MAGNA releases US Advertising Forecasts executive summaryThursday, September 20th, 2018
Magna Advertising Forecasts (Fall Update – Executive Summary)
- US Advertising Hits All Time High
- Ad Spend Grew By A Robust 6% In The First Half, Driven By A Finance, Pharma AND Tech Spending; Full Year Ad Revenue Expected To Pass $200 Billion Mark; Digital Reaches 50% Market Share
- Media owners net advertising sales (NAR) will grow by +6.9% in 2018 to reach $207 billion, a new all-time high. Neutralizing the advertising sales generated by cyclical even-year events (Winter Olympics, FIFA World Cup, Mid-Term Elections), 2018’s underlying growth will be +5.2% compared to +4.9% in 2017. MAGNA expects advertising growth to continue in 2019: +4.0% (excl. cyclical events).
- MAGNA increased its 2018 growth forecast by half a point since the last update, from +4.7% (June Forecast, excluding Cyclical Events) to +5.2% (September Forecast). The upward revision was triggered by a stronger-than-expected market in the first half (+6.1%) and robust macro-economic forecasts. The 2019 forecast was also raised due to continued expectations for economic strength, from +3.6% to +4.0% (excl. cyclical events).
- Digital advertising will reach several important milestones this year: revenues will pass the $100bn mark ($106 billion), and account for half of total US advertising sales for the first time (51.5% exactly). Mobile digital advertising (ad sales generated through smartphone impressions and clicks) will grow by +30%this year to approx. $70bn, which is now more than television and twice as much as desktop-based revenues, reflecting the ever-growing role smartphones have taken in our lives. Meanwhile, desktop-based ad sales will decline by -3.9% hit by lower consumption and by ad blocking.
- Cyclical events will drive $4.3bn of incremental advertising dollars this year. Political advertising is expected to bring $2.9bn into television, an increase of +19% vs 2014, as well as $400 into direct mail, as more House races are expected to be competitive than initially thought (105 races this year compared to 70 in 2014). This will come on top of the Winter Olympics and the FIFA World Cup, which have already generated $630 million and $200 million of incremental national TV revenues respectively.
- Advertising revenues grew by an impressive +6% in the first half of 2018 (excluding cyclical events). 1Q18 was the strongest quarter in two years (+6.5%) and 2Q18 was almost as strong (+5.8%). A robust economy and the developing digital economy have been fueling advertising spend from most industries. Finance, Pharma and Technology were the main drivers of growth in the first half of the year, increasing ad budgets by +15 to +20%. As comparables become harder in the second half, MAGNA is expecting growth rates to slow down slightly, yet the second half is still forecast to grow by +4.2%.
- Digital media continued to show impressive revenue growth in the first half: search revenues grew by +18%, social media ad sales by +38%, and online video ad sales by +27%. Meanwhile television ad sales were flat when neutralizing cyclical effects (+3% overall). Local TV ad sales were flat (-5% stripping out incremental political spend). Print ad sales were down -16% and linear radio ad sales were down more than -5%, as local radio pricing continues to decline. Out-Of-Home had a strong half, with cinema advertising up +12% and the rest of OOH (billboards, transports, malls, and street furniture) up +3% year-over-year.
- Advertising revenue will grow by +6.9% on a full-year basis in 2018, but digital media formats will capture most of the growth once again. Digital ad sales will grow by +16%. Social media will be the fastest-growing segment again, with advertising revenues growing by +38%, but Search and Digital Video are also showing robust growth with expected increases of +16% and +25%, respectively.
- Meanwhile, non-digital advertising sales will decrease by -4.6% this year. National TV NAR will grow by +1% (excl. cyclical -1%) and Local TV ad sales will increase by +9% (excl. political: -4.5%). Out-of-Home ad sales will grow by +3% while Print and Radio ad revenues will decline by -17% and -5% respectively. Direct Mail sales will be stable thanks to political revenues (-0.3% overall, -2.1% excl. political).
- Advanced TV advertising keeps growing, as it brings the power of a traditional big screen linear experience augmented by superior targeting abilities. Household Addressable campaigns represent approx. $800 million while Over-the-Top, IP-delivered campaigns are growing by +40% per year to reach $2bn this year.
- As the economic outlook remains strong for 2019 (GDP +2.8% according to the Philadelphia Fed’s SPF survey), MAGNA anticipates a tenth consecutive year of growth for the US advertising market. Growth rates will slow to +2.3%, due to the lack of cyclical events or +4.0% on a normalized basis (a mild slowdown vs 2018’s +5.2% growth).
According to Vincent Létang, EVP, Global Market Intelligence at MAGNA and author of the report: “The advertising economy showed robust growth in the first half, as the strong economic environment benefits key sectors like Finance, Technology and Travel. Digital media was the big winner again, but national TV revenues were also stronger, stabilizing after six quarters of erosion, helped by strong spending from Pharma and Food/Drinks, and strong pricing. Meanwhile local TV, radio and print continue to struggle with weak local media spend (e.g. auto) and poor pricing.”
This is an Executive Summary from the Fall Update of MAGNA’s US Advertising Forecasts, updated quarterly. Next update (US and Global): December 2018. MAGNA’s market research publications include dozen of reports on advertising spend, advertising costs, advertising growth, media consumption, and advertising technology (programmatic), analyzing the US and 70 countries.
First Half Overview
Advertising revenues grew by an impressive +6% in the first half of 2018 (excluding cyclical events). 1Q18 was the strongest quarter in two years (+6.5%) and 2Q18 was almost as strong (+5.8%). A robust economy and the developing digital economy have been fueling advertising spend from most industries. Finance, Pharma and Technology were the main drivers of growth in the first half of the year, and represented advertising budget increases of +18%, +17%, and +19% respectively. Meanwhile, the number one advertising vertical, Retail, grew ad spend by +4% year-over-year. Personal Care and Telecoms budgets were flat. Only three sectors reduced advertising activity this year to date: Automotive (-8%), Movies (-4%), and Restaurants (-4%). As comparables become harder in the second half, MAGNA is expecting growth rates to slow down slightly: the second half is still forecast to grow by +4.2%.
National TV advertising sales will grow by +0.9% this year (excl. cyclical: -0.8%) to $42.7 billion. Normalized growth (excluding cyclical) stabilized at last in the first half (1Q: +0.4%, 2Q: -0.6%) after six consecutive quarters of negative growth. The story is similar across segments, with strong pricing (still around +10% per year for prime time) barely compensating for the erosion of ratings (between -8% and -15% for most quarters). Key verticals like Food/Drinks and Pharma remain loyal to TV and have expanded their budgets in the first half. An increasing number of brands are being priced out of primetime or network TV altogether as years of scarcity-driven inflation has pushed the average primetime CPM to an all-time high close to $50, forcing brands to look for affordable alternatives for their video branding campaigns (non-linear TV, OTT, digital, syndication, and cinema). On a full year basis we expect English-speaking broadcast networks NAR to decrease by -2.0% (last year -2.8%), cable networks by -0.4% (last year -1.7%), and Spanish-Speaking networks by -4.0%. Syndication advertising revenues are expected to grow by +1.8% (last year -1.4%) as many brands, e.g. in CPG and Restaurants are diversifying away from network or cable.
Local TV NAR is expected to grow by +9.1% this year to $21.5bn thanks to three billion dollars of incremental ad sales generated around mid-term elections. Political revenue is predicted to increase by almost +20% vs. the previous mid-term, as more house and gubernatorial races are deemed “competitive” (about a hundred House races vs. just 70 in 2014). Without political revenue, underlying normalized decline would be -4.4%, showing a worsening trend (2017: -3.6%) partly due to low automotive spending and weak pricing.
Advanced TV advertising keeps developing, as it brings the power of big screen linear experience with superior targeting capabilities. Ad spend around non-traditional TV campaigns is increasing significantly this year. Set-top-box-based addressable campaigns on cable networks will reach $815 million this year, up by +28% from last year. OTT advertising (video impressions served on TV screens through internet connections into linear or on-demand shows) will reach just over $2 billion this year (+40%). This is a reflection of the rapid growth in addressable and on-demand video technology penetration: this year 84 million homes will be reachable through non-traditional TV campaigns. Brands are using data and technology to enhance their TV campaigns, improving targeting, reducing waste, increasing relevance, and better understanding how, when, and why consumers are viewing content. Ad spend remains small compared to the entire TV advertising market ($63 billion), however. This is because while addressable campaigns and OTT give significant additional information in terms of measurement, attribution, and analytics, brands don’t want to sacrifice traditional TV success metrics like reach, scale, and cost. Finding the right balance between the old and new can be difficult in this uncertain time in the TV landscape.
Digital media continued to show impressive revenue growth in the first half: search revenues grew by +18%, social media ad sales by +38%, and online video ad sales by +27%. Despite the concerns about brand safety and accountability from many brands and despite the fact that some CPG brands did actually cut down on digital spend in recent months, advertising revenue growth barely slowed down compared to last year. This is likely due to the long tail of small, local, direct advertisers who don’t share big brands’ concerns and keep increasing their budgets. Search spend growth is now mostly driven by pricing while online video is mostly driven by usage/volume, and Social is driven by both.
As digital advertising sales grow by an estimated +16% on a full-year basis, they will reach two important milestones this year: revenues will pass the $100bn mark ($107 billion) and account for more than half of total US advertising sales for the first time (51.5% exactly).
Mobile digital advertising (ad sales generated through smartphone impressions and clicks) will grow by +30% this year to approx. $70bn, which is now more than television and twice as much as desktop-based revenues, reflecting the central role smartphones have taken in everyone’s lives. Meanwhile, desktop-based ad sales will decline by -4.5%, hit by lower consumption and by ad blocking.
Linear radio advertising sales fell by -6.7% in 2Q18. Network radio ad sales increased by +1.8% as they benefit from budget re-allocations caused by the rising cost of national TV. Meanwhile local radio stations ad sales decreased by -7.5% in the quarter due to declining audiences and weak pricing. MAGNA expects total linear broadcast radio ad sales to decline by -4.7% this year, to $13.2bn.
There’s been a noticeable slowdown in digital audio ad sales since Pandora introduced a $9.99/mo ad-free tier in 1Q17. Total digital audio ad sales (pure streaming players + broadcasters) grew by just +3.3% in 2Q18 compared to +16% two years ago. As a result, digital advertising growth can only partly mitigate the declining linear ad revenues for the audio media industry as a whole. MAGNA expects an overall decline of -3.2% in 2018 when factoring in digital sales.
Print-based ad sales (newspapers and magazines) decreased by -16% in the first half, due to the erosion of readership and the competition of digital media. National newspapers were slightly more resilient but local papers (the bigger segment by far) did worse. For full-year 2018, MAGNA expects print ad sales to decrease by -17.2% to $14.9bn, with a similar trend for daily newspapers (-18%) and magazines (-16%).
Digital ad sales now account for a third of publishers’ advertising revenues. They are growing by +7% this year, which is far below the growth rates of native internet ad formats (search, social) and not nearly enough to offset the declines from the legacy print-based ads. Combining paper ad sales and digital ad revenues, publishers will experience an -11% decrease in total ad revenues this year.
Out Of Home
OOH advertising revenues are expected to grow by +3% to $7.4bn in 2018 (excluding cinema) – a new all-time high – following strong growth (+4.1%) in the second quarter. 2Q18 was the strongest quarter in four years, thanks to a combination of +15% growth from digital OOH inventory (DOOH), and a +2% increase for static traditional inventory.
Across OOH segments and environments, Street furniture and Transit are driving growth this year, with ad sales that are expected to increase by +6% and +9% respectively. DOOH ad sales will grow by +13% in 2018 and +14% in 2019 driven by new digital inventory, including hundreds of digital screens to be installed in New York public transports and subway stations by Outfront starting next year.
Cinema advertising revenues grew by +12% in the first half, after declining by -6% in 2017. The recovery was caused by solid box office in 2Q (+24%) driven by the success of Avengers: Infinity War. Cinema is also becoming increasingly attractive as an alternative or complement to national television, where costs keep rising by +10% per year and where the light TV viewers of the YouTube generation are increasingly hard to reach.
Direct mail advertising revenue increased by +0.8% in the second quarter of 2018, including political mail. Standard mail revenues were up +1.5% and first class mail revenues were down -4.5%. Excluding cyclical political spending, revenues would have been -1.0% yoy. On a full-year basis, MAGNA is expecting direct mail revenues to be stable this year: -0.3%, or -2.1% excluding political).
Looking forward, the long term shift away from traditional mail and toward digital marketing will continue to push volumes down by -3% to -6% per year. We believe price increases won’t fully compensate for declining volume, leading to revenues decreasing by -2% to -5% per year in the next five years.
Despite the growth of digital budgets, political mailing budgets remain very significant and generate a noticeable boost in election years. USPS will generate approx. $400m in political related revenues this year – slightly more than it did four years ago in the previous mid-terms (2014).
Media Owners Advertising Revenue Growth, MAGNA Forecasts
2018 Size Market 2018 Growth 2018 Growth 2019 Growth 2019 Growth ($m) Share (NEW) (PREV) (NEW) (PREV) TOTAL OFFLINE (excl. CE) 96,614 46.7% -4.7% -4.6% -4.7% -4.7% National TV (incl. CE) 42,691 20.6% 0.8% 0.2% -3.1% -3.6% National TV (excl. CE) 41,942 20.3% -0.9% -1.4% -1.5% -2.0% Local TV (incl. CE) 21,535 10.4% 9.1% 9.9% -15.6% -14.7% Local TV (excl. CE) 18,540 9.0% -4.4% -3.4% -4.5% -3.7% Print 14,890 7.2% -17.2% -16.9% -17.9% -17.8% Radio 13,178 6.4% -4.7% -3.8% -4.7% -4.2% OOH (incl. cinema) 8,064 3.9% 3.1% 1.9% 2.4% 2.5% TOTAL DIGITAL 106,555 51.5% 16.0% 15.0% 11.8% 11.3% Mobile 70,263 33.9% 29.8% 28.5% 20.7% 20.4% Desktop 36,292 17.5% -3.9% -4.5% -5.3% -6.2% Search 47,665 23.0% 15.8% 14.3% 12.2% 11.1% Video 13,027 6.3% 24.7% 23.9% 19.4% 19.5% Social 30,050 14.5% 32.6% 31.4% 21.0% 20.9% GRAND TOTAL (incl. CE) 207,035 100.0% 6.9% 6.4% 2.3% 2.0% GRAND TOTAL (excl. CE) 203,169 98.1% 5.2% 4.7% 4.0% 3.6%
Source: MAGNA US Advertising Revenue Forecast, September 2018