After two years of shrinking revenues, 2013 saw a small turnaround for the Israeli advertising industry, but there was certainly nothing to brag about. Spending on advertising is still low and is not growing at anywhere near the pace at which the economy is expanding.
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The advertising market grew 4% in 2013 from the previous year to 3.646 billion shekels ($1.04 billion), according to data released on Sunday by the Israel Advertising Association and Ifat Business Information. But private household spending grew by 6% in the same period.
In nominal terms - before taking inflation into account - total advertising spending has remained stagnant since 2005. Moreover, these figures measure gross advertising spending, before the fees paid to advertising agencies, which are estimated at about 25% of the total. In other words, the actual advertising spending that reached the media outlets amounted to only about 2.7 billion shekels last year.
Internet advertising grew the most last year, with spending up about 15% to a new record. Television advertising revenues also saw record spending, as they climbed 8%, while the newspaper ad revenues continued to deteriorate, dropping 8%. The smaller ad outlets, such as billboards, radio and movie theaters, showed small growth.
After three years of dramatic drops in the amounts of advertising that pushed the ad business eight years backwards, 2013 symbolized a year of recovery and the gradual and measured return of advertisers, said Telma Biro, the head of the IAA.
The mix in Israeli advertising is becoming more like that of other Western nations, and the trends are quite similar: Television is still the largest and preferred media, newspapers are in constant decline and digital media is increasing its share, she added. Digital media is reinventing itself every day, said Biro.
What seems to be missing in the advertising equation is any link between consumer spending and ad revenues. In 2004, Israel households spent 321 billion shekels on products and services, while advertising revenues hit 3.5 billion shekels, or 1.1% of consumer spending. Last year, consumer spending climbed to 592.7 billion shekels, an almost 85% increase since 2004. But advertising revenues have risen only 3.75% since then, equal to only 0.61% of consumer spending.
The growing gap between consumer spending and ad revenues is almost unique to Israel among Western nations. The most common explanation is the lack of competition and monopolies in many sectors, which allows many firms to spend relatively little on marketing and promotion. When there are significant barriers to competition, existing firms have little need to advertise. Other explanations are related to the supply side, namely the growth of the Internet, which has become the a serious competitor to traditional advertising mediums. The growth in the number of radio stations and newspapers has also hit the media hard as prices have fallen sharply - or at least have not risen.