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Market Insight

Protest in Hong Kong: minimal impact on advertising short-term, but risk of long-term decline imminent

November 13, 2014  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit
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Hong Kong has been in a state of civil unrest since September 2014 against China’s decision on proposed electoral reform. The Chinese government ruled that only candidates approved by a pro-Beijing nominating committee will be allowed to run for the election. Pro-democracy protesters’ demonstrations have lasted for more than a month now, pressuring China to give Hong Kong open nomination and full voting rights in the upcoming 2017 Hong Kong Chief Executive election. 

Hong Kong’s economy will suffer if the situation persists and will have an adverse effect on the advertising market in the mid to long-term. 

Our analysis

The fourth quarter is a peak time for Hong Kong businesses, due in large part to the in-flow of mainland China visitors during the golden week from 1 October for the National Day celebration. Mainland China visitors accounted for 75% of Hong Kong’s 2013 total arrivals, according to statistics published by the country’s Tourism Commission; and they contributed one third of all retail sales in 2013, according to Credit Suisse. Thus far, due to a travel warning issued by the Chinese National Tourism Association, retail sales have been below expectations and expected to decline -1.5% in 2014. As a result, luxury brands which rely heavily on mainland visitors are expected to temporarily cut down advertising spend for the quarter. With a weak retail market, IHS also expects an advertising slowdown in other sectors such as entertainment, cosmetics, jewelry and clothing.

During a socio-political unrest, local consumers also tend to feel hesitant to spend on goods. However, department stores and grocery retailers are unlikely to restructure advertising expenditure, this year. They still have hope that advertising will push consumption and drive Q4 revenues.

Meanwhile, institutions’ spend on advertising is expected to increase slightly. Amidst the civil unrest, print advertising has been used by professional bodies as a medium to spread public messages. As much as Hong Kong residents support the rationale behind the movement, they are upset with the unlawful approach the protesters take, which has caused chaos in the city. Accounting firms and financial institutions are examples of professional bodies that have taken up front pages of newspapers for their civil advertising campaigns, delivering social messages and raising awareness about the damage the protest would bring.

Brand safety is another issue of concern for advertisers in the current political climate. For instance, an HSBC social advertising poster was hijacked by protesters. The original advertisement which featured the word “patriot” was imitated and replaced with “traitor”. Fear of vandalism and tampering with advertising messages will deter advertiser spend until protests subside. 

Based on IHS’s observation, television and newspaper will continue to lead the advertising market, affected minimally by the protest though the spending pattern of each industry differs.  Television and newspaper accounts for 33.7% and 24.8% respectively in 2013 and are expected to grow steadily in the next three years.

However, although positive and negative indicators for advertising counterbalance each other in the short-run; should protests continue, IHS believes that advertising in the country will be extensively affected in the long run mainly due to economic decline. IHS forecast advertising revenues to grow 9.9% in 2015, driven by digital advertising. Nonetheless, the projection might appear too optimistic, in view of the depressing economic climate. An uncertain economic climate is always a cause of concern for advertisers and the longer it lasts, the more significant the impact on advertising revenue.    

For the time being, the industry can only hope that the Shanghai-Hong Kong Stock Connect which was set to begin on 17 November 2014 would help ease the economy. The program allows mainland investors to trade eligible Hong Kong-listed stocks directly. What’s more, the government could take a more forcible approach like making arrests, to control the protestors who have been causing disorder in the city.    

Geography
Hong Kong
Research by Market
Media & Advertising
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