Back on track: The industry remains resilient in spite of external problems

Worth $3bn, Thailand’s advertising industry continues to see strong growth. In line with the kingdom’s media trends, television remains the first go-to choice for advertisers, dominating both advertising spend and creative talent. Traditional print and radio formats are seeing a slow, inexorable decline whereas all other formats are experiencing accelerating growth buoyed by a healthy Thai economy and resilient consumer confidence. Despite devastating floods that caused severe disruption to the industry, 2011 closed with a record high of BT104bn ($3.32bn) invested in a sophisticated and multi-platform media environment. Western creative talents and advertising agencies still play a prominent role in the industry, but Thai agencies have emerged as leading innovative artists in the field over the past decade, gaining both international recognition and awards.

STRONG GROWTH: Advertising spend in Thailand has more than tripled over the last 18 years, growing from BT32bn ($1.02bn) in 1994 to BT104bn ($3.32bn) in 2011. During this period the industry experienced only three years of negative growth following the Asian and global financial crises of 1997 and 2008.

Even the 2011 floods had a proportionally limited effect despite causing an estimated $8bn-11bn in damages and sending consumer confidence into near free fall, plunging 11 points from 81.8 to 71. Having seen 12% growth year-on-year (y-o-y) from 2009 to 2010, the industry was set to repeat this in 2011, booking 10.5% growth at the end of the third quarter. Yet despite a 17% decline in ad spend in the fourth quarter, 2011 still ended with 3.6% growth.

The floods at end-2011 were all the more devastating on the industry as the period is typically associated with high advertising spend and consumer demand ahead of the festive season, providing redress after the typically slow third quarter during the monsoon season. Despite this, the industry already started to see a strong recovery in the first quarter of 2012, and is expected to hit 8% growth during the year.

REGIONAL TRENDS: Thailand’s consumer confidence, the weather vane of advertising spend, remains closely tied to three factors: political stability, the price of goods and cost of petrol. Having tracked ASEAN’s advertising growth pre-2005, the country’s domestic industry saw markedly reduced growth until 2010, due to a period of domestic political crises. Now, in a return to drier and more politically stable economic climes, Thailand looks set to rejoin its ASEAN partners’ expansionary trends which media agency Mindshare predicts will average annual growth rates of 9.1% from 2013 to 2016.

However, a growing recessionary mindset in the region could tip future balances. South-east Asia’s consumer confidence average of 105 may far outweigh the global average of 89, but represents a four-point drop y-o-y. Growing economic concerns that were identified in Nielsen’s South-east Asian Adver-tising Index for the fourth quarter of 2011 have contributed to higher levels of saving by South-east Asians – 66%, in contrast to the 48% world average. Whilst these factors are yet to manifest in ad spend, industry observers are keeping their eyes on the Thai economy, which faces rising inflation and a growing tax burden in support of populist policies.

AD SPEND: Despite this, confidence remains high and the 2011 record of $3.38bn investment in media demonstrated the diverse emerging advertising trends. Print and radio were down, with 2.8% and 4.5% negative growth, respectively. Despite the drop, print retains the second-highest share of media spend, worth BT17.6bn ($561.44m) at year-end, All other mediums saw increased expenditure.

Still underrated, the digital segment has the smallest market share, equivalent to just 3%, or BT47m ($1.5m), but saw the largest increase in 2011 with 63.6% growth, according to Omnicom Media Group (OMG). In-store advertising grew 50% to BT1.5bn ($47.85m), followed closely by cinema advertising, which experienced 23% growth to BT6.7bn ($213.73m). Out-of-home media enjoyed more conservative growth, with billboards posting a 11.3% increase, or BT3.9bn ($124.41m), and wraps, particularly popular on Bangkok’s fleet of BTS Skytrains, posting 2.5% growth, or BT2.4bn ($76.56m).

Television, of course, still leads the pack. Growth was restrained at just 4.5%, but the sector continues to dominate thanks to its 97% audience penetration rates, attracting BT57.9bn ($1.85bn).

REGULATION & CENSORSHIP: The most important pieces of legislation governing advertising are the Consumer Protection Act of 1979, the 2007 Printing Act and the Broadcasting Business Act of 2008. The most restrictive regulations apply to both tobacco and alcohol. All advertising and sponsorship of tobacco products is banned in Thailand, including display by retailers since 2005, while alcohol advertisements remain subject to severe restrictions under legislation enacted in 2010. Broadcast advertisements are limited to between 10pm and 5am, and beverages must only be portrayed in a manner that promotes social values. Images are restricted to display brand logos only, as depictions of the product are prohibited. Whilst this has been met with broad complaints across the industry, leading beer giants Singha and Chang have responded pragmatically, acquiring sponsorships of English football teams popular with Thai audiences and using their soft-drink arms under the same brand names for domestic leverage.

A generally conservative attitude towards advertising underlies these regulations. For example, the semi-autonomous yet influential Thai Health Promotions Foundation led calls in 2006 for health warning labels to be applied to certain foods and drinks, from wine to soft drinks and sweets, as well as tobacco (see Health chapter). Subsequent industry-wide opposition saw a retreat from the proposed legislation that would have had a severe impact on advertising. Meanwhile, advertisers are keen to avoid any content related to politics. This came to a head in 2010 with the banning of a privately funded advertisement launched after violent street conflicts broke out in May that year. Entitled “Sorry Thailand” and funded by a group called Positive Network, the advertisement promoting reconciliation was pulled by the censorship board, but has since gained over 2m views via YouTube. Such oversight has ensured the advertising industry remains defined by the innocuous.

Formed in 2011, the state regulator, the National Broadcasting and Telecommunications Commission (NBTC), is formally responsible for advertising controls, but has yet to consolidate its legal authority and power over broadcasters (see Media overview). In line with 2009 amendments to the Broadcast Business Act, cable and satellite TV channels are now permitted six minutes of advertising per hour and 120 per day. However, advertising windows are highly regulated. Scheduling of prime-time slots are dictated by the NBTC, with advertising sold by the broadcasters, while non-peak times are sold by programme producers. “Television remains a controlled, quota-based advertising medium and is still a seller’s market. Advertising time is regulated by the government and rates are arbitrary,” Clint Easthorpe, the CEO of OMG, told OBG. “Charges of nearly BT500,000 ($15,950) a minute are not unheard of.”

TV remains at the centre of long-held traditional mindsets that are only just beginning to be challenged by the accelerating uptake of digital mediums. Even during the 2011 floods a flight to TV was seen by advertisers, which was principally driven by the 42% rise in corporate communications messages. This has helped to fuel inflationary cost per rating point (CPRP) increases that could exceed 10% in 2012.

THE DIGITAL DOLLAR: With the advent of digital later in 2012, terrestrial television will start to see a challenge to its dominance over the mid- to long-term. Meanwhile, advertising prime-time slots continue to be focused on the Thai soap operas and new international format programmes that have gained a loyal and profitable following in the past two years.

Yet the rise of digital media is beginning to erode TV’s base and is destined to play a larger role in Thailand’s ad sphere in the near term. “The year 2012 is forecast to be the year online eclipses TV as the number one media outlet, facilitated, in part, by the arrival of 3G and the proliferation of smartphones,” Easthorpe said. “Digital ad spending is growing slowly as businesses realise this segment’s potential, but its impact is also seen in that it is driving greater transparency in the industry as media arms can track exact viewing figures. Accountability and auditing in the industry are a necessary and required advancement.”

Nielsen began tracking social media in 2012, joining the ranks of Melbourne-based Effective Measure, which launched operations in Thailand in 2011, supported by OMG and Admax, and provides Facebook’s advertisements in South-east Asia.

SMARTPHONES: Advertisers are focusing considerable attention on smartphone penetration as the growing affordability allows consumers to leapfrog the personal computer and make smartphones their primary mode of online connection. OMG reports that smartphone uptake upcountry exceeds that of urban areas, including the capital, at 64.5% and 57%, respectively. This has already fuelled a 303% national increase y-o-y in mobile search queries between 2010 and 2011, according to OMG’s research, and further growth is inevitable, said David Sinthu, the managing director of Nielsen Media Thailand.

“We expect over 40% of the market to shift to smartphones once the price drops below BT10,000 ($319). Currently smartphones account for 20% of the market, so you could be looking at 60%, and with providers knowing exactly who their demographic is it will attract all the leading advertisers.”

Also launched in 2011, mobile advertising media firm BuzzCity has experienced the advantages of the Thai market, which it expects to see double each year. With over 100% mobile penetration in Thailand, BuzzCity reported 228.9m adverts sent via mobile in Thailand during March 2012. Revenue-generating click-through rates are also significantly higher in the country than global or regional averages, at approximately $0.20 per click, dwarfing other fast-growing markets where the large inventory of publishers has kept prices low. One of the challenges of the growth of smartphones as a means of accessing social media, for instance, is that mobile app versions of many platforms like Facebook block advertising. This is a global phenomenon, but one which affects some aspects of advertising in Thailand.

PAID EDITORIAL: International firms accustomed to earned-media coverage elsewhere have often been perplexed at the propensity of Thai print publications to charge for coverage. It is an issue that has gained international attention in other developing economies such as China, but remains largely overlooked in Thailand and until recently, unchallenged.

Whilst earned media coverage remains available, prime positioning in leading print publications, notably magazines, remains attached to a premium. Indeed, free editorial, cover positions, co-promotions and access to publications’ subscriber bases have long been part of the industry’s operations.

Whereas this may be considered particularly odious by Western journalistic standards, it is considered a value-added service in Thailand. But the market is typically wise to the practice, Grayling Thailand’s managing director, Justin Barnett, said. “Advertorials can crowd the market and don’t have the same credibility. The audience is quick to recognise this, but some marketing departments don’t care whether coverage is advertorial or earned.” Moreover, advertising agencies are now beginning to demand verification of circulation and readership statistics from publishers, which are manipulated in many instances to increase their advertising premiums (see Media overview).

CREATIVE TALENTS: The proliferation of digital media has also increased the opportunity for innovation and creativity. Thailand’s advertising market is noted for its distinct, quirky and sometimes bizarre humour, and emotive commercials that have tapped into the country’s unique culture while maintaining international appeal. Thai commercials have won international coveted Cannes Lions International Advertising Festival awards, the Oscars of the advertising industry, as well as awards from the One Club, London International Awards, Spikes Asia in Singapore and the Clio Awards.

With international agencies such as Ogilvy, McCann Worldgroup, Leo Burnett and JWT Thailand taking much of the credit in recent years for Thailand’s advertising awards, local companies’ creative talents brought in the prestigious Cannes Lion Awards. Thai firm Phenomena won the “Best Production Company” award in 2009 for its work with JEH United on a Sylvania light bulb commercial and has accrued over 500 domestic and international awards since 1992, collecting 88 in 2010 alone. In 2011 Y&R Bangkok also won one Gold Lion and one Silver Lion in the radio category at Cannes.

Whilst undoubtedly a success in international festivals, the industry is facing increasing competition at Singaporean and Korean advertising award festivals, Vinit Suraphongchai, the chairman of AdFest’s organising committee said, and it has asked for greater government support.

DEEP WATER: The 2011 floods were an important chapter in the Thai advertising industry, not as a cause of falling advertising spend, but because of the industry’s response, which will serve as a precedent for future events. Though the floods were concentrated in the central provinces and Bangkok, the fall-out was presented as a national calamity.

Led by international firms, advertisers were quick to pull out of new advertising campaigns and activation events while rapidly reducing existing campaign runs. “The flooding devastated the advertising industry’s projected growth in 2011,” said Easthorpe. “While over 10% growth was expected, the year ended with just 3.59% as the flooding disrupted factories, exports, national distribution and consumer behaviour, which all had cascading effects on the advertising sector.”

These disruptions derailed firms’ ability to supply markets with products, and according to figures from Nielsen, Nestlé alone reduced advertising spend by 302% in the fourth quarter of 2011. “Activations were either cancelled or postponed,” said Soonthorn Areerak, the managing director of marketing consultancy GroupM ESP. “We could extend those that were under way for a few months, but in other cases we could not get the products to launch the campaign. As a result, all activations stopped.” Perhaps foremost in advertisers’ minds was that they should not be perceived as profiting from commercial activities in the midst of a national tragedy, which was also reflected in plummeting consumer confidence.

NEW DIRECTION: In response, advertising formats changed, shifting from commercial consumerism to flood-related corporate philanthropic campaigns and messages. It was a shrewd move that enabled companies to gain more value for their public relations in terms of equity and media exposure. Leading Thai-language newspaper Thai Rath placed restrictions on where and what kind of advertising could run within their pages, while television scheduling and formats also changed.

The impact of the floods also saw changes to media content and advertising scheduling, according to Soonthorn. “There was less entertainment content during the floods. Many production houses were unable to produce new episodes and had to rely on new edits or re-runs. News programmes, in turn, extended the length of their broadcasts as the entertainment content disappeared and became the peak advertising slot.” Companies, advertising agencies, production houses and media channels have banked this experience for the future.

Yet the floods did not affect all brands negatively, and indeed provided unique market opportunities for telecoms, vehicles, construction firms and supermarket retailers. Media monitors AGM Nielsen recorded a 14.3-fold increase in ad spend by Siam Cement, from BT5.02m ($160,138) to BT71.8m ($2.29m) in December 2011 compared to the same month the previous year, and an 11.29-fold rise in spend by telecoms provider Advanced Info Service, from BT8.9m ($283,910) to BT110.3m ($3.52m). The PTT Group also increased its spend 108% to BT97.4m ($3.11m), Isuzu Pickups by 55.9% to BT74.5m ($2.38m), and Tesco-Lotus Supercentre by 20.2% to BT49.1m ($1.56m). Providing public service messages, the government’s advertising spend also rose 65.8% to BT166.5m ($5.31m).

“By the close of January 2012, advertising and activations had started again, and, due to a backlog of launches, almost all venues are now fully booked. The market is catching up to where it should have been,” said Soonthorn. However, this recovery is expected to take time. Consumer confidence topped just 74.2% in the first quarter of 2012, and the long-term effects of continued eurozone and US dollar downturns are still unknown.

OUTLOOK: Banking on consecutive decades of growth, Thailand’s advertising industry has proven both resilient and resourceful. By 2013 the sector should return to growth in line with that of its ASEAN neighbours and could potentially enjoy double-digit figures after political stability is restored. However, wider regional concerns on economic issues may erode consumer confidence and advertising spend. In the short term, television will remain the preferred medium for market penetration and advertising spend, though it faces serious challenges from digital formats in the mid term. Industry regulation remains conservative, but this has not hampered the internationally acclaimed creative talents that have become a coveted hallmark of the industry.