RSS (latest case studies)Russia in numbers:
Population: 142 million
Total advertising expenditure is $11.6bn in 2008 rising to $14.5bn next year and $17.2bn by 2010.
TV ad spend is $6.0bn this year growing 26% to $7.5bn in 2009
Source: ZenithOptimedia
Online ad spending
MindShare estimates 2007 online ad spending in Russia at $369 million which ZenithOptimedia suggests is an impressive 112.1% annual growth and says there’s a further 82.4% increase to come in 2008 on the back of rising broadband penetration.
Growing pains
16 May 2008
Russia is an economic and advertising success story but growth in ad spend is bringing its own challenges. Adrian Pennington reports.
Advertisers engaging with the Russian bear would do well to remember Winston Churchill’s 1939 aphorism about the country; “It’s a riddle, wrapped in a mystery, inside an enigma.”The market, which straddles 11 time zones across Europe and Asia, is distinct. Recognising and exploiting its differences can give an advertiser a significant competitive advantage.
One notable characteristic is its rapid growth, all the more remarkable given that the economy was in danger of currency-meltdown of 1998.
Having grown more than fourfoldsince 2001 it is ranked among the top 10 for global ad expenditure with ZenithOptimedia forecasting a rise to sixth place by 2011, up 92% to $8.3 billion.
Carat estimates Russia’s ad economy will increase 46% this year alone while GroupM predicts Russia will contribute 6% of total new global ad spend in 2008.
Today’s commercial media market has only really existed since the early 1990s. Foreign FMCGs flooded in to capitalise on the vacuum left by nearly a century of Soviet rule and the market is driven by P&G, L’Oréal, Unilever, Henkel and Danone. Automotive, financial services and technology – mainly mobile – categories are fast emerging.
Multinational agencies are represented strongly in Moscow, many using it as a base to reach the CIS, markets that include Belarus. Yet compared to Brazil, India and China the Russian ad market remains under-invested with the potential to grow three times to achieve the BRIC average level., Georgia, Ukraine and Uzbekistan
Gaining a foothold in the region requires some understanding of historical context. “Clearly there’s a sense of making up for lost time,” says Steve Harrison, key client operations director at Optimum Media OMD. “There were virtually no lifestyle magazines 15 years ago, for example, and national magazine distribution remains weak. Since 1998 the country has benefited from a stable government, the gas boom and rising national confidence.”
That confidence does not, however, extend to national brands. “Russians are strongly patriotic – but they disparage Russian goods,” says Harrison. International brands dominate the list of top 20 advertisers with local beer Baltika one of the few exceptions.
There are other anomalies too. GDP grew 8.1% in 2007, but with an average monthly wage of $450 (outside of the oil regions), 80% of national disposable income is in the wallets of a third of the 142m population. As a result ad campaigns are disproportionately concentrated in Russia’s European cities Moscow and St Petersberg.
“There’s a saying that Moscow and St Petersberg are a decade ahead of other urban centres and that in turn they are 10 years ahead of the countryside,” says Harrison.
The Russians love alcohol but stringent rules to arrest alcoholism ban TV ads until 10pm and prohibit umbrella brands. Tobacco ads are outlawed from all media.
Creatives cannot show people enjoying beer – just emotion, packaging, bottle - forcing a different solution,” says Dmitri Nasalski, managing director at Universal McCann Russia.
For local beer Tolstyak (‘Fatman’), which is associated with Russian comic actor Alexander Semtchev, Universal managed to dedicate an entire episode of primetime TV drama ‘Chronicles of Homicide Detectives’ to the brand. The episode was set in a brewery and Semtchev was eye-witness to a crime. The detectives were even depicted celebrating its conclusion drinking Tolstyak.
Television has historically been the means of communicating propaganda and remains the mass medium with 49% market share (rising to 55% by 2012) providing 98% national penetration. Outdoor is a strong second (18%), although new restrictions due to come into effect in Moscow may have an impact on the medium.
All major mass media are controlled by the state directly or indirectly through state-oriented oligarchs. For example, Vladimir Potanin’s Prof-Media acquired TV-3, MTV and 2*2 channels last year; metallurgist billionaire Alisher Usmanov owns Muz TV, 7 TV and publishing house Commersant.
The seemingly rosy numbers on ad spend mask some constraints. More than two-thirds of the recent increases in spending are caused by inflation – a rise in the cost of inventory, rather than growth in volume.
Television, in particular, suffers from this problem because of a limited number of channels with nationwide reach (six compared with 600 regional cable operators).
Rates have risen 288% since 2005. In 2007, the cost of TV advertising rose by between 31% with 50-55% predicted for 2008 and 25% for 2009 according to OMD.
Price hikes were inevitable after the rouble collapse, notes Mikhail Nazarov of Video International’s Analytical Center: “After 1998 the revival in the economy was accompanied with 30-40% annual increase in TV ad demand. Up to 2004 this demand was satisfied by the growth of sold TV inventory at relatively low prices.
“Beyond 2005 demand was still too high so the government gradually imposed a new law on advertising, which brought an additional 25% decrease of TV ad inventory. This in turn facilitated media inflation at rates of 50-60% annually.”
“TV was far too cluttered before the law with [up to] 44 ad minutes per hour so reducing the minutage to 15% of airtime per hour is positive despite some initial pain for clients,” says Harrison.
TV sales are effectively controlled by a duopoly of NTV (owned by Gazprom) and Video International (69% of total TV spend).
“They raise their rates in line with each other,” observes Nasalski. “Sometimes we need to accept certain conditions to get better rates.”
Others credit VI in particular with helping to bring a vast, unwieldy country within advertisers’ reach. It plans to become a full-scale multi-media player by 2010 with investments in print, digital signage and the internet.
“The position of VI is to be transparent for all players,” says Nazarov. “We try to bring as much money as possible for the channels at the same time as providing value for advertisers. It is hard to convince major players like P&G that we must increase rates, yet there is recognition that market demand needs to be balanced with supply.”
While good news for media owners there is also an upside for agencies.
"As the cost of media grows, the quality of what you put on the air is growing more important,” Nasalski says. “There’s a strong need for a better creative product. There are more than 20,000 standard posters in Moscow so everybody wants to run non-standard outdoor campaigns with illumination or 3D elements.”
BMW is displaying a 65,000sqft billboard near the Kremlin featuring four life-size models of its M-class cars throughout 2008.
“Creativity is very much a point of competitive difference,” agrees Harrison. “There are still significant opportunities for sponsorship, product placement and using new and traditional media in new ways.” For example OMD’s initiative for Henkel hairspray Taft built on conventional product placement by getting a Henkel stylist to become a regular feature of a reality TV programme.
Although dozens of local creative shops have sprung up they are unlikely to be given breakthrough accounts while international brands dominate.
“The history of advertising in Russia is just 15-year’s old and we’re still learning,” says Nasalski. “Many advertisers are not yet ready to be creative. Creativity talks to people who can appreciate a high standard of advertising. While many consumers are sophisticated, national campaigns need talk to a wider demographic requiring a lower common denominator.”
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