Global ad gurus gather in Moscow to resuscitate their crisis-battered industry
The World Advertising Congress (WAC), organized by the International Advertising Association (IAA) and featuring about 2,000 leading titans of the global advertising businesses from almost 70 countries, congregated in May in Moscow, the organization’s first ever summit in the Russian capital, to deliberate on their industry’s turbulent presence and its no less dramatically uncertain future. Therefore, it was not surprising that in a reflection of the ongoing crisis-related realities, the annual global event, the 42nd since its inception, was held this year under the slogan, “Change and Prospects.” This slogan aptly caught the expectant mood among leaders and current trepid situation in the industry, a carryover of the last year’s negative trends on the global advertisement market, caused by the ongoing unprecedented economic crisis.
The high authority, expertise and in-depth knowledge of the exact situations in the industry by the conference attendees were never in doubt as the event featured amongst its keynote speakers ‘the very best of the best leaders’ of Russian and international advertising and communications companies. Specifically, these, amongst others, included the CEOs or other top-level executives of such famous foreign firms in the industry as Omnicom Group, Publicis Groupe, Dentsu, WPP Group, Hewelett-Packard, Procter & Gamble, Shell, Microsoft, Yahoo!, Google and others.
Equally impressive was the representation of the Russian advertising and communcations industry leaders at event, led by Sergei Piskaryov, the president of the Association of Russian Communication Agencies (RACA) and concurrently CEO of the Gazprom-Media holding. Others included Wimm-Bill-Dann Board Chairman David Yakobashvili, Russian Standard Bank Vice President Igor Kosarev and other prominent figures from the advertisement industry and related sectors of Russian economy.
The new IAA chairman- and world president-elect Alan Rutherford, who officially took over the IAA management at the Moscow Congress, was effusive in praising the delegates’ attendance and work done during the summit. “We are very pleased at the exceptionally high number of delegates to the Moscow Congress, whose key theme of “Change: Consequences” was specially designed to cover the market trends, developments, news and forward thinking of some of the most well-known figures and owners of the leading brands in our industry,” he added. “To this end, we have created an impressive line-up of speakers and generated the largest international delegation to an IAA Congress in years.”
The unprecedented importance of the event for the Russia was underscored by the presence of a galaxy of top officials from the federal, Moscow city and regional governments across the nation. These included Arkady Dvorkovich, an adviser to the Russian president, who conveyed President Dmitry Medvedev’s greetings to the Congress delegates, and also the director of the Federal Antimonopoly Service Igor Artiemyev, Moscow City Mayor Yuri Luzhkov and other no less important top-ranking government officials.
“The unprecedented importance of this event for Russia was underscored by the presence of a galaxy of top officials from the federal, Moscow city and regional governments across the nation.”
Expectedly, a major part of the deliberations was dedicated to the Russian advertising market. For example, WPP Group CEO Martin Sorrel specially stressed in his speech the enormous potential of Russia in general and Moscow in particular in terms of active development of the country’s advertisement industry. “Along with China, Brazil and India, Russia has the largest media capabilities and potential for the development of digital consumer services in the next two-three years.”
Speaking about the ongoing diversification of the advertisement market into Internet with the use of IT and mobile technologies, Nikesh Arora, the president of the global sales and business development at Google, the world's largest Internet search engine, noted that the Internet will boast at least 5bln active global users by 2020, while mobile phone-services subscribers will reach 10bln. “Thus, in terms of future advertisement prospect, I must say that more and more of advertisement will be run through the Internet.”
However, the other statistical data voiced by the other speakers at the Congress were directly related to today’s current crisis and realities on the market and, therefore, were not as rosy as the projected future positive business activity growth trends in the advertisement sector and interrelated industries. The overall negative effect on the crisis on the industry was highlighted by Gazprom-Media CEO in his report, where he noted that the Russian communication services market ‘tanked by almost 30%’ in 2009 alone.
The Russian advertising market battling for survival in crisis
The current uneasy situation in the industry sharply contrasted with the optimism of a couple of years ago, when RACA happily reported significant annual growth rates in all the segments of the Russian advertisement market. However, last year’s disappointing results brought all the players in the industry back to reality. For example, according to RACA’s figures, the volume of the Russian advertisement market in 2009 decreased by almost 26% to peg at 200bln rubles, which was about 75bln rubles less than the corresponding market volume in 2008.
And, if such a crash marked many sleepless nights for some of those directly involved in this market, for others, it presented a rare and unique opportunity for businesses to do away with redundant functions and take their operations to another qualitatively higher level. This approach was specifically highlighted by the Moscow mayor in his speech on the role of advertisement in resolving some of Russia’s most pressing business problems today. “The crisis has given us the opportunity to lift our economy to an innovative level and fully optimize our businesses. The role of advertisement in solving these and other issues is very high.”
Indeed, the role of advertisement in today's crisis realities, as a means of increasing business’ survivability in the currently tough market conditions, has assumed 
a totally different meaning. For example, according to participants of the third professional conference, “Internet Media: i-Media-2009,” the most frequently requested phrase in the search engines in RuNet last year was the term ‘crisis management.’ Indeed, the whole of 2009 was devoted to searches for measures to combat the crisis, which was the main concern for all, starting from the largest state institutions and major companies to representatives of small and medium businesses. A similar popularity poll, if conducted on the most frequently words in the business community would, no doubt, have yielded ‘cost optimization’ as the runaway winner.
Business process optimization regimes in crisis
Most Russian and foreign companies, facing the prospects of bankruptcy at the peak of crisis, quickly learnt to work under new conditions by adopting a string of austerity measures, such as the reduction of staff’s salaries and leasing of offices in the most economic zones. However, when the cost of each pen and clip became critical, advertisement became the next item to economize on, with the print media taking the biggest hit, as its advertisement revenue fell by almost 50% in 2009, compared with the 2008’s figures. It is worth noting that the crisis forced some publishers to reduce operations, leading to the closures of hundreds of newspapers and journals last year.
On the other hand, most of the print media that survived the peak of the crisis either shrank in sizes due to reduction of number of pages or diversified into online versions. All these led to drops in print runs, circulation coverage and subscriptions, and consequently, revenues. Indeed, it was only recently that Russian Post moderately reported an optimistic upturn in press subscription. “The results of the subscription campaign for the first half of 2010 have shown stable growth, as 30mln copies were subscribed. This means a fall of just 1% compared with the second half of 2009,” the company said.
But despite the last year’s slump, advertisement expenditures in print media have not been completely eliminated from the budgets of companies. “For the logistics market, print media are among the most important advertisement tools,” Irina Krasnopolskaya, SPSR-Express marketing director, said. “We actively work with business magazines and industry-specific media because interesting articles, expert commentaries and interviews are among the best ways to tell clients about a company and its introduction of new services.” A similar opinion was offered by Sandra Bahar, a marketing communications specialist with AirTies company. “Our target audience, to a large extent, follows print media covering information technologies. Therefore, AirTies puts advertisements in print media in the first place. This is because for us, online marketing has so far failed to generate the same positive effect as advertisement in print media.”
Internet advertisement defies negative trends to remain in the black
The only advertisement market segment that has gained tremendously during the crisis in 2009 was the Internet, whose market share, according to the RACA data, grew 8% to 19bln rubles, compared with 2008. Indeed, the Internet advertisement market has been steadily growing by leaps and bounds for several years. For example, it posted a growth rate of 40% in 2008, compared with 2007. This positive trend, in part, has been largely attributed to the overall development of Russia’s IT industry, which is being personally promoted by President Dmitry Mededev. For instance, in 2008, Leonid Reiman, then Information Technologies and Communications minister, and now an adviser to the Russian president, announced that all settlements with populations exceeding 500 people will have access to the Internet, while information technologies will become the new flagship of the nation’s economic development.
The increase in the number of Internet users has instigated a proportional growth in the demand for using ‘virtual space’ for business and other related purposes, according to business executives. “Internet has long become an integral part of modern business. Indeed, I can say almost 99% of companies today have their own corporate websites,” Maria Bystrov, the marketing director at TNT Express Russia, said. “Besides, if one wants to get some information, especially basic inquiry or background check, the commonest default option is the Internet.”
Echoing the same view, Natalia Zhuchkova, the director of media services department at VimpelCom, the owner of the Beeline mobile brand and one of the Top-five biggest advertisers in Runet in 2009, said the Internet will continue to get a significant share of companies’ advertisement budgets. “The most preferable advertisement media for Beeline is the Internet, where we advertise over 85% of all our marketing initiatives,” she added. “In terms of dedicated budget allocations for advertisement in our company, our preferable media outlets, in order of importance, are television, outdoor advertising and Internet.”
“The overall negative effect on the crisis on the Russian industry was highlighted at the conference, as speakers noted that the local market ‘tanked by almost 30%’ in 2009 alone.”
The main advantages of Internet advertisement, especially in crisis times, include its ability to reach a large audience at cheaper costs, as there are offers for even the ‘most minimum’ of budgets. “The Internet is increasingly becoming a part of our daily lives, and thanks to it, one can easily reach all the targeted audiences for advertisement purposes,” Maria Popova, the marketing manager at Air Charter Service, said. “Besides, it is very easy to monitor the impacts of online advertisement campaigns, and on top of it all, they are also relatively inexpensive.” Stressing this point further, Natalia Shlyueva, the deputy head of marketing and PR department at realty, Knight Frank, specifically noted that Internet is a priority for companies in her industry the Internet. “This is because even the lowest cost of contacting the target audience is capable of generating the highest number of requests for residential and commercial real estate.”
Industry and market growth projections
In general, industry experts are upbeat about getting positive results at the end of this year, as they expect upward corrections in the current market situations and trend improvement in the industry. Thus, speaking at the conference, ‘The Media Business: The New Rules of the Game,’ Sergei Veselov, the director of Video International’s Analytical Center market researches department, forecast that television advertisement would grow by 5% to almost 120bln rubles, while the whole of the national market would rise by 10% to almost 225bln rubles in 2010.
Similarly, the outdoor advertisement market is predicted to also grow by 10% increase to 30bln rubles, while the most modest performance is expected from radio, where growth, according to experts, has for far been reported only at the regional level. Thus, according to Maria Smirnova, vice president of the European Media Group, the volume of the radio advertisement market in 2010 will be about 9bln rubles, a sum that will be similar to that of 2009.
With regard to the print media, analysts are predicting increases in revenues of about 20% only for the industry leaders, in contrast with the regional print media, which are, in the best case scenario, expected to remain flat, while the worst case scenario envisages a further decline. On the whole, Basil Gatov, vice president of the Guild of Press Publishers and advisor to Media3 Holding CEO, expects print media to boost revenues by 5-7% to almost 35bln rubles in 2010.
But the growth leader, according to most analysts, will be the Internet, which is forecast to post the biggest revenue expansion. “The revenue in this segment is expected to grow by 8-10% to about 20bln rubles,” Yulia Udovenko, the director of marketing at MindShare Interaction, noted.
An even more optimistic forecast was released by Arsen Revazov, the head of IMHOVI advertising agency, the Internet division of Video International, when he told the news portal Infox that he expected the segment to grow by 20%. “This could increase the overall size of Russia’s online advertisement market to $800mln in 2010.”
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