New TV ad rules in China steer media budgets to digital

As of 1 January, China’s media regulator, the State Administration of Radio, Film and Television (SARFT), has prohibited commercial breaks during dramas — meaning advertisers have not been able to buy airtime in the middle of an episode.

These changes have impacted media plans and ad budgets that were already locked down before the new year started, and before the SARFT regulations were announced last November.

Carter told Campaign this less-intrusive step is positive for TV viewership, but not good news for commercial viewership. "Every advertiser now wants to be in the beginning or bottom two positions in that long, cluttered block of ads".

With supply of ad inventory down and demand still up, that explains the "rapidly escalating" TV inflation, according to Seth Grossman, managing director of Carat China. With the high cost of TV ads difficult to absorb, advertisers have no choice but to look for alternative ad mediums to reach consumers. 

Digital media is one big beneficiary, as Grossman notes a rise in overall digital usage in clients' media budgets, which were significantly adjusted after the SARFT rules. Also fueling this move is the better cost-per-thousand reach of the online environment, Grossman emphasises.

Latest figures from the China Internet Network Information Center (CNNIC) show internet use among the 1.3-billion population has increased by 12.2 per cent in December 2011, from a year earlier. 

Internet advertising platform owners like AdChina are witnessing the accelerated shift to digital media, especially online video, that is only growing faster with higher speeds and lower prices of broadband.

In a report providing the outlook for China's digital media scene, AdChina estimates "dramatic and speedy" growth of internet advertising in 2012, partly caused by said state-imposed limitations on advertising, and partly attributed to client confidence based on proven digital results.

Jing Pan, AdChina's marketing vice president and chief editor for the report, says her team finds that technology-driven internet advertising in the mainland has grown from close to zero per cent of total ad spending five years ago, to eight per cent in 2011. She predicts the number will double over the course of 2012.

Moreover, China's internet population exceeded 510 million as of the end of 2011, and netizens spend almost as much time on the internet as on TV, according to Sinomonitor's China Marketing and Media Study (CMMS).

Online media rates in China, however, are in the same inflationary boat as traditional TV. For example, media inflation for online video are at about 50 per cent for pre-roll ads typical on site operators such as Youku and Tudou, Carter points out.

Pan also warns it is impossible for video sites to digest all ad budgets shifted from TV to internet video. This is because most advertisers command online traffic from only tier 1 and 2 cities, which only accounts for just 30 per cent of total traffic on online video sites.

Still, there is no doubting the power of television as it remains dominant in ad expenditure, taking a 56.5 per cent share, according to the 'This Year, Next Year' report from GroupM China. TV's influence is, however, waning as its share of total ad spending has tended downwards since 2007's peak of 65 per cent. 

All in all, whether it is TV or digital, global advertisers will not allow China to be under-invested despite tougher restrictions and higher media inflation rates, Grossman concludes.