Dot-Com Ad Slump Hits Asia
(01/15/01, 9:36 a.m. ET)
By Tony Munroe, Reuters
HONG KONG -- Asian dot-coms are in the online advertising doldrums -- but unlike U.S. counterparts such as Yahoo! Inc., which warned last week its 2001 revenue and earnings would fall far below most forecasts, they don't rely heavily on ads from other Internet companies.
“These next couple of quarters here in Asia are going to be difficult -- particularly [the first quarter],” warned Stephen Moss, chief executive of online ad agency DoubleClick Asia (stock: DCLK).
Last week, global Internet bellwether Yahoo (stock: YHOO) revealed that results this year would suffer from the general economic downturn and the loss of ad business from other dot-coms.
In Asia, gloomy ad revenue figures, combined with even more anemic e-commerce activity and negative sector sentiment, have driven the share prices of virtually all listed online companies towards the lowest levels of their short histories. Some firms are trading near or below cash levels, analysts said.
Forecasts vary widely, but Moss predicted online advertising in Asia outside Japan would grow by 70 percent this year -- compared with roughly 100 percent growth in 2000.
In Japan, by far the region's largest online ad market, analyst Thomas Rodes of Nikko Salomon Smith Barney last week cut his online ad spending forecast for fiscal 2003 by about $700 million to roughly $2 billion.
But Asia's online advertising drought has some key differences to that afflicting Yahoo and other U.S. Web companies.
First, the Internet is less developed in Asia than in the United States. Dot-coms attract a much smaller slice of the total advertising pie -- about 0.5 percent, compared with 2 to 3 percent in the United States, Moss said.
And total ad spending per person in most of Asia is tiny compared with Madison Avenue's bombardment of the United States. In China, overall ad spending totaled $3 per person in 1998, versus $437 in the United States and $18.60 in Asia overall, according to figures cited by Credit Suisse First Boston.
On the plus side for Asian Internet companies: they are typically less reliant than their U.S. counterparts on spending from fellow dot-coms, which have dramatically scaled back advertising expenditure.
Many Asian dot-coms had not yet gone public a year ago while their U.S. counterparts, flush with IPO-raised cash earmarked for “building the brand,” were spending millions on Super Bowl TV spots and flooding other websites with banner ads.
“We never had that run-up from dot-com spending,” Moss said.
Rodes of Nikko Salomon Smith Barney said he cut his online ad outlook for Japan based on the country's dismal economic outlook -- not because of problems specific to the Internet industry.
“If the economy is not growing, advertising stays flat,” he said.
Outside of Japan -- where between $440 million and $500 million will have been spent on online advertising in the year ending March 31, according to Nikko Salomon Smith Barney -- online ad spending rarely measures more than a blip in Asia.
Salomon Smith Barney last year predicted online advertising in Asia outside Japan would reach $175 million in 2000 and $387 million in 2001.
In mainland China, which for a brief time seduced Internet investors with its 1.3 billion residents, Merrill Lynch recently cut its forecast for online ad spending in 2001 to $80 million from $120 million, and cut its ratings on portals NetEase.com and Sohu.com.
“Things have deteriorated more severely than we expected in the last few months,” Merrill analysts wrote in a research report last week. “Dot-com advertising is drying up, and worse, traditional businesses are postponing or lowering online spending pending 'further studies'.”
Merrill said in late December that it may have overestimated 2001 online ad spending in Asia by 30 percent to 50 percent.
In South Korea, one of the most heavily wired countries in Asia, DoubleClick Asia's Moss said online ad spending last year probably totalled just $35 million to $40 million. He forecast it would reach $60 million to $70 million in 2001.
For ad spending to grow, Asia's Web industry needs to mature and advertisers need to become more comfortable with the medium and its potential for targeting users and gathering data, industry sources said.
“Every party needs to get more committed, more creative -- advertisers, agencies, sites especially,” said Jane Barratt, executive partner in the Hong Kong office of New York ad agency Euro RSCG Interaction.
Moss said bad publicity surrounding dot-coms and advertising is also feeding on itself: “There's been so much negative news reported about the Internet and Internet advertising -- when you think about first-time advertisers that are going to take the plunge, that's obviously going to hold them back.”
Local conditions in less-developed Asian Internet markets also hinder the development of online advertising.
In a country such as China, “the problem is on the user end -- if you've got really low bandwidth, you don't want a [40-kilobyte] pop-up window taking three minutes to download,” Barratt said.
Moss predicted that by 2005 online advertising would account for between 4 and 5 percent of total ad spending in the region. “It is slowing growth, but it is still a fast-growing business,” he said.
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