2021 China Media Inflation Trend Report An R3 Report

DRIVING TRANSFORMATION FOR MARKETERS & THEIR AGENCIES

Background and Methodology This is the 10th annual edition of the R3 China Media Inflation Report covering 2020 actual inflation and 2021 inflation forecasts. In compiling this report, R3 referred to the public rate card of 700+ media and buying policies of 20+ media agency holding groups and local media agencies. This report is an overall media inflation forecast. We do not rely on any one single data source, and R3’s inflation forecast is believed to have one of the most objective and independent views.

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Methodology The data for report comes from R3’s Media Rate Card Pool and Media Cost Pool. Covers 700+ media, 20+ media agency holding groups and local media agencies.

Agencies

Media

Digital Mobile

Digital PC

OTT

OOH

119

89

5

81

TV

Newspaper

Magazine

Radio

73

75

66

246

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R3 Media Data Pool

COVERAGE • • • •

Media Net Cost Media KPI Media Ratecard Media Rebate

100% 1st Party Data All data is directly from R3 media audit projects which cover over 40 billion in net media spend annually.

Large Scale Covering full media includes digital, TV, OOH, radio and print. Includes various purchase models.

Continuously Updating

Most updated data accumulation.

Fine Granularity Media cost and pricing policy is by individual ad format level.

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Media Inflation Factors Factors That Impact Media Inflation R3 values media inflation through the perspective of the following key factors:

Micro Economic Environment

Advertising Spending Trend

Digital Market Landscape

2020 Was Hit Hard By COVID

Digital Gain Unable to Offset Spend Downturn

4 Digital Giants Strengthened Their Market Position

• The global health pandemic

• 2020 Q1-Q3 Ratecard

• The four digital giants were

resulted in a slowing GDP and a weakened Consumer Confidence Index compared to the same period last year.

spend decreased 15.4% as business cut or suspended advertising spend.

• Traditional media was

severely affected, while marketers increased their digital investment by an estimated 22.7% growth rate.

able to expand their market share from 65% to 69%.

• The next eleven key plat-

forms (a group of listed companies) has a combined share that is less than onethird of the giants.

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Production Output and Consumer Confidence Was Hit Hard by COVID-19 China’s GDP growth rate slowed but rebounded to a positive value in the second quarter.

GDP Growth Rate of China (vs. same period last year)

6.4%

6.2%

6.0%

6.0%

4.9% 3.2%

2019 Q1

2019 Q2

2019 Q32

019 Q4

2020 Q1

2020 Q2

2020 Q3

-6.8%

China’s Consumer Confidence Index reached the lowest point in June. It has begun to recover.

CCI Growth Rate of China (vs. same period last year) 3.88% 1.55%

1.19% -1.10% -1.27% -0.95%

0.41%

1.80% 1.64%

0.24% -0.56%

-2.14%

-0.63% -1.53% -5.63%

-7.10%

-5.79%

-6.16%

-4.90%

-2.90%

-10.56% 2019.1

2019.3

2019.5

2019.7

Data Source: National Bureau of Statistics of China

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2019.9

2019.11

2020.1

2020.3

2020.5

2020.7

2020.9

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Digital Maintains Strong Growth, Despite Shrinking of Total Ratecard Spend Media Aggregate Ratecard Spending Contracted*1

Growth Rate of Digital Advertising Revenue*2

Growth Rate of OOH Investment*3

2020 Q1-Q3

2020FY Estimation

2020 Q1-Q3

-15.4%

+22.7%

+1%

2019

-7.4%

2018

+2.9%

Short Video

+66.3%

562 million Live Streaming Viewers

e-Commerce

+27.3%

80% 2017

+4.3%

Social

2016

-0.6%

News

+23.9%

of total netizens are shopping online

+10.4%

Vertical

+8.1%

Search

+2.4%

Online Video

-3.1%

Data Source: *1 CTR (Internet, TV, Radio, Print, OOH, excl. Social KOL, eCommerce and Content Co-op); *2 iResearch; *3 CODC

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4 Digital Giants & 11 Key Platforms Make Up 90% of Total Market Share Advertising Revenue

+14%

+35%

+22%

-15% 01

00

200

300

2019 H1

400

500

600

700

800

2020 H1

Market Share% 100% 90%

16.3%

80% 70%

9.5%

Digital Giant

21.5%

Key Platforms

18.8%

Others

60% 50%

4 Digital Giants: Alibaba Group, ByteDance, Tencent,

83.7%

40% 30% 20% 10%

64.9%

90.5% 69.0%

Baidu+IQIYI 11 Key Platforms Used Often: JD, Xiaomi, Meituan, NetEase, Weibo, Sohu, 360, Sougou, Bitauto, Autohome, Bilibili. (Red is not a listed company, revenue is not disclosed) 20191H total market digital revenue is RMB281.5 billion and 2020 1H total digital revenue RMB300.1 billion

0% Data Source: Media publishers revenue is from company financial statements, ByteDance from Wind, Sealand Securities. Total internet revenue is from iResearch 2020 Q2 Internet Data Overview

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Social KOL & Performance Media Are the Fastest-Growing Media Investment Types 2020 Regular Media Newspaper

0.1% Magazine

0.7% Radio

1.5% Digital

2020 Estimation

72.2%

TV

13.5% OOH

12%

2020 KOL, Performance Media and Content Social KOL keeps double digits increase

Performance media investment covers multi-platforms

Content continues to be a key platform

IMS-listed social agency recorded a 66% operating income increase in the 1st half of 2020 despite COVID-19

Data Source: R3 Intelligence

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Media Inflation Forecasts 2021 Media Inflation Forecast Summary

• China’s economy bounced back in November

after experiencing a downturn in 2020 Q1 Q3 as a result of micro-economy and reduced advertising spend. Strengthened industrial output and retail sales reinforcing healthy growth expectations in 2021.

• Digital has dominated all marketers’ media mix.

The most robust platform in each digital category will be able to outgrow their competitors by uplift Ratecard rate or charge types loading fee when advertisers buy into selective traffic. Digital inflation is continually driven by mobile, in which short video lead all categories and increase 10% on Ratecard and 8% on Net.

• In terms of digital ad format, the opening ad has

the highest inflation across all ad format due to large size and limited inventory.

• In 2021, OOH will keep resilience with 7%

inflation on Ratecard and 3% on Net. While TV overall inflation is -1% on Ratecard and -3% on Net, many advertisers use targeted video buy on digital to replace TV commercial.

• Radio is still a must-have media for the

automotive category but reducing on shares YOY.

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2021 Media Inflation Forecast Summary Ratecard Cost Inflation 10% 8% 8%

9%

8% 8%

7%

8% 7%

5% 2% 2%

3%

2% 2%

3% 1%

0%

0% -0.2%

-0.1%

Mobile

OTV

OTT

Y2019 Ratecard Cost Inflation%

TV

OOH

Radio

Y2020 Ratecard Cost Inflation%

-1% -1%

Newspaper

-2%

Magazine

Y2021 Ratecard Cost Inflation%-Forecast

Net Cost Inflation 13% 9% 7% 3%

5%

4%

4% 4% 0%

1.0%

0% 0%

4%

1%

3% 1% -0.7%

1% -1% -1%

-3%

Mobile

OTV

OTT

Y2019 Net Cost Inflation%

TV

0% -1% -3%

OOH

Y2020 Net Cost Inflation%

Radio

Newspaper

Magazine

Y2021 Net Cost Inflation% - Forecast

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By Mobile Category Y2021 Digital Inflation Forecast • Short Video and Automotive verticals will experience higher inflation driven by

Douyin and Autohome.

• Social and News apps are projected to have a slight inflation of 2%. • While vertical apps, including Baby, Beauty and Sports, will maintain a relatively

flat price.

3% 4% 7% 6% 5% 4% 3% 2%

2%

2%

2% 1%

Short video/UGC

Social

News APP

Automobile

Y2021 Ratecard Cost Inflation% - Forecast

• Short video/UGC: Douyin, Kuaishou, Xiguo, Li Video, Bilibili, etc. • Social: Weibo, WeChat, Red, Zhihu, etc. • News APP: Tencent, Doutiao, Netease, iFeng, etc. • Automobile: Autohome, Bitauto, Pcauto, Dongchedi, etc. • Mom & Baby: 宝宝树, 妈妈网, 亲宝宝, 美柚, etc. • Beauty Fashion: 美图秀秀, 美颜相机, B咔叽612, FaceU激萌, etc. • Sports: Keep, 咕咚运动, 悦动圈, 虎扑, etc.

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Mom & Baby

1%

Beauty/Fashion

Y2021 Net Cost Inflation% - Forecast

1%

Sports

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By Digital Ad Format Y2021 Digital Inflation Forecast Opening ads registers highest inflation for OTV and mobile display.

OTV

Mobile Display

Discount by 10%

7%

Net cost by

5% 4%

4% 3%

3% 2%

2%

0%

2%

0%

Opening

Regular pre-roll

DMP Pre-roll

Opening

Feeds

Y2021 Ratecard Cost Inflation% - Forecast

Y2021 Ratecard Cost Inflation% - Forecast

Y2021 Net Cost Inflation% - Forecast

Y2021 Net Cost Inflation% - Forecast

• OTV Site: iQiyi, Youku, Tencent Video, Mango TV.

Focus pic

• Mobile Site: Douyin, Toutiao, WeChat, Tencent News, etc.

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By Digital Giant BAT Y2021 Digital Inflation Forecast Douyin, Toutiao, and Toutiao Flash Screen are projected have the highest inflation over Ali and Tencent.

ByteDance 10%

7%

Ali

Tencent

10% 10%

6% 5% 5%

5%

5% 5% 3%

2%

2%

2% 2%

1%

1%

0% 0% Douyin

Toutiao

Xigua

2%

0% 0% ToutiaoFlash Screen

Youku

AliFlash Screen

Wechat

Tencent News

QQ Music Qzone

Tencent Video

TencentFlash Screen

• Flash Screen Detail • TouTiao: 抖音+头条+西瓜视频+火山小视频 • Tencent: 新闻客户端, 腾讯视频, 腾讯体育, QQ浏览器, QQ音乐, 酷我音乐, 全民K歌, QQ空间, 企鹅电竞, QQ阅读, 看点快报

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OOH - By Media Category Y2021 Inflation Forecast • Community OOH - including Lift Poster, Office LCD, and Smart Screens - are

forecasted to have higher inflation with their ability to reach urban dwellers.

• Mega LED maintains a higher growth rate due to the character of video format plus

premium location.

Community

Commute

Others

17.0%

10.0%

10.0% 8.0%

8.0%

6.0%

0.0%

Lift Poster

6.0%

5.0%

Office LCD

Smart Screen

1.0% 1.0%

Airport

Y2020 Ratecard Cost Inflation% - Forecast

4.0%

0.0%

Metro

0.0%

Bus Shelter

0.0% 0.0%

Mega LED

Cinema

Y2020 Net Cost Inflation% - Forecast

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TV – By Channel By Market Tier Y2021 Inflation Forecast CCTV and top four satellite TVs will maintain a similar price compared to 2020, while local TV will offer better deals to advertisers to reflect declining viewership.

2% 1% 0%

0% 0%

1% 0%

0%

-2% -2%

-2%

-3%

-3%

-3%

-5%

-5%

-8% -8%

CCTV

Hunan Satellite

Jiangsu Satellite

Zhejiang Satellite

Dragon TV

Y2021 Ratecard Cost Inflation% - Forecast

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Other Satellite

T1 Local TV

T2 Local TV

Y2021 Net Cost Inflation% - Forecast

T3 Local TV

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Radio & Newspaper – By Market Tier Y2021 Inflation Forecast Radio

Newspaper

5%

0% 0%

0%

-3%

-3% -3%

-4%

National

T1 Local RD

-3% -5%

T2 Local RD

T3 Local RD

National

-5% -5%

-5%

T1 Local NP

T2 Local NP

-6%

Y2020 Ratecard Cost Inflation% - Forecast

Y2020 Ratecard Cost Inflation% - Forecast

Y2021 Net Cost Inflation% - Forecast

Y2021 Net Cost Inflation% - Forecast

Market Tier Definition: Refer to the market list on page 21

-5%

-6%

T3 Local NP

Market Tier Definition: Refer to the market list on page 21

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Y2021 Market List Tier 1 Market List • Beijing

• Shanghai

• Shenzhen

• Guangzhou

Total 4 markets

Total 45 markets

Tier 2 Market List • Chengdu

• Hangzhou

• Chongqing

• Wuhan

• Xi’an

• Shanghai

• Shenzhen

• Guangzhou

• Suzhou

• Tianjin

• Nanjing

• Changsha

• Zhengzhou

• Dongguan

• Qingdao

• Shenyang

• Ningbo

• Kunming

• Wuxi

• Foshan

• Hefei

• Dalian

• Fuzhou

• Xiamen

• Harbin

• Jinan

• Wenzhou

• Nanning

• Changchun

Tier 3 Market List

18

• Shantou

• Huzhou

• Yancheng

• Weifang

• Baoding

• Zhenjiang

• Luoyang

• Taizhou

• Urumuqi

• Linyi

• Tangshan

• Zhangzhou

• Ganzhou

• Langfang

• Hohhot

• Wuhu

• Guilin

• Yinchuan

• Jieyang

• Sanya

• Zuiyi

• Jiangmen

• Jining

• Putian

• Zhanjiang

• Mianyang

Total 70 markets

ZERO-BASED BUDGETING

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About R3 OUR REASON FOR BEING In a word, we are about transformation. R3 was established in 2002 in response to an increasing need from marketers to enhance their return on marketing, media and agency investments, and to improve efficiency and effectiveness. We want to help CMOs make marketing accountable.

RETURN ON AGENCIES We help marketers find, pay and keep the best possible agency relationships – covering Creative, Media, PR, Digital, Social, Performance, Event, Promotions and CRM.

OUR BACKGROUND We’ve worked with more than one hundred companies on global, regional and local assignments to drive efficiency and effectiveness. We have talent based in the US, Asia Pacific and Europe and partners in LATAM and Africa.

We take the lead on improving the Integration process through proprietary software and consulting.

Through global work for Samsung, Coca-Cola, Johnson & Johnson, Visa, Unilever, and others, we have developed robust benchmarks and process targets for more than 70 countries.

What we do We are an independent transformation consultancy hired by CMOs to make their marketing more measurable and accountable to business impact.

How we do it

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We invest in the best talent, bringing in senior leaders from marketing, agency and analytic backgrounds.

•

We’re independent. Because we’re not your marketing team or agencies, we’re empowered to be honest and transparent.

•

We use external benchmarks. We have proprietary data pools to inform our in-depth analysis.

•

Since 2002, we’ve interviewed more than 2,000 marketers about their agency relations.

•

Since 2006, we’ve spoken to more than 80,000 consumers in China’s top-twenty cities and continue to do so every three months.

•

We have co-developed software to measure agency and media performance.

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Each month, we exclusively track over 500 agency new business wins, as well as 100’s of deals in the marketing M&A space.

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We have insight into global best practice. We work with companies who want to do best-in-class marketing across diverse categories and geographies.

•

We authored the book “Global CMO” about marketers leading Digital Transformation around the world.

•

We maintain an ongoing database of media costs for key markets.

Driving Transformation for Marketers and Their Agencies

RETURN ON MEDIA We offer professional analysis of the media process, planning and buying with proprietary benchmarks and tools to set and measure performance. We conduct financial audits to validate and benchmark transparency.

RETURN ON investment Using a bespoke and proprietary methodology, we help benchmark and provide insights into how your digital strategies perform in your category and across categories.

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