Indian advertising - Tackling the headwinds and bringing back growth

For the first time in 15 years, India’s advertising industry grew at a slower pace than the Indian economy in 2023, as per the FICCI-EY report, with a 0.3% advertising-to-GDP ratio. The GroupM ‘This Year Next Year’ report, too, projects Indian ad revenue to grow 10.2% in 2024, compared to 11.3% growth in 2023.

Adgully reached out to some industry experts to understand the headwinds impacting the Indian advertising industry and what it will take to bring growth back.

Naresh Gupta, Co-Founder & CSO, Bang in the Middle, observed that the signs of slowdown have been visible for some time now. According to him, the biggest reason is slowdown in consumption economy across the board. “Packaged goods, electronics, beverages have been facing headwinds for a long time and we are seeing the impact on ad spends. While this year will see a big jump thanks to elections, the fundamental ad spend is likely to remain subdued,” he noted.

“I am not surprised,” is Dr Sandeep Goyal, Chairman, Rediffusion’s response. He qualified this response by noting, “The ad agency business has been changing its contours over the years. The change is now more visible. A lot of the work that agencies used to entrusted with, is now being nibbled away by various other players. Most large clients have vendors who do work outside the advertising domain for them, constricting what was traditionally advertising assignments. This includes film production, content, and a large amount of work in digital, which is no longer part of advertising revenues.”

“But the main culprit really is the midgetisation of media,” Goyal said, pointing out that the prices for all commodities have increased by large percentages while cost of media has largely remained restricted to a narrow single digit band. In many ways while media buying agencies did well by clients, they have actually started to kill the overall media business.

Soumya Mohanty, Managing Director & Chief Client Officer, South Asia, Insights Division, Kantar, commented, “The overall ad spend in 2023 saw 10% increase over 2022. The growth was led by traditional companies from FMCG and e-tail. The top 10 advertisers’ spending has grown by almost 20 per cent, but the overall growth was pulled back by internet and digital companies on the back of funding crunch. Influencer marketing has also increased, which doesn’t get traditionally captured in ad spends. In 2024, ad spends should remain marginally higher from 2023.”

According to Mohanty, the headwinds are global uncertainty, including a spate of elections, continuing wars, pull-back by companies facing fund crunch and greater scrutiny. On the positive side, recovery of rural demand, multiple sporting events and improvement of gross margin of FMCG companies (after lower inputs costs) could lead to pushing up spends.

“So, it is extremely important to, therefore, keep demonstrating the relevance of advertising both in the short and long run,” she opined.

Bringing growth back in advertising

India’s historic Ad-to-GDP ratio has been 0.3% and we do remain a low ad spend market, noted Gupta. According to him, the growth now will happen for regional brands or regional campaigns from local brands. “But I do not see a major growth in this ratio. Indian businesses have not come around to treat advertising as a business tool, and till they do not change the mindset, we will not see a breakthrough,” he maintained.

On the other hand, for Goyal, these numbers conceal more than they reveal. “Except cricket, that too largely IPL, all other genres on TV are largely at standstill. Print is under extreme pressure. Radio, cinema and even OOH are finding it difficult,” he pointed out, adding, “The only growth is in digital, that too, largely Google, and to a lesser extent, Meta.”

According to Goyal, for advertising to grow, television has to surge and print has to grow. Advertisers have to learn not to penny pinch. Digital prices are driven by foreign monopolies and they thrive, with near no negotiations.

“The situation is more complex than the 0.3% that you refer to,” he said.

Mohanty highlights two necessary steps that need to be taken to bring the growth back in advertising:

• Establish clearly the RoI of advertising, especially its role in Brand building
• Bring the focus back to top of funnel metrics and reduce the obsession with SEO and performance marketing. Already, globally advertisers are questioning veracity of data around digital advertising when most of it is provided by the publisher themselves. In fact, Kantar offers a range of marketing effectiveness tools like Cross media or our Lift ROI solutions, which provide a third party, credible measurement of true advertising effectiveness.

Impact of start-up funding winter

After seeing an almost meteoric rise for a few years around the pandemic period and buoyed by global funding and massive Government push, the Start-up ecosystem is now faltering. Gone are the heavy spending as start-ups struggle with dwindling funds, growth hurdles and course correction.

Speaking on how much the start-up funding winter has led to a fall in ad spends by this sector, Gupta noted, “The startup funding winter has had an impact with many sectors pulling back, and the pull-back is across all sectors, especially ed-tech and wearable devices. But both these sectors were not the biggest spenders and may not have had a significant impact on overall market.”

Goyal said that while there has been an impact for sure, most of these well funded startups were largely advertising on cricket. Some of that has got hit, but most of the mainline advertisers have continued to spend as usual.

Digital – The key driver in advertising expenditure?

Digital advertising grew 15% to reach Rs 576 billion, or 51% of total advertising revenues in 2023, as per the FICCI-EY report. According to Dentsu’s Digital Advertising Report 2024, in 2023, digital media surpassed the persistent dominance of television media spends, securing the largest share of 44% (Rs 40,685 crore) in the Indian advertising market. Television’s contribution now stands at 32% (Rs 29,836 crore), followed by print media at 20% (Rs 18,652 crore).

Kantar’s Mohanty saw Digital ad spending continue to be the key driver in advertising expenditure, accounting for 42 per cent of ADEX. However, she also said that the growth rate will slow down, with estimates suggesting that it will be in the 17% range. “The lack of data on the true impact of digital advertising (as assessed by third party) will be increasingly questioned,” she added.

On the other hand, she said that Influencer marketing is here to stay. Citing Kantar data, she said that Indians trust influencers more than their global counterparts. Influencer content also has the highest equity among all online media channels. They also engage in a two way dialogue that transcends the brand they are advocating and have credibility in their area of influence. “This helps a lot when as a consumer I know about the brand and just need that little nudge to make the decision,” she added.

BITM’s Gupta, too, stated that growth in digital will continue. He, however, added, “But fundamentally, digital media growth does very little to the advertising industry, the increased revenue goes to just three platforms and the benefit to the overall advertising industry is minimal. The platforms have a very tight control on both spends and creative and this growth even in long term will not benefit the industry.”

Rediffusion’s Goyal did a reality check as he stated, “The growth of digital is a pointer to tomorrow. But digital is a two-horse race, both global entities. Going forward, that will leave little or no elbow room for brands. That is my only fear.”

Looking ahead, Mohanty foresaw increased local language advertising, platforms, like e-commerce apps, local language apps and OTTs, Connected TVs, which will focus more on engagement even with reduced reach. “The sectors that will continue to grow are media, entertainment and e-commerce brands, but online gaming and ed-tech firms will obviously remain low spenders,” she added.

“Increasing privacy concerns and regulatory measures, which limit targeting and tracking capabilities, will impact the current ways in which ad impact is measured. It is important for advertisers to shift to more balanced full funnel solutions and take a longer term view of impact of spends,” Mohanty concluded.

 (With additional inputs by Madhurima Kar.)