Advertising Market Rides 'Paris Olympics' Boom... Avoids Domestic Slump Blow

Major domestic comprehensive advertising agencies received mixed results last year depending on their overseas performance. Large advertising agencies benefited from the Paris Olympics boom, avoiding the direct impact of sluggish domestic demand, but SM C&C, which relies heavily on the domestic market, saw declines in both sales and profitability.

According to the advertising agency industry on the 15th, Cheil Worldwide, an advertising agency affiliated with Samsung Electronics, recorded sales of 4.3442 trillion KRW last year, a 4.98% increase compared to the previous year. Operating profit during the same period grew by 4.29% year-on-year to 320.7 billion KRW. Innocean, an advertising agency affiliated with Hyundai Motor Group, posted sales of 2.1205 trillion KRW last year, up 1.3% year-on-year, and operating profit rose 3.8% to 155.7 billion KRW.

HS Ad, an advertising agency affiliated with LG Group, recorded sales of 554.7 billion KRW and operating profit of 29.6 billion KRW last year, growing 1.17% and 11.83%, respectively. On the other hand, SM C&C, an advertising agency affiliated with Kakao, saw its sales drop 13.6% year-on-year to 109.94 billion KRW, and operating profit fell 24% to 1.585 billion KRW.

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The domestic advertising market is closely linked to the economic growth rate. When the economy is booming, companies increase their advertising expenditures, but when the economy contracts, they reduce them. Especially in South Korea, where large corporations account for a significant portion of domestic advertising spending, there is a tendency to cut advertising budgets first during economic downturns.

As a result, most of the growth recorded by domestic advertising agencies last year was from overseas markets. For example, Cheil Worldwide’s domestic sales accounted for 21.6% of total sales, while overseas sales made up 78.4%. Looking at overseas performance in the third quarter of last year, major subsidiaries in the U.S. recorded an 18.6% year-on-year increase in operating income, and India achieved a high growth rate of 20.7%. Although growth continued domestically, centered on retail and digital advertising, the growth rate was lower than overseas.

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Innocean also showed strong growth in overseas markets. Last year, the domestic (headquarters) portion of Innocean’s sales accounted for 23%, while overseas sales made up 77%. Among these, the Americas accounted for 54%, Europe 12%, emerging markets 10%, and China 1%. Notably, operating profit in the Americas grew by 15% year-on-year, while domestic operating profit grew by only 4%.

As of the third quarter last year, HS Ad’s domestic (headquarters) sales accounted for 62.6%, and overseas (subsidiaries) accounted for 37.4%. The U.S. market alone accounted for about 20% of total sales. A representative from HS Ad explained, "Although selling and administrative expenses increased due to the expansion of digital marketing business, operating profit increased as sales and gross profit growth outpaced the costs."

For SM C&C, which experienced declines in both sales and operating profit, the heavy reliance on domestic advertising appears to have been a direct hit. According to the quarterly report from September last year, overseas (export) sales in SM C&C’s advertising division accounted for only 2.4%, while domestic (domestic) sales made up 97.6%. Most advertising revenue is generated domestically. An SM C&C representative said, "The poor performance in sales and operating profit last year was mainly due to the downturn in the broadcasting industry," adding, "The advertising division also saw sales decline compared to the previous year due to intensified competition."

With South Korea’s economic growth rate expected to fall below 2% this year, the domestic advertising market is likely to continue its sluggish trend in sectors other than digital.

Currently, the domestic advertising market is driven by digital advertising such as SNS and YouTube. According to the Korea Broadcast Advertising Corporation (KOBACO)’s January broadcast and telecommunications advertising expenditure survey, total advertising expenditure last year was projected to increase by 2.8% compared to the previous year. In particular, the online advertising market grew by 8.2% year-on-year and is expected to continue growing by 5.1% this year. Conversely, the broadcasting advertising market size was estimated to have decreased by 10.8% last year.

The overseas advertising market conditions are relatively better than domestic. According to global media company Zenith Optimedia, the global advertising market was expected to grow by 4.8% year-on-year last year due to factors such as the Paris Olympics. Online advertising, including SNS, recorded an average annual growth rate of 4.6% and is predicted to account for 61% of the total advertising market by 2026.

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