Monday 27 May 2019

Time to reassess Ireland's digital advertising market

John McGee

How much is the Irish digital advertising market worth a year? Think of a number and multiply it by three, then divide it by two and subtract €8m from it. Then, if it's a Tuesday and there's wind is blowing from the east, discount it by 5pc. If it's blowing from the west and it's a Friday, maybe 7.5pc might be more appropriate.

If it's a sunny day, on the other hand, have a cold beer, relax and read Scott Galloway's thoroughly engaging tome, The Four, which looks under the hood and examines the hidden DNA of the four digital behemoths - Facebook, Apple, Google and Amazon. After Chapter 4 (on Facebook), you will probably want to give up on guessing how much it's worth.

You will just wish that your pension fund manager had taken a punt on Mark Zuckerberg back in the day rather than putting you into the prudently managed portfolio of ethical and green shares they recommended when the markets imploded 10 years ago.

The reality is that assessing the size of the Irish online advertising market has always been difficult largely because nobody really knows precisely how much money the likes of Google and Facebook are pulling out of the Irish market. And they are not going to tell us any time soon.

Because of this estimates from the various media analysts and agencies have varied significantly over the past few years. While the online industry does have the PwC/IAB figures, many within the industry believe that they are far from perfect and may overstate the size of the market.

But why can't the industry have an accurate and transparent way of measuring digital spend that has buy-in from everyone? And why does any of this matter?

It was the management guru Peter Drucker who famously said that "if you can't measure it, you can't manage it".

In the case of the Irish media industry, if you can't measure the scale of the opportunities and challenges facing the industry, and all of its critical components - including digital - then it makes it very difficult to manage and plan for growth with any degree of certainty.

"Agencies and media owners continue to base their figures on some official numbers, combined with educated guesswork from multiple sources. This can lead to incorrect assumptions and inaccuracies," says Alan Cox, CEO of Core.

"The real 'problem child' continues to be online advertising. The major players do not disclose their revenue, which has resulted in massive variations in valuations of the sector, and in 2017 we believe that agencies under-called online ad spend by 27pc while the online sector itself significantly over-valued it by 32pc. These percentages are based on a deep dive that we have done into the sector," he adds.

The figure that Core has arrived at for 2017 is €451m and covers online video, display, search advertising and social.

Cox points out that this is significantly higher than its previous estimates and is driven by a restatement of the level of direct spend that is going to Google and Facebook by thousands of small- and medium-sized businesses throughout Ireland who deal directly (or through an SEO agency) with Google and Facebook when it comes to buying search-related inventory.

As these companies tend to deal directly with advertisers - rather than through a media agency - the amount of money they are pulling in is considerable, according to Cox, who points out that of the €450m spent last year, only €150m is attributable investments made by to media agencies on behalf of their clients.

In other words, a whopping €300m was spent directly by Irish companies on digital advertising in 2017. If this is the case, then it contributes significantly towards our understanding of the market dynamics and what is driving it towards the €541m which Core is pencilling in for 2018.

"Globally, Google and Facebook account for 61pc of all online advertising revenues. We estimate that their share in the Republic of Ireland is 58pc.

"Despite the massive growth in overall spend, a significant number of local online publishers saw declines in revenue, reflecting the dominance of the 'big two'. 2018 will, once again, see strong growth, up 20pc year-on-year, topping €541m," he says.

This dominance is not good for such a small media market which is estimated to be worth over €1bn this year. It would appear that existing competition law is badly failing the indigenous media industry.

While much of the focus has been on local media M&A activity and issues of plurality, it is incumbent on policy makers to take a full view of what's really going on in the Irish media market and what it means for competition for everyone.

"The consequences of this dominance in the Irish market are far-reaching and must be addressed," says Cox.

And if nobody shouts stop then, he says, it will have the "unintended consequence of closing publishers and broadcasters in this country, thereby denying the public of Irish-produced analysis, opinion and entertainment which are essential to our democracy and our identity".

And if this ever happens, nobody will give a damn about the size of the Irish digital market.

Sunday Indo Business

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