5m in 2001. Competitors scurried to defend their turf with total advertising spending by telecoms increasing by 48% in 2000 and a further 31% in 2001. This was despite the financial crisis that hit Turkey at the time, with nation-wide spending taking a dip.
Closely related to the beneficial effect of incoming FDI on advertising spending is that of privatisation. Transferring state assets to the private sector will play an important role in triggering advertising growth, with new private-sector stakeholders looking to draw attention to their new acquisitions and encourage consumers to splash out on their brands. There is cause for optimism here with Turk Telekom and Telsim but two examples of companies that have or will go under the hammer.
Equally, the introduction of a borrower-friendly mortgage system in late 2005, coupled with continuous consumer lending and further economy-wide restructuring, is music to the ears of advertising executives.
EU convergence in the meantime should keep business confidence up, with Ankara wading through chapters of reforms and the economy strengthening in accordance with accession demands from Brussels. So long as non-inflationary growth continues, Turkey's advertising/GDP ratio should increase rapidly in the next 10 years, with a March 2005 report by Morgan Stanley forecasting an ad/GDP ratio of 0.8% by 2015.
The potential of advertising growth derives as much from the tight-fisted approach of the majority of corporate big-hitters today. Surprisingly, as much as 80% of Turkey's top 500 companies do not advertise, according to the investment company and stock brokerage Ata Invest. This provides all the more potential for such heavyweights to change their ways, with advertising agencies rubbing their hands in anticipation.
In spite of these positive projections, hard times have not easily been forgotten. During the financial crisis in 2001 advertising revenues plummeted by 51% as GDP fell by 7.5%, according to Morgan Stanley.
Yasemin Sumer, vice-president of the advertising agency Alametifarika, told OBG that the sector is unique in so far as whenever there is a down-turn in the economy the sector shrinks faster, and whenever there is a boom, the sector grows faster. Advertising is, after all, regarded as one of the most volatile sectors of the economy.
This is not to suggest that all mediums of advertising enjoy the same amount of attention from consumers and advertisers. Television will continue to draw in the lion's share of advertisements. In 2004, television ads consumed 50% of the Turkish market with newspapers taking 37%, outdoor hoardings and magazines each mustering 4%, radio 3%, and the internet and cinema a mere 1% each, according to ZenithOptimedia.
Asli Yorgancioglu, vice-president of strategic planning at Rafineri advertising agency, says media spending has shifted even more towards TV. Such demand has enabled Turkey's big channels to increase the price of ad space with little detriment to demand.
This is not so for the print medium, according to Yorgancioglu, as the printed press has increased prices even though its reach and demand is not high, and this has impacted on them badly.
Conversely, outdoors advertising has also had something of a mixed record. The sub-sector experienced some growth in the past two to three years, but enthusiasm amongst businessmen and advertising agencies has since diminished, with much of the blame lying on a 100% increase in municipal level taxes on the segment levied in 2004.
It is also worth emphasising that the majority of Turkish TV stations are not in fact able to benefit from tele-broadcasting as a magnet for ads. The top four or five channels share 60% of advertising between them, says Sumer. Advertisers choose the big channels in the knowledge that viewership is high. Conversely, Turkey's smaller channels cannot afford to publish their ratings.
As such, Turkey's smaller media outfits would struggle to use their comparatively modest ratings as a selling point to begin with. This is nothing to shrug at considering that Turkey has more than 260 TV channels nationwide.
Irrespective of the performance of individual advertising sub-sectors, advertisers look forward to even greater growth in the years to come. As ever, advertising executives have their fingers firmly planted on the pulse of the economy.
