Advertising may often be seen as an optional cost, but a new look at the industry suggests it's worth the money.

A report from Deloitte, commissioned by the Commercial Communications Council (CCC), calculates the advertising industry's contribution to the New Zealand economy at $6 billion in 2015.

That's on top of the direct spending on advertising - about $2.4b in the same year.

The $6b figure represents about 2.4 per cent of the country's GDP, the equivalent of about half the annual contribution made by the tourism industry.

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Described by CCC chief executive Paul Head as the first macroeconomic look at New Zealand's advertising industry, the report released last week shows a sector on the rise - after a stumble following the global financial crisis.

"While the industry has lots of case studies about the effectiveness of individual advertising campaigns, this is the first time we have been able to quantify the importance of the advertising industry to the New Zealand economy at a macroeconomic level," Head says.

"It's certainly what we were hoping for and it is a positive view of an industry that makes a really important contribution to the economy," he says.

"The report proves that advertising is a key driver of economic growth and employment, and contributes significantly to the growth and profitability of a wide range of industry sectors. As the title of the report says, Advertising Pays."

Head says the report's results are particularly compelling as they come from an independent source, not from within the industry, and says the motivation for the report was to quantify the value advertising has for the economy and business.

"We really had no sense as to how much the industry was worth," Head says.

"Largely because there is no macroeconomic understanding of the value advertising contributes to the New Zealand economy."

"It's not an unusual approach for an industry to take, to try and quantify its scope and scale in the economy - it's just something we haven't done before."

Report co-author John O'Mahony says as well as the direct benefits to business, advertising also delivers a broader economic benefit by fuelling competition, which drives innovation, quality service and lower prices for consumers.

Research from Nielsen shows New Zealand advertisements which won awards for their effectiveness delivered up to $17 in sales for every $1 spent on the campaign.

Spending on advertising has grown steadily between 1980 and 2015 at an average rate of 7 per cent year-on-year.

Of the sectors that made up that $6b contribution to GDP, retail received the highest direct and indirect value added from advertising - an estimated $816 million in 2015.

That was followed by leisure and entertainment, with $588m, food with $566m, and automotive with $526m.

Data from the Advertising Standards Authority for 2016 shows the advertising industry made $2.57b in revenue for the year.

Digital advertising - including purely digital campaigns and digital advertising by older media such as magazines and newspapers - accounted for the biggest portion of that, bringing in $891m, or with 34.6 per cent of the total.

That has overtaken television, the second largest revenue source for the year, with 22.6 per cent or $580m.

Newspapers came in third, making up 18.6 per cent or $478m.

As Head sees it, there has been a view in many organisations that advertising and marketing is an optional cost - and often the first budget item to be slashed when it's time to make savings.

He says the report proves this is a false economy, particularly for industries such as retail that benefit from high marketing and advertising input.

One of the more interesting aspects of the report, Head says, is the value companies can get from involving their advertising and marketing teams from the start of a campaign, to help build up a brand, as opposed to calling them in at the end of the planning process.

"I think it's clear when you look at some of the case studies, that there is benefit from involving the agency from the start of the process in developing a campaign because that's where the ideas and creativity really come through," he says.

Direct expenditure on advertising accounted for $2.4b in 2015, a number that expanded to $3b when content production revenue was added.

As well as its contribution to the economy, the advertising sector provides employment - directly and indirectly - for about 44,000 staff, the report found.

"This clearly shows the significant overall economic benefit," Head says.

"When you look at the $3b figure plus $6b, we're almost a $10b industry. Add the 44,000 jobs and the benefits to consumers and businesses and it's a pretty positive story."

As well as the financial gains, the report also highlights the benefits of good advertising in areas such as road safety, public health, and tourism.

The report details the results of the "Legend" drink driving campaign, commissioned by The NZ Transport Agency, which is estimated to have saved the lives of 64 young drivers over three years, and saved the country $290m based Ministry of Transport figures.

A significant amount of funding has also been invested in campaigns for the likes of Quitline and the Problem Gambling Foundation, with positive results.

Head says the area of social change is a particularly important aspect for the industry.

"The case studies are legion around the value that advertising adds to government for social change - whether it's changing behaviours around drink driving, domestic violence or smoking," Head says.

"Government puts a lot of effort into measuring the return on investment for every dollar they spend, so if you look at the 'Legend' campaign, it's not just the lives it saved but the economic return that a piece of advertising like that provides ... it's pretty compelling."

Despite the rosy outlook, advertising faces a number of challenges, not least the impact of digital disruption.

Another report, PwC's Global Entertainment and Media Outlook for 2017 to 2021, out yesterday, highlights the significant changes occurring globally and locally in the ways consumers and advertisers spend their money.

"The trends and consumer behaviour we see unfolding in New Zealand are largely in line with global trends, with a slight lag," says PwC director for digital strategy Greg Doone.

"The influence of millennials and younger generations on the consumption of digital media is also being widely felt. They seek free media, to stream music, watch videos on YouTube and consume free news," he says.

"And as they become the dominant demographic, these habits look set to stay with them."

In the company's latest CEO Survey, 23 per cent of company leaders say technology will reshape their industry in the coming five years.

For entertainment and media leaders, that more than doubled to 56 per cent.

PwC says advertising dollars will continue to shift towards online, and - at a compound annual growth rate of 9 per cent - that market will reach $1.4b by 2021.

More than half of New Zealand's total internet advertising revenue in 2016 was generated by paid search, something Doone sees as a concern.

"What is worrying traditional media is that advertiser spending on the digital side flows disproportionately to a few large platforms like Facebook and Google," he says.

Head says the report from Deloitte gives marketers and advertisers the statistics to show the industry's value, at a time when spending is increasingly driven by efficiency, effectiveness and return on investment.

"[The report] is timely given that many industries are in the middle of digital disruption and this industry is no different," Head says.

"It looks very different to what it did a decade ago, let alone 15 years ago, so this industry is in the middle of significant transformation as clients' businesses transform.

"I think this is a really important point in time study that says actually, despite the whirlwind of digital disruption that's impacting many industries, this industry remains really strong and continues to be an important contributor to the economy."

While the Deloitte report portrays an advertising industry in good health, challenges remain.

Among the key issues: Unwanted adverts

"No circulars" signs - and less politely worded messages - are common on letterboxes.

Many call centres, as well as the NZ Marketing Association, also have "do not contact" lists for consumers who don't want to be bothered by advertising.

The same barriers to advertising are going up online: even two years ago, the Deloitte report found, 200,000 New Zealanders were using ad blocking technology on their computers, to avoid seeing and hearing online advertisements.

And blocking ads is getting easier. Apple has just announced that it will update its Safari web browser, with software that stops auto-play ads, and blocks tracking technology.

Apple's announcement came a week after Google said it will create a filter on its Chrome browser to remove annoying or intrusive ads.

Advertisers and marketers have been trying for years to stop the use of ad blockers, which they say undermine their revenue.

However Paul Head, chief executive of the Commercial Communications Council (CCC), says that while it is a challenge, it is not a major one.

"It is an issue for the industry but it's one that's overplayed," Head says.

"Yes, there is technology where consumers can choose not to see advertising - whether it's fast forwarding on the Sky box or ad blocking - but for us it's about finding channels and places that people want to engage in. "That's the challenge."

Contentious messages

Advertising and marketing of products that are deemed to be unhealthy or harmful has long been a topic of contention.

The food sector is the third largest advertiser in New Zealand and a big portion of that comes from ads for fast food, which have often been targeted by anti-obesity groups.

Head says the Advertising Standards Authority (ASA) has set out clear guidelines on what can or cannot be advertised, and where and when.

However, health advocates and other groups have argued that advertising products such as alcohol, fast food and gambling is unethical and should be banned, or more strictly controlled.

Pressure from these organisations has been heavy on sporting events and universities in particular, with several student organisations pulling alcohol advertising in recent years and regular discussion on alcohol advertising surrounding sports teams and games.

In 2015, 707 advertising complaints were lodged with the ASA, of which 34 per cent were upheld.

The Deloitte report also notes that advertising has a role to play in consumerism, with individuals consuming goods and services beyond their means, with environmental and social consequences.

It also notes that - before such advertising was banned in this country - studies had shown promotional activities for cigarettes had caused an increase in the number of people smoking, illustrating the impact the industry could have.

Digital disruption

As Head sees it, the biggest issue facing the advertising industry is digital disruption.
"The key issue is how you continue to find consumers in an increasingly atomised world," he says.

"It used to be that finding people was much easier because there were only two or three television channels, but that's changed dramatically and it's harder now to get to consumers.

"Digital disruption and what that means to media and to creative agencies - and how you get messages to people - is an ongoing challenge."

The number of people watching broadcast television has also declined in recent years, with the rise of on-demand and free streaming services such as Netflix, Lightbox and Youtube making it harder to mass-market to consumers.

More targeted advertising has been growing, though Head notes there is evidence the focus has become too narrow in some cases, leading to decreased returns and success for the industry.