ANALYSIS, CANNUAL REPORT 2015
During the last few weeks, when the datasets of this report were transformed into colorful graphs one after another, European politicians were conducting a debate on how to handle the inrush of refugees arriving from the Middle East to Southern Europe and the Balkans and heading toward the Western part of the old continent. Over the on-going dispute between those calling for fences to shut down the borders with, and their opponents, committed to relocate migrants by means of a quota system, users on social networks and web forums raised the question: how can refugees afford having a smartphone?
It is clear that hard economic data like broadband Internet or smartphone penetration of a certain society helps understand the actual state of a region, but only measure citizens’ welfare and the potential of markets when the circumstances are ordinary. The operation systems running on Syrians’ and Afghans’ smartphones give little – if any – insight into their countries’ economic situation, the purchasing power of people left behind, or the long-term prospects of brands lined up on the shelves of shops in these countries.
CENTRAL AND EASTERN EUROPE IN THE MAINSTREAM
On these terms, Central and Eastern European countries are just part of an ordinary world. Despite the political transition swept through the region 25 years ago, saddled with the Yugoslav Wars and recently with the Russian-Ukrainian crisis, everyday life today is supported by functioning economies. This means economic growth, although moderate, still, in many countries, exceeds the EU average, diverse but real purchasing power, and measurable advertising markets. Of course, there is still a lot of talking about the interpretation of democracy, the rights of the state, its intervention into market condition, its influence both on any media content and the sector’s economy, or its obvious pressure on the freedom of expression. Nowadays, many feel that it is more disappointing to face the outcomes of the development since the political transition, than the entire political heritage of the preceding 45-50 years.
Still, taking a look at the Central and Eastern European region from a wider perspective, our situation can even be considered as privileged. Although the difference between the GDP per capita figures of Slovenia (EUR 21,467; the country that ranks as highest in this respect in the region), and Ukraine (EUR 2,730; which ranks as lowest) is enormous: nearly eightfold, the so-called Human Development Index (HDI) literally places the region’s countries where they actually belong to: the mainstream. Within the HDI ranking, along with Australia (0.933), the U.S. (0.914), Canada (0.902) or Singapore (0.901), all Western European countries are taking the high ground. But not only them: nine Central and Eastern European countries featured in the CANnual Report belong to the world’s 50 most developed states, with Slovenia appearing at the distinguished top-25 of the list. However, the five countries that do not make it to the “very high human development” group do not lag behind significantly, either. They are all “high human development” countries that follow the top category closely.
The region’s countries ranked by the Human Development Index
The Human Development Index (HDI) is an indicator that compares countries based on life expectancy, literacy, education and standard of living, indicated by per capita income, among others. It distinguishes developed, developing and undeveloped countries and makes economic policies’ complex effects on living standards measurable. It has been released by the UN, on a yearly basis since 1993.
With regard to Internet access, another indicator much closer to both the advertising market and the everyday life of the consumers, there are no off-track countries, either. It is often said that Internet is the most democratic invention ever, because it contributes to closing the gaps among continents, regions, countries and social classes, thanks to providing access to information. This thesis is supported by the graph that illustrates the Internet penetration of the region.
ONLINE MARKET – WHERE NOTHING IS WHAT IT SEEMS TO BE
The difference of Internet penetration is only 20% between the Czech Republic (the first country in the region with 82%) and Romania or Bulgaria (the last ones in the ranking). Despite the fact that the Czech Republic ranks 3rd in terms of GDP, while the latter countries’ GDP per capita figure is only half or one third of the Czech gross domestic product figure (per head). It means that the number of Internet connections, although not entirely unrelated to countries’ economic potential, significantly reduces the differences. It does so, to such an extent that Serbia and Ukraine are much closer to the regional average of Internet penetration (67% vs 71%) than Romania or Bulgaria. Internet penetration is the lowest in the latter countries with 62%, despite the GDP per capita of Romania is three times higher and that of Bulgaria, two times higher than in Ukraine.
Internet penetration in the region’s countries in the light of GDP per capita
46.8% of the region’s 202.5 million Internet users live in Russia, and 34.3% is made up by the region’s other 3 big markets: Ukraine, Poland and Romania. The remaining 18.9% is divided among 10 countries.
At first sight, it would be easy to settle the question of each market’s development level by stating that the most populated countries (like Russia, Ukraine and Romania) are characterized by low Internet penetration and, smaller countries’ Internet economy in the region are necessarily further advanced, in line with the GDP and HDI data. But we are talking about Central and Eastern Europe, where even markets of similar size can reveal totally different pictures. For instance, let’s take a look at the Czech Republic, having the highest Internet penetration in the region (82%) and Slovakia (69%) that is slightly below the regional average (71%). In both countries, more than half of the users (54%) belong to the lowest ESOMAR (DE) category, being the last in the region in this respect. At the same time, Hungary, situated just above the regional average (73% vs. 71%), only 38% of users belong to this ESOMAR group. Or let’s take a look at Latvia, where penetration is similar to that of Slovakia (69%), but the proportion of ESOMAR DE users is only 28%, compared to Slovakia’s 54%.
Internet penetration in the region and online ad spending per capita (EUR)
11 countries in the region by ESOMAR social grades
Internet penetration, the distribution of users by social grades and online ad spending per capita give an interesting picture of the diverse nature of Central and Eastern European countries. But most of all, it compels us to suspect that it is impossible to draw conclusions about the development of advertising markets on the basis of the countries’ individual economic performance.
How do these differences affect the advertising economy? The result is even more surprising once we add countries’ online ad spending to the data mentioned so far. In Hungary, where Internet penetration barely exceeds the regional average, the share of online of the total ad spending is higher than in most countries of the region (except for the Czech Republic and Poland), and it is followed by Slovakia, already mentioned in the last paragraph. The fifth is Ukraine, where not only is the GDP per capita significantly lower, but also, the ad spending per capita is only one eighth of that of the Czech Republic. What is more, in Latvia, where the number of Internet users belonging to higher ESOMAR categories is proportionally higher than that of the other countries, online ad spending per capita (14%) can be considered as a good result – but only within the lowest third of the list.
The share of online from the total ad spending per capita vs. Internet penetration
The share of online ad spending (per capita) is the highest in the Czech Republic (47%) and Poland (31%) and the lowest in Croatia (9%). Even though the GDP per capita figure in Serbia is four times lower than in Slovenia, both countries end up in the lowest third of the list, with 12%.
Distribution of digital ad spending by formats
Apparently, there is no unified standard in the region of measuring the distribution of online ad spending by formats. In the absence of such a method, we can assess the development of digital advertising markets by looking at the proportion of ad spend on display advertising, that is, the classic banner and other formats, and by examining how detailed the categorization of these ‘other formats’ is. It is surprising how low the proportion of display solutions is in Russia. This implies that the Search category, which makes up more than three quarters of online spending in that country, encompasses all other formats, and actually refers to a sufficiently diversified online advertising market.
So which Central and Eastern European country has the largest, strongest and most developed online market? Apparently, it is not easy to even articulate this question. One of the CANnual Report’s goals is, as the example shows, to provide data from different angles to determine possible questions and answers.
THE DETHRONEMENT OF TELEVISION
As market structure is a telling indicator of the online market, the distribution of a country’s total ad spending between old and new media reveals a great deal about the development of the advertising economy, compared to European or worldwide trends. Due to the growth of the online segment, the dominance of television and print media, the two types that had absorbed the greatest part of ad spending for decades, has vanished in 15 years. In the most developed advertising markets, online ad spending does not only reach the level of TV ad spend, but exceeds it. At the end of the 2000s, the trend was set back by the bursting of the dot-com bubble, but at the end of the decade, it was significantly accelerated by the economic crisis that mainly affected developed economies. The crisis shifted advertising spending towards smaller budgets, increased efficiency and more precise targeting.
In response to this process, TV and print companies created new themes, addressing more and more narrow target audiences. It is no accident that there are over 100 native-language TV channels in Hungary (not including regional and local channels that reach a few thousand or one-two hounded thousand viewers). Moreover, the biggest national public or commercial TV companies are still actively searching for new opportunities to increase their ever-eroding audience by launching new channels or extending their cable portfolio.
The trend of growing number of topics also characterizes the online market. Even if the flood of user-generated contents (resulting from web 2.0 solutions) or the effect of content aggregation (coming to existence with social media) would not be enough to conquer TV budgets: search engine marketing, classifieds, performance and inbound marketing would create new potential frontlines. Not to mention the increasing importance of the growth of smartphone penetration, with regard to both content and advertising consumption.
Broadband subscription (OECD average (78%) vs. countries in the region)
The development of advertising on mobile devices is generally related to increasing bandwidth access. In Central and Eastern Europe the only country where the number of broadband mobile subscriptions exceeds the OECD average (78%) is Estonia – and it is significantly higher! It is no coincidence that Estonia is the homeland of Skype. They are the country in Central and Eastern Europe where chatting is the most popular, and the mobile broadband subscription rate – 97 out of 100 people have one – is higher than in Norway (94%) or the UK (80%). In the Czech Republic, it is 72%, which is far higher than in Germany (63%), Austria (66%), Italy (67%), Holland (67%) or Switzerland (69%). What is more, even Slovakia outpaces countries like France (60%) or Belgium (60%). In comparison, the figures of Romania (38%) or Hungary (33%) are depressing. It is surprising that in the latter country one tenth of online ad spending goes to mobile media.
Therefore, it is no surprise that in the Czech Republic, the region’s lowest share of TV from the total ad spending combines with the region’s highest share of online ad spending (29% and 47%, respectively). But this is not necessarily the case when it comes to the other way round. The share of online spending in Romania (18%), the country with the highest share of TV ad spend (59%), can be considered as a high one even on the middle ground. Croatia ranks last in the region, with only 9% of online ad spending, combined with 50% of TV and 22% of print. The share of print from the advertising pie puts Croatia on the level of Slovenia, Estonia, Lithuania, Hungary and Serbia, where the print sector, though continuously decreasing, is still a considerable segment.
Advertising pies in 14 countries
Among the countries with the lowest Internet spending (Croatia, Serbia, Slovenia, Bulgaria, Latvia, Lithuania), Bulgaria’s share of TV ad spending (55%) is far above the regional average (45%). In Romania (59%), the growth of online market led rather to the decrease of the print segment: the sector’s share (9%) is the lowest in the region, similar to that of Poland (9%).
Share of TV within the total ad spending; set against time spent watching TV (in 14 countries)
As we have already seen, Internet penetration does not directly correlate with the share of online within the total ad spending. Although this is not necessarily true for the share of TV spending set against the time that viewers spend watching TV. In Romania, where the share of TV ad spending is the highest in the region, the average time spent watching TV is 5 hours 21 minutes daily, the second highest in the region. The figures of the Czech Republic are also coherent in this respect as the region’s lowest TV spending (29%) goes hand in hand with the lowest amount of time spent a day in front of the television set (3 hours and 27 minutes). The fact that Hungary ranks second last on the list of TV ad spending, while ranks sixth in terms of time spent watching TV (4 hours 48 minutes), proves that TV is a highly under-priced medium in the country, considering the amount of both individual viewers and time spent, and despite the channels’ efforts to position themselves as premium advertising spaces.
Print’s share in the total advertising spending in 14 countries
Countries of large population undoubtedly resemble each other in the sense that the significance of print media has decreased within the total ad spending everywhere. In case of Russia, Ukraine, Poland, Romania and Bulgaria, the share of print ranges between 9% and 12%. In this respect, the Czech Republic and Slovakia are odd ones out with their 13% share. It is remarkable that Estonia (29.2%) and Slovenia (27%) top the list: it seems that the print segment of small markets with a high GDP is necessarily well developed. This rule seems to apply to other small markets of the region as well.
Radio’s share in the total advertising spending in 14 countries
Radio advertising market is dominated by the spending of the Baltics: Latvia (13%), Estonia (10.7%) and Lithuania (9%) top the list, while Ukraine (3.17%) ranks as last. Market relevance of radio is affected by the fact (though it does not have a great influence over the ad spending that in some markets like Ukraine, the number of Internet users listening to online radio is rather significant (29%). Serbia’s case is even more surprising, due to the fact that 44% of Internet users listen to the radio online there.
Indoor-outdoor’s (OOH) share in the total advertising spending in 14 countries
In Central and Eastern Europe also, the size of the Out of Home media is less determined by other media types but the legislation concerning location of these advertising or the products that can be advertised by them. The fact that the share of OOH in Bulgaria (13%), the country that ranks as first on this list, is two and a half times greater than that of Poland (5%), the last one on the same list, can rather be explained by local conditions.
What is the difference between the typical Central and Eastern European consumer and his Western European or American counterpart? There is a short and obvious answer to this question: the majority represents a lower purchasing power: they simply live on less money. But this does not necessarily mean that people living in the region keep their desires under control when it comes to the possession of global brands. In spite of economic conditions, quality is appreciated by Central and Eastern European people as well. On top of that, one sometimes may have the impression that large sections of society tend to put common sense aside, especially if a product enables them to demonstrate that they belong to the global frontline of consumers. Let’s take a look at smartphone penetration in Russia (36%), which is just slightly above the regional average (34%). However, iPhone’s market share is 53.7%, which is astonishingly high compared to the brand’s 30.5% market share of in 2015 in America, where the brand originally comes from. Also, the regional average of iPhone penetration is 29%, which certainly can not be described as low, considering it is 34.1% in the UK.
Market share of mobile devices by brands
There is nothing new under the sun. The competition of mobile devices is dominated by the fight between Samsung and Apple in Central and Eastern Europe, too. And like in any other part of the world, the most popular smartphone operation system is Android.
Apparently, Central and Eastern Europeans’ demand for community relations is just as strong as in the western part of the world, including the homeland of Facebook. Although the regional average of Facebook penetration (41%) lags behind the U.S. average (49%), there are two countries in Central and Eastern Europe that developed at a faster pace than others. It might be surprising that Serbia tops this list (52%), followed by Hungary (51%). Some years ago, the latter still had a big local community platform called iWIW that had introduced users the benefits of social media. After iWiW lost the race against Facebook – in spite of a significant acquisition and recapitalization – and was shut down, Facebook gained a mass of already literate social media users in a short time.
Proportion of social media users among Internet users
The popularity of social media is the highest in Russia, followed by Poland, Estonia, Slovakia and Serbia. But social media in the region does not necessarily mean Facebook or YouTube.
The social “colonization” of large markets is not that easy, considering that in many countries in the region, especially in markets like Russia or Poland, there are many competitors with sound position. Vkontakte.com and video-sharing site Odnoklassniki.ru altogether have nearly 90 million users only in Russia, and the latter has a notable position in Latvia as well. The number of active users of OK.ru in Ukraine is more than 6 million, but Poland’s NK.pl with nearly 4.7 million users, or the local video sharing platform CDA.pl with over 5 million regular visitors represent a remarkable crowd as well, considering the size of these countries’ population. It is easy to notice that in the countries where strong local social media sites exist, global community networks’ growth remains moderate. Certainly, diversity in language is partly responsible for this. However, in most Central and Eastern European countries where there are not any strong local brands, Facebook penetration is above the regional average.
The penetration of Facebook and popular local community networks
Social network Vkontakte in Russia has twice as many users as Facebook. Along with Russia, Facebook is not a market leader in Latvia, either, as consumers prefer local social media sites. In Serbia and Hungary, more than half of the Internet users have a Facebook account.
The popularity of chat among Internet users
Estonia, homeland of Skype certainly ranks as first, but Czech, Polish and Lithuanian users like to communicate through chat programs, too.
OVERTAKING – IN PROGRESS
It is easy to notice that more and more people create a “second life” in community networks in Central and Eastern Europe also, to connect the world outside. But it does not mean that everyday activities like shopping are happening through online channels as well. Let there be no mistake: a significant part of Internet users (for instance, 42% in Hungary) has already done some shopping online, and more than half of them use this channel every 6-8 weeks to buy goods or services.
The proportion of online shoppers among Internet users
In line with Internet penetration, online shopping is most popular in the Czech Republic (competing head-to-head with Poland and Estonia), but there is a considerable market in Slovakia and Hungary, too.
At the same time, share of online sales in the total volume of retail sales is one-digit in Central and Eastern European markets also. It does not automatically mean that we lag behind Western Europe, where the average share of online channels from retail sales is 5.1%. Estonia is much more advanced (with 7.2%), but the figures of the Czech Republic (7.1%) and Poland (5.4%) also confirm that the region takes all opportunity to overtake quickly when it comes to changing traditional channels of commerce.
The share of online within total retail sales
Obviously, there is still room for improvement in terms of consumer confidence – and whitening the economy – in Central and Eastern Europe, where people still tend to pay cash upon delivery for the goods they purchased online. 85% of online purchases in Ukraine, and 81% in Romania is still settled this way, while Hungary’s 74% could be improved, too. It is important to point out that online payment methods (like Internet banking or bankcard payments) are easily available: 61% of Hungarians, 60% of Russians and 33% of Romanians who purchased goods or services online already paid this way, too. While in Romania, a payment method that is more typical in less developed markets can be detected: 8% of online purchases are settled via SMS-based systems.
CHALLENGES WITHOUT BORDERS
The data presented in the CANnual Report make it clear that Central and Eastern Europe has not only been able to get rid of the iron curtain in the past 25 years, but the region’s countries have made important steps to develop their societies, strengthen their economies and introduce new communication solutions and technologies to their markets. But challenges never stop occurring.
During the weeks when the datasets of this report were transformed into colourful graphs one after another, European politicians were not busy only with the effects of the inrush of refugees, but also, in the wake of the terror attacks in Paris, more and more countries introduced stricter security measures. Concerts, mass events and football tournaments were cancelled, and some urged for the revision of the entire Schengen system, that for a long time, was only expanding and created open borders without control and free movement of people and goods. One version would practically reinstall a Europe that is physically divided in two. At the moment these lines are written we do not yet know whether it will become reality – in the shadow of refugee flows and the terrorist threats. Are European politicians only able to give answers that consider historic regression as the direction of Europe’s future?
As I emphasized at the beginning of this article, the actual state of a country or a region can be examined, analysed and assessed through data – but only if circumstances are ordinary. It is a Central and Eastern European characteristic that circumstances here are interpreted as ordinary within broad limits. The top-10 Google keywords in Estonia include train schedules, a music festival, iPhone 6, the Winter Olympics, the Eurovision Song Contest, AliExpress, an online game, Ebola virus and Robin Williams. And it also includes the name of a country, which, despite of having a significant territorial and political conflict with Russia, ranks only tenth: Ukraine. At the same time, the top-10 keywords in Ukraine include the title of a TV series, eight news sites and the U.S. Dollar exchange rate.
That is what two neighbouring countries, busy with entirely different things, look like.
That is why it matters where we try to set up fences again – in a region that can deliver remarkable results in terms of economic and advertising trends even from the developed West’s point of view. It is not the reason why we created the CANnual Report, but hopefully its data can be interpreted in this perspective as well. Have a useful reading!
Author: András Viniczai, Editor-in-Chief of the CANnual Report 2015
This article was originally published in the CANnual Report 2015 under the title “The Footnote of a Ranking.”
The source of all data cited in this article is included in the CANnual Report. For more information on the advertising markets of Central and Eastern Europe download the report for free.
Related article: How to measure the performance of the advertising market? – The weCAN Ranking