China’s State TV Grapples With Advertising Slowdown

China’s State TV Grapples With Advertising Slowdown

CCTV Departs From Practice of Disclosing Ad-Auction Results as Companies Find New Ways to Reach Out to Customers

LAURIE BURKITT

Updated Nov. 20, 2013 10:38 p.m. ET

China Central Television is feeling the shift of advertising to the Internet. Shown, Communist Party officials with CCTV’s Spring Festival cast. Xinhua/Zuma Press

SHANGHAI—China’s most powerful propaganda outlet is grappling with a problem familiar to media companies world-wide: How to keep advertisers in the digital age. China Central Television this week departed from past practice and declined to disclose results of a closely watched auction for advertising slots for next year. In a written response to questions, the state-run broadcaster said only that its ad-auction sales growth this year was in line with the country’s economic growth. China’s economy grew 7.8% in the third quarter from a year earlier.By comparison, last year’s auction resulted in an 11% increase in revenue over 2011, reaching an all-time high of 15.9 billion yuan ($2.61 billion at current exchange rates). Previously, the auction had seen a 14% yearly sales rise in 2011 and 16% increase in 2010.

Meanwhile, Beijing-based advertising company Charm Communications, CHRM -4.44%which brokers ad buys and tracks CCTV’s ad auction each year, estimated that ad purchases by beverage companies declined 12% in this year’s auction compared with a year ago. It said ad buys from information-technology companies fell 28%, while financial-sector purchases were down 51%. Charm said the biggest drop came from alcohol bidders, whose ad buys plummeted 85% in the midst of government austerity efforts that have made drinking spirits less acceptable and even forbidden at official banquets.

CCTV’s ad auction results in past years were seen as a barometer of China’s fast-growing advertising industry as well as its overall economy. But this year’s comes as companies ranging from Coca-Cola Co. KO -0.20% and Procter & Gamble Co. PG +0.41% are reconsidering how to reach out to a Chinese public spending increasing amounts of time online. About 45% of 900 Chinese people surveyed by China-based research firm ZDC this year said they have stopped watching TV, while 23% said they watch it every day and 21% watch frequently. The other 11% only watch TV on weekends, the survey said.

“The pressure is on,” said Steven Chang, chief executive of ad forecasting firm ZenithOptimedia’s China division.

CCTV vowed to move swiftly to go where the ad dollars are going. It said it would use online tools such as mobile apps and scannable codes to bring more viewers to its digital content. Its phone and tablet applications let users watch streaming live TV, while its website gives access to past programming.

It also said it would increasingly cooperate with China’s satellite broadcasters, which have drawn increasing ratings through crowd-pleasing talent and dating shows. This month CCTV joined forces with popular Hunan Satellite to simultaneously broadcast the drama series “Let’s Get Married.”

A sprawling mix of commercial broadcaster and tool of Beijing’s might, CCTV holds unmatched power in China’s media landscape. Its Spring Festival gala, an inoffensive variety show broadcast every Lunar New Year, is one of the world’s most-watched broadcasts every year, with 750 million tuning in this year.

Foreign companies have historically flocked to advertise on the network—even as they have contended with occasional critical coverage. CCTV news stories this year about Western corporations ranging from Apple Inc. AAPL -0.88% to KFC parent Yum BrandsInc. YUM -1.98% prompted apologies and corrective actions by the companies.

But in recent years CCTV has seen its audience shrink. An estimated 36% of the population watched the Spring Festival gala this past Lunar New Year, down from 40.8% in 2009, according to data from marketing and media research firm CSM Media Research.

CSM Media Research is China’s leading TV-ratings agency, and has been criticized in the past by people affiliated with CCTV when it reports dropping ratings for the network.

CCTV said it didn’t disclose information about the 2014 ad auction because the format changed this year. It said it made more sales before this week’s live auction took place, adding that there would be no way to accurately compare information. CCTV also said it feared that media outlets would “wrongly interpret” information and “confuse consumers” with the new figures.

Media watchers said they believed a slowdown was behind the move. “It couldn’t sustain growth rates it had before,” said Mr. Chang, of ZenithOptimedia.

“The clothes of the emperor are disappearing and they can’t let that show,” said Tom Doctoroff, Asia chief executive of WPP WPP.LN -0.08% PLC’s JWT ad agency.

Some liquor companies say they are backing off for reasons other than the austerity push. In previous years, liquor company Sichuan Swellfun Co. 600779.SH -1.74% spent hundreds of millions of yuan on CCTV ads, but not this year, said managing director James Rice. “I changed because we are a premium brand with more targeted consumer base and CCTV is not the right way to talk to our consumers,” he said, adding that digital ads allow the company to home in efficiently on target customers. “CCTV is like carpet bombing,” said Mr. Rice.

Coca-Cola and Procter & Gamble say they are still advertising on the network but are revving up digital pushes. “Over the recent years, we have increased our focus, engagement and investment in digital connection points, including online video, social media and mobile apps,” a spokeswoman for Coke said. The companies declined to break down specific marketing data.

To be sure, many companies still see CCTV as a place to make their mark. Car companies, such as Volkswagen AG VOW3.XE +0.08% , VW’s Audi NSU.XE +0.30% arm and Daimler AG DAI.XE +0.12% , all bought spots, according to media buying agency Starcom MediaVest Group.

Ad sales from insurance companies more than doubled from a year earlier, according to Charm.

Gome Electrical Appliances Holding Ltd. 0493.HK -1.36% , one of China’s largest home-appliance retailers, pledged 131 million yuan to become the sole sponsor of the Spring Festival gala, according to Charm.

CCTV also expects to gain more viewers and ad dollars during the World Cup, Asian Games and Winter Olympics in 2014, the network said.

CCTV said it would continue to innovate. It is teaming with film director Feng Xiaogang to overhaul this year’s Spring Festival Gala and is co-producing several new TV series with a handful of local media companies.

In recent years it has developed additional content and channels, such as English news, a documentary channel, a children’s channel and a sports station, which are all free-to-air. Its app for phones and tablets streams its content and those of local networks, like Beijing and China’s southwestern city of Chongqing.