Sean Milmo, Ink World European Editor03.13.07
Ink makers in Europe are expecting another year of steady growth in demand. Sales of inks went up by
an average of 2 to 3 percent across the region last year. With European economies expected to expand at only a slightly lower rate this year, revenues from inks should accelerate at a similar pace to that in 2006.
The increase in demand for printed products has been strong enough for ink producers to gain significant increases in their selling prices for the first time for many years.
However, ink companies are having to cope with steep increases in the costs of many of their raw materials as the improvement in economic conditions in Europe and worldwide stretches the limits of upstream production capacities in the chemicals chains.
“Even the slight decrease in crude oil prices in recent weeks has not brought any alleviation (on raw materials) as the cost basis has now more than doubled since 2003,” said Dirk Aulbert, president for Europe at Flint Group.
The ink sector is also facing extra costs from tighter legislation in the European Union on health, safety and the environment. Legislation on the controversial REACH scheme for the registration and authorization of approximately 30,000 chemicals and their uses was finally approved at the end of last year, enabling it to start coming into effect this June.
At the same time, the European printing industry and its suppliers are being confronted with mounting evidence that a big switch by advertisers and publishers onto the internet is undermining the long-term future of the print media.
Western European economies have been going though an upturn since around the middle of last year. This improvement has bolstered to some extent the struggling graphics sectors, but some segments of it still remain in difficulties. The most vigorous printing markets have been in Central and Eastern Europe, including Russia, where GDP rates have been the highest in the whole of Europe.
The acceleration in growth in the second half of 2006 began to slow down towards the end of the year and into the early part of 2007. As a result, economists are forecasting that economic growth will be lower than in 2006.
GDP in the 27 countries of the European Union is expected to expand by 2.3 percent this year against 2.7 percent in 2006, according to the European Chemical Industry Council (Cefic). Industrial output will go up by 2.5 percent compared with 3.4 percent in 2006.
Figures from the European Commission, the EU executive, on business confidence show that the printing and publishing sector has been expecting growth in the short term, although its expectations are less optimistic than those in other industries. Levels of confidence also differ geographically.
“There are some striking national differences (in the manufacturing sectors) in the euro area, most notably the contrast of surging output growth in Germany compared with a steep slowdown in France,” said Ken Gaynor, a senior economist at Royal Bank of Scotland, London.
Backlogs of orders in manufacturing in the euro zone, comprising 13 EU countries with the euro currency including Germany, France, Italy and Spain, increased in January this year for the 19th successive month, indicating a lack of spare capacity.
The improvement in the economic climate has helped to generate a recovery in the Western European printing industry, although the extent of the revival has been mixed. In Germany, the region’s largest printing sector, printers are much more hopeful about their business prospects than they were two years ago when the German printing market was in the doldrums.
The latest survey of its members by the German printing industry association (BVDM) show that 19 percent feel good about business conditions, 66 percent satisfied and 15 percent bad. Around a third report that their backlog of orders is so big it is putting pressure on their capacity. At the same time there is evidence in Germany that the decline in prices for printing products is beginning to bottom out.
The UK printing sector, which is Western Europe’s second largest and still highly fragmented despite recent consolidation, has been expecting a better first quarter this year than that in early 2006, when it had its worse winter trading for three years. The second quarter of last year was the most depressing in recent times, with overcapacity in the industry driving down selling prices.
However, a turnaround in the UK printing market occurred in the second half of 2006 with an upswing greater than the printers themselves had forecast. In a regular survey of business conditions among its member, the British Printing Industries Federation (BPIF) found that in the last quarter, printers experiencing higher sales margins and selling prices outnumbered those who were not. The positive balance for those enjoying better sales margins was the highest for 10 years.
The rally in the fortunes of UK printers is expected to continue well into 2007. The UK research organization Key Note is predicting that from 2007 to 2010, UK printing sales will expand by between 2.2 and 3 percent annually.
Still, across much of Western Europe, overcapacity in printing continues to be a major problem as more printing work shifts to Central and Eastern Europe, where labor costs are lower and productivity higher due to recent investments in modern equipment.
“We are expecting in 2007 similar underlying growth in demand for printing inks in the whole of Europe as last year, around 2-3 percent,” said Felipe Mellado, corporate vice president at Sun Chemical Europe. “But the growth rates will vary with Eastern countries tending to have more growth than Western ones. There will be more consumption of printed material in the UK, for example, but a lot of it will be coming in from outside the UK, including Eastern Europe.”
“Among customer sectors, packaging will grow at around GDP rates as will publications because of the gaining of new readers, particularly in Eastern Europe,” he added.
Nevertheless, with printers in Eastern Europe currently thriving, the pickup in the Western European printing sector has been robust enough to enable ink makers to push through some of their highest increases in selling prices for several years.
The large ink producers have been announcing a series of increases in their prices during the past year in response to increases in their own costs of raw materials, energy and freight.
“Obviously our price increases have been tough for our customers because they are struggling to maintain their own margins,” said Mr. Mellado, whose company has increased its publication inks prices by as much as 5 percent. “It’s been our first major price increase for more than 10 years. We have been relatively successful in gaining the understanding of printers about the reasons for the rises.”
For most ink makers, the main impetus behind the price increases has been an unprecedented surge in raw material costs stemming from imbalances between supply and demand among some key base chemicals. In some cases these have been caused by closures of unprofitable plants by chemical manufacturers. In markets like acrylic acid, output has been diverted from binders for inks and coatings into more lucrative segments such as superabsorbents for diapers.
“After significant and rapid price increases in raw materials over the past years, the markets seem to have stabilized in the short term,” said Mr. Aulbert. “However, we don’t expect to see a return to former levels. We are always searching for global raw material markets in order to secure steady supply and to guarantee sustainable price development for our customers. But the rising global demand for chemical raw materials will further drive those markets on a medium and long-term basis. The pressure will not ease.”
Analysts are predicting more variation in pricing patterns between groups of chemicals. With some, the upward trend in prices will continue well into this year but will then start to ease toward the beginning of 2008 as new production capacity in certain bulk petrochemicals starts to come on stream.
With resins for printing inks, shortages have become so acute that producers have been restricting supplies to ink makers. Some resin producers in Europe complain that because of the prices they are paying due to shortfalls in their own feedstocks, they have not been making money on some of their products.
Among the petrochemical feedstocks, derivatives from benzene and propylene have been severely affected by shortages. Benzene producers in Europe have found that gasoline production has been a more profitable outlet than the making of chemicals. Propylene supplies have been hit by a lack of investment in Europe in ethylene steam cracker capacity.
“It is the petrochemical stream where we have been affected by restrictions on production capacity,” Michael Jacobi, chief financial officer at Ciba Specialty Chemicals, a major supplier of pigments, dispersions, photoinitiators and other chemicals to the graphics industry, told a press conference at Basel, Switzerland, in February.
“We are expecting tight conditions in chains like that coming from benzene to start to ease towards the end of the year as more capacity begins production,” he added. “We would probably expect the rises in some raw material costs to continue until then,”
But scarcities have not always been caused by the squeeze on petrochemicals output. The swing to biofuels has been jacking up prices of vegetable oils used in inks. Rosin prices have been soaring in the wake of increases in prices of crude tallow oil of approximately 60 percent, which has been partly blamed on the transfer of wood chips into energy production.
Pigment producers have been struggling to deal with both rises in costs of chemical raw materials and also steep increases in metal prices for the making of effect pigments.
Prices of aluminum and copper have increased by nearly 50 percent over the past two years. Zinc prices have gone up threefold. Some producers of effect pigment have had to introduce “metal surcharges” on their effect pigment prices to try to offset the volatility of the metals market.
Ciba has put up prices of its pigments by 2 to 10 percent in response to higher raw material costs, particularly those stemming from the soaring metal prices, and also higher energy costs.
“Pigments are less dependent on petrochemicals than other businesses but they are affected by prices of metals like copper and bismuth for making bismuth vanadate,” explained Hermann Angerer, head of coatings effects at Ciba. “The finishing process in the manufacture of pigments is quite energy intensive, but we have been making a lot of progress in reducing our energy consumption.
“Instead of thinking in terms of prices per kilo, we are trying to help our customers get the most value out of our products,” he added. “This could mean cutting services to a customer which he does not really require. Both sides are interested in taking out unnecessary costs.”
For ink companies another source of rising costs are tougher safety and environmental regulations on a widening front. New restrictions on the emissions of volatile organic compounds (VOCs) are due to come fully into effect in the EU this year. Ink producers are also facing the prospect of more rigorous rules on inks in food packaging.
REACH could be a big initiator of additional costs because it will require ink producers to collect safety data on chemicals used in their formulations and on the risks posed by them to printers and other downstream users. Registration costs for chemical manufacturers may be so high that certain chemicals may be withdrawn from the market.
“We are anticipating losing a number of critical materials—due either to our suppliers considering it uneconomical to register a substance for limited use or to their rationalizing of production,” said Mr. Aulbert.
Meanwhile, the longer-term prospects for the print media are becoming somewhat gloomier.
Stronger economic growth in Western Europe has been bolstering advertising expenditure, which is forecast by the London-based media agency Zenith Optimedia to increase steadily over the next few years with a 3.8 percent rise this year. But in the midst of this rise, print media is continuing to lose its share of total expenditure, even in the booming advertising markets of Central and Eastern Europe. The trends in advertising are a warning sign about the long-term future of printing in Europe.
In the UK, the region’s largest advertising market, advertising is predicted to have one of its most buoyant years since the turn of the century. “Main media budgets are set to show the strongest growth for seven years in 2007,” said Chris Williamson, author of a report on advertising trends by the UK economic research organization NTC Economics. “Strength of marketing spend and economic growth as a whole may well exceed many people’s expectations.”
However, a lot of the growth is coming from a big move by advertisers to the internet and, to a lesser extent, outdoor advertising in which digital technologies are also gaining a larger share of expenditure. In the UK, the current share of total advertising expenditure of internet advertising is 13.5 percent, the highest in the world, according to Zenith. In addition, Zenith is forecasting that internet advertising will reach 21.5 percent in the UK by 2009. NTC Economics calculates that 11.5 percent of companies in the UK are now transferring more than 15 percent of their advertising budgets into internet marketing, more than double the proportion six years ago.
Some of the impetus behind the increase in spending on outdoor advertising is coming from its greater presence in and around shops, bars and other locations, which enabled it to become a suitable alternative medium to TV due to its visibility to consumers.
The internet, as well as telecommunications, has also been taking business away from direct mail operators. The latest survey of the UK Direct Marketing Association (DMA) found that spending on direct mail was continuing to decline after a period of vibrant growth. A recent DMA study found that approximately half of e-mail marketing companies in the country were expecting increases in expenditure last Christmas of 15 to 50 percent.
But the print media is failing to benefit proportionately in the current acceleration in promotional spending in Western Europe. Although it accounts for close to half of total advertising expenditure in Western Europe, spending on print media advertising is increasing at a slower rate than that of GDP. Its share of total advertising sales is continuing to shrink.
In Germany, which has the largest print media advertising market, expenditure on magazine advertising is expected to rise by only 3 percent in the period 2007-2009. Spending on German newspaper advertising will increase by only 1.5 percent in four years, according to Zenith.
“Growth in advertising expenditure in the print media in Western Europe is virtually static at the moment after allowing for inflation,” said Jonathan Barnard, head of publications at Zenith. “This will be the trend over the next few years. In volume terms, it might be higher because there has been a big fall in TV advertising prices which could have a big effect on the cost of print media advertising. But overall, newspapers in particular are suffering from the rise in use of the internet, especially in the area of classified advertising.”
The picture for the print media is, however, much brighter in Central and Eastern Europe, including Russia, probably the fastest growing of the national advertising sectors in the whole of Europe. Zenith believes that Central and Eastern Europe is at the moment the most rapidly expanding of the world’s geographic advertising markets, even compared with Asia-Pacific. Advertising expenditure in Central and Eastern Europe is predicted to grow by $13.8 billion between 2006-2009 compared with growth of $12.9 billion in Western Europe whose total advertising market is four times larger.
Eastern European countries, whose economies have been lagging behind those of Western Europe, are not just catching up with the advertising expenditure levels in their richer neighboring region; they are exceeding Western European expenditure rates.
As a proportion of GDP, advertising spending in the Czech Republic and Poland has already reached 1.5 percent. This outpaces the highest level in Western Europe – in Norway where it is 1.1 percent – and is almost twice that of the Western European average of 0.74 percent.
Zenith is forecasting that advertising sales in Central and Eastern Europe’s print media will rise by 11 percent in 2007, compared with 10 percent in 2006. Despite this rapid growth, print media in the region is losing share in the total advertising market as it is in Western Europe.
“Print media’s share in Central and Eastern Europe has dropped from around 35 percent a few years ago to 30 percent,” said Mr. Barnard. “The big drive behind advertising growth in the region has come from TV, which has a 50 percent share. There are less restrictions on TV advertising in Eastern Europe, where the state-owned stations take advertising whereas most of those in Western Europe don’t.”
In Russia, which now has the highest total for advertising expenditure in Eastern Europe, spending on advertisements in the print media rose by 16 percent last year. Zenith is predicting that expenditure on newspaper advertising in the country will rise by 56 percent in the next three years to an annual level of $2.6 billion in 2009, when it will have the third largest newspaper advertising market in the whole of Europe.
Nonetheless, total advertising in Russia will be rising so fast that between 2006 and 2009 it will more than double to $13.5 billion, so that newspaper’s share of total advertising will in fact decrease from 25 percent to 20 percent.
“Advertising is becoming an important part of the Russian economy and is now a driving force behind consumption of consumer products,” said Mr. Barnard. “Its total advertising spend of 0.80 percent of national GDP is already well ahead of the average in Western Europe. Instead, advertising is gaining the sort of prominence it has in the U.S., where it accounts for 1.3 percent of GDP. Advertising in Russia could reach the same level by the end of the decade.”
Ink companies and printers, particularly in Western Europe, are looking at ways of diversifying away from traditional print media. One option is printed electronics, such as the production of RFID tags, but even their emergence on the European market on a mass scale is taking longer than expected.
A recent report by the BPIF suggested that in direct mail, there may be a need for hybrid techniques combining conventional printing with printed electronics containing sensors, conductive inks and flexible displays. The need for long-term strategies to exploit new forms of communication has started to become more urgent.
The increase in demand for printed products has been strong enough for ink producers to gain significant increases in their selling prices for the first time for many years.
However, ink companies are having to cope with steep increases in the costs of many of their raw materials as the improvement in economic conditions in Europe and worldwide stretches the limits of upstream production capacities in the chemicals chains.
“Even the slight decrease in crude oil prices in recent weeks has not brought any alleviation (on raw materials) as the cost basis has now more than doubled since 2003,” said Dirk Aulbert, president for Europe at Flint Group.
The ink sector is also facing extra costs from tighter legislation in the European Union on health, safety and the environment. Legislation on the controversial REACH scheme for the registration and authorization of approximately 30,000 chemicals and their uses was finally approved at the end of last year, enabling it to start coming into effect this June.
At the same time, the European printing industry and its suppliers are being confronted with mounting evidence that a big switch by advertisers and publishers onto the internet is undermining the long-term future of the print media.
Economic Outlook For Europe
Western European economies have been going though an upturn since around the middle of last year. This improvement has bolstered to some extent the struggling graphics sectors, but some segments of it still remain in difficulties. The most vigorous printing markets have been in Central and Eastern Europe, including Russia, where GDP rates have been the highest in the whole of Europe.
The acceleration in growth in the second half of 2006 began to slow down towards the end of the year and into the early part of 2007. As a result, economists are forecasting that economic growth will be lower than in 2006.
GDP in the 27 countries of the European Union is expected to expand by 2.3 percent this year against 2.7 percent in 2006, according to the European Chemical Industry Council (Cefic). Industrial output will go up by 2.5 percent compared with 3.4 percent in 2006.
Figures from the European Commission, the EU executive, on business confidence show that the printing and publishing sector has been expecting growth in the short term, although its expectations are less optimistic than those in other industries. Levels of confidence also differ geographically.
“There are some striking national differences (in the manufacturing sectors) in the euro area, most notably the contrast of surging output growth in Germany compared with a steep slowdown in France,” said Ken Gaynor, a senior economist at Royal Bank of Scotland, London.
Backlogs of orders in manufacturing in the euro zone, comprising 13 EU countries with the euro currency including Germany, France, Italy and Spain, increased in January this year for the 19th successive month, indicating a lack of spare capacity.
Impact on the Printing Industry
The improvement in the economic climate has helped to generate a recovery in the Western European printing industry, although the extent of the revival has been mixed. In Germany, the region’s largest printing sector, printers are much more hopeful about their business prospects than they were two years ago when the German printing market was in the doldrums.
The latest survey of its members by the German printing industry association (BVDM) show that 19 percent feel good about business conditions, 66 percent satisfied and 15 percent bad. Around a third report that their backlog of orders is so big it is putting pressure on their capacity. At the same time there is evidence in Germany that the decline in prices for printing products is beginning to bottom out.
The UK printing sector, which is Western Europe’s second largest and still highly fragmented despite recent consolidation, has been expecting a better first quarter this year than that in early 2006, when it had its worse winter trading for three years. The second quarter of last year was the most depressing in recent times, with overcapacity in the industry driving down selling prices.
However, a turnaround in the UK printing market occurred in the second half of 2006 with an upswing greater than the printers themselves had forecast. In a regular survey of business conditions among its member, the British Printing Industries Federation (BPIF) found that in the last quarter, printers experiencing higher sales margins and selling prices outnumbered those who were not. The positive balance for those enjoying better sales margins was the highest for 10 years.
The rally in the fortunes of UK printers is expected to continue well into 2007. The UK research organization Key Note is predicting that from 2007 to 2010, UK printing sales will expand by between 2.2 and 3 percent annually.
Still, across much of Western Europe, overcapacity in printing continues to be a major problem as more printing work shifts to Central and Eastern Europe, where labor costs are lower and productivity higher due to recent investments in modern equipment.
“We are expecting in 2007 similar underlying growth in demand for printing inks in the whole of Europe as last year, around 2-3 percent,” said Felipe Mellado, corporate vice president at Sun Chemical Europe. “But the growth rates will vary with Eastern countries tending to have more growth than Western ones. There will be more consumption of printed material in the UK, for example, but a lot of it will be coming in from outside the UK, including Eastern Europe.”
“Among customer sectors, packaging will grow at around GDP rates as will publications because of the gaining of new readers, particularly in Eastern Europe,” he added.
Ink Costs and Prices
Nevertheless, with printers in Eastern Europe currently thriving, the pickup in the Western European printing sector has been robust enough to enable ink makers to push through some of their highest increases in selling prices for several years.
The large ink producers have been announcing a series of increases in their prices during the past year in response to increases in their own costs of raw materials, energy and freight.
“Obviously our price increases have been tough for our customers because they are struggling to maintain their own margins,” said Mr. Mellado, whose company has increased its publication inks prices by as much as 5 percent. “It’s been our first major price increase for more than 10 years. We have been relatively successful in gaining the understanding of printers about the reasons for the rises.”
For most ink makers, the main impetus behind the price increases has been an unprecedented surge in raw material costs stemming from imbalances between supply and demand among some key base chemicals. In some cases these have been caused by closures of unprofitable plants by chemical manufacturers. In markets like acrylic acid, output has been diverted from binders for inks and coatings into more lucrative segments such as superabsorbents for diapers.
“After significant and rapid price increases in raw materials over the past years, the markets seem to have stabilized in the short term,” said Mr. Aulbert. “However, we don’t expect to see a return to former levels. We are always searching for global raw material markets in order to secure steady supply and to guarantee sustainable price development for our customers. But the rising global demand for chemical raw materials will further drive those markets on a medium and long-term basis. The pressure will not ease.”
Analysts are predicting more variation in pricing patterns between groups of chemicals. With some, the upward trend in prices will continue well into this year but will then start to ease toward the beginning of 2008 as new production capacity in certain bulk petrochemicals starts to come on stream.
With resins for printing inks, shortages have become so acute that producers have been restricting supplies to ink makers. Some resin producers in Europe complain that because of the prices they are paying due to shortfalls in their own feedstocks, they have not been making money on some of their products.
Among the petrochemical feedstocks, derivatives from benzene and propylene have been severely affected by shortages. Benzene producers in Europe have found that gasoline production has been a more profitable outlet than the making of chemicals. Propylene supplies have been hit by a lack of investment in Europe in ethylene steam cracker capacity.
“It is the petrochemical stream where we have been affected by restrictions on production capacity,” Michael Jacobi, chief financial officer at Ciba Specialty Chemicals, a major supplier of pigments, dispersions, photoinitiators and other chemicals to the graphics industry, told a press conference at Basel, Switzerland, in February.
“We are expecting tight conditions in chains like that coming from benzene to start to ease towards the end of the year as more capacity begins production,” he added. “We would probably expect the rises in some raw material costs to continue until then,”
But scarcities have not always been caused by the squeeze on petrochemicals output. The swing to biofuels has been jacking up prices of vegetable oils used in inks. Rosin prices have been soaring in the wake of increases in prices of crude tallow oil of approximately 60 percent, which has been partly blamed on the transfer of wood chips into energy production.
Pigment producers have been struggling to deal with both rises in costs of chemical raw materials and also steep increases in metal prices for the making of effect pigments.
Prices of aluminum and copper have increased by nearly 50 percent over the past two years. Zinc prices have gone up threefold. Some producers of effect pigment have had to introduce “metal surcharges” on their effect pigment prices to try to offset the volatility of the metals market.
Ciba has put up prices of its pigments by 2 to 10 percent in response to higher raw material costs, particularly those stemming from the soaring metal prices, and also higher energy costs.
“Pigments are less dependent on petrochemicals than other businesses but they are affected by prices of metals like copper and bismuth for making bismuth vanadate,” explained Hermann Angerer, head of coatings effects at Ciba. “The finishing process in the manufacture of pigments is quite energy intensive, but we have been making a lot of progress in reducing our energy consumption.
“Instead of thinking in terms of prices per kilo, we are trying to help our customers get the most value out of our products,” he added. “This could mean cutting services to a customer which he does not really require. Both sides are interested in taking out unnecessary costs.”
For ink companies another source of rising costs are tougher safety and environmental regulations on a widening front. New restrictions on the emissions of volatile organic compounds (VOCs) are due to come fully into effect in the EU this year. Ink producers are also facing the prospect of more rigorous rules on inks in food packaging.
REACH could be a big initiator of additional costs because it will require ink producers to collect safety data on chemicals used in their formulations and on the risks posed by them to printers and other downstream users. Registration costs for chemical manufacturers may be so high that certain chemicals may be withdrawn from the market.
“We are anticipating losing a number of critical materials—due either to our suppliers considering it uneconomical to register a substance for limited use or to their rationalizing of production,” said Mr. Aulbert.
Outlook for Print Media
Meanwhile, the longer-term prospects for the print media are becoming somewhat gloomier.
Stronger economic growth in Western Europe has been bolstering advertising expenditure, which is forecast by the London-based media agency Zenith Optimedia to increase steadily over the next few years with a 3.8 percent rise this year. But in the midst of this rise, print media is continuing to lose its share of total expenditure, even in the booming advertising markets of Central and Eastern Europe. The trends in advertising are a warning sign about the long-term future of printing in Europe.
In the UK, the region’s largest advertising market, advertising is predicted to have one of its most buoyant years since the turn of the century. “Main media budgets are set to show the strongest growth for seven years in 2007,” said Chris Williamson, author of a report on advertising trends by the UK economic research organization NTC Economics. “Strength of marketing spend and economic growth as a whole may well exceed many people’s expectations.”
However, a lot of the growth is coming from a big move by advertisers to the internet and, to a lesser extent, outdoor advertising in which digital technologies are also gaining a larger share of expenditure. In the UK, the current share of total advertising expenditure of internet advertising is 13.5 percent, the highest in the world, according to Zenith. In addition, Zenith is forecasting that internet advertising will reach 21.5 percent in the UK by 2009. NTC Economics calculates that 11.5 percent of companies in the UK are now transferring more than 15 percent of their advertising budgets into internet marketing, more than double the proportion six years ago.
Some of the impetus behind the increase in spending on outdoor advertising is coming from its greater presence in and around shops, bars and other locations, which enabled it to become a suitable alternative medium to TV due to its visibility to consumers.
The internet, as well as telecommunications, has also been taking business away from direct mail operators. The latest survey of the UK Direct Marketing Association (DMA) found that spending on direct mail was continuing to decline after a period of vibrant growth. A recent DMA study found that approximately half of e-mail marketing companies in the country were expecting increases in expenditure last Christmas of 15 to 50 percent.
But the print media is failing to benefit proportionately in the current acceleration in promotional spending in Western Europe. Although it accounts for close to half of total advertising expenditure in Western Europe, spending on print media advertising is increasing at a slower rate than that of GDP. Its share of total advertising sales is continuing to shrink.
In Germany, which has the largest print media advertising market, expenditure on magazine advertising is expected to rise by only 3 percent in the period 2007-2009. Spending on German newspaper advertising will increase by only 1.5 percent in four years, according to Zenith.
“Growth in advertising expenditure in the print media in Western Europe is virtually static at the moment after allowing for inflation,” said Jonathan Barnard, head of publications at Zenith. “This will be the trend over the next few years. In volume terms, it might be higher because there has been a big fall in TV advertising prices which could have a big effect on the cost of print media advertising. But overall, newspapers in particular are suffering from the rise in use of the internet, especially in the area of classified advertising.”
Growth in Eastern Europe
The picture for the print media is, however, much brighter in Central and Eastern Europe, including Russia, probably the fastest growing of the national advertising sectors in the whole of Europe. Zenith believes that Central and Eastern Europe is at the moment the most rapidly expanding of the world’s geographic advertising markets, even compared with Asia-Pacific. Advertising expenditure in Central and Eastern Europe is predicted to grow by $13.8 billion between 2006-2009 compared with growth of $12.9 billion in Western Europe whose total advertising market is four times larger.
Eastern European countries, whose economies have been lagging behind those of Western Europe, are not just catching up with the advertising expenditure levels in their richer neighboring region; they are exceeding Western European expenditure rates.
As a proportion of GDP, advertising spending in the Czech Republic and Poland has already reached 1.5 percent. This outpaces the highest level in Western Europe – in Norway where it is 1.1 percent – and is almost twice that of the Western European average of 0.74 percent.
Zenith is forecasting that advertising sales in Central and Eastern Europe’s print media will rise by 11 percent in 2007, compared with 10 percent in 2006. Despite this rapid growth, print media in the region is losing share in the total advertising market as it is in Western Europe.
“Print media’s share in Central and Eastern Europe has dropped from around 35 percent a few years ago to 30 percent,” said Mr. Barnard. “The big drive behind advertising growth in the region has come from TV, which has a 50 percent share. There are less restrictions on TV advertising in Eastern Europe, where the state-owned stations take advertising whereas most of those in Western Europe don’t.”
In Russia, which now has the highest total for advertising expenditure in Eastern Europe, spending on advertisements in the print media rose by 16 percent last year. Zenith is predicting that expenditure on newspaper advertising in the country will rise by 56 percent in the next three years to an annual level of $2.6 billion in 2009, when it will have the third largest newspaper advertising market in the whole of Europe.
Nonetheless, total advertising in Russia will be rising so fast that between 2006 and 2009 it will more than double to $13.5 billion, so that newspaper’s share of total advertising will in fact decrease from 25 percent to 20 percent.
“Advertising is becoming an important part of the Russian economy and is now a driving force behind consumption of consumer products,” said Mr. Barnard. “Its total advertising spend of 0.80 percent of national GDP is already well ahead of the average in Western Europe. Instead, advertising is gaining the sort of prominence it has in the U.S., where it accounts for 1.3 percent of GDP. Advertising in Russia could reach the same level by the end of the decade.”
Ink companies and printers, particularly in Western Europe, are looking at ways of diversifying away from traditional print media. One option is printed electronics, such as the production of RFID tags, but even their emergence on the European market on a mass scale is taking longer than expected.
A recent report by the BPIF suggested that in direct mail, there may be a need for hybrid techniques combining conventional printing with printed electronics containing sensors, conductive inks and flexible displays. The need for long-term strategies to exploit new forms of communication has started to become more urgent.