Internet in China: digital advertising spend to rocket

The Chinese love affair with the internet will see digital ad spend increase 40% to $5.2bn (£3.07bn) next year, making the booming Asian online economy roughly the same size as the current UK market, according to a report.

The study by KPMG, to be unveiled today at the MediaGuardian Create in China conference in central London, estimates that the total ad spend on all media in the Chinese market will grow by 22% this year and 19.5% next year.

By the end of next year, the Chinese ad market will be worth $37.85bn, a year-on-year increase of more than $6bn on 2007.

The report, called Destination Digital: Opportunities in China’s Media and Advertising Market, argues that UK media companies need to tap into the Asian tiger economy, particularly the digital sector.

KPMG estimates that the Chinese digital sector – including ad spend on internet, email ads, in-store LCD screens and mobile – will grow by about 73% this year and 43% next year to be worth $5.2bn (£3.1bn).

According to the Internet Advertising Bureau, the UK digital advertising market was worth £2.8bn at the end of last year and will be worth close to £3.5bn for 2008 based on current estimates.

However, the scope for growth in China is huge with core internet ad spend – primarily the paid search, online display and classified markets – accounting for 8.5% of total media spend in the country.

In the UK, internet ad spend accounts for around 20% of the total media market.

“China has truly emerged as a leading market for digital media including web 2.0 technologies such as social networking, blogging, online gaming and cross-platform services,” said Honson To, a partner at KPMG China.

“Chinese internet user numbers are higher than anywhere else in the world and so far only 19% of Chinese people are online,” Honson added.

KPMG estimates that there are 100 million bloggers, 601 million mobile phone users, more than 250 million web users – an extra 91 million going online in the last year alone – and 120 million online gamers.

Between 2003 and 2007, online ad sales in China grew by more than 60% annually, compared with around 10% growth for newspaper and TV advertising.

The report also estimates that Chinese internet users spend 14 times longer online per week than US users.

KPMG also forecasts that China’s huge TV market – 1.19 billion TV viewers over the age of four and one-third of the global cable TV market, which accounts for more than 60% of the country’s media spend – also presents opportunities for western companies.

“Content generation represents a big opportunity. Chinese TV producers are increasingly likely to need to look outside China to secure appropriate content and programme formats for different channels,” Honson said.

KPMG also said that radio in China had staged a comeback in the past 10 years, as more city dwellers buy cars and will grow from zero share of the country’s media market in 2004 to 3.5% by the end of next year.

The Chinese newspaper sector is growing but, like in foreign markets, China’s 2,000 papers are seeing weaker revenue growth.

By the end of next year, the sector will account for 9.6% of the Chinese media market, down from a 19.4% share in 2001, according to KMPG.