MAGNA releases Global Advertising Forecasts winter update

Monday, December 4th, 2017
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In its latest report on global advertising market trends, released December 4, 2017,
MAGNA forecasts media owners’ net advertising revenues to grow by +5.2% to $535
billion in 2018.

According to Vincent Létang, EVP, Global Market Intelligence at MAGNA and author of the report: “The classic quadrennial drivers (FIFA World Cup, Winter Olympics and US Elections) will offset the underlying slowdown of the global advertising market in 2018 to generate decent growth (+5.2%). The transition to a digital-centric media world accelerates as digital ad sales continue to grow as fast – and often faster – than expected. We are now forecasting digital ad sales to represent 50% of all ad dollars by 2020. Meanwhile linear television struggles in most major markets (US, UK, Australia etc.) as CPM inflation is no longer strong enough to compensate for declining ratings and lower demand from consumer goods.”

Global Television Trends

Linear television advertising revenues suffered from multiple headwinds in 2017, mostly: decreasing ratings, weakening pricing power and the lack of cyclical events. Globally, TV NAR decreased by -2% to $178 billion (free TV -2.5%, pay TV -0.9%). During the last odd-numbered year (2015) television NAR had been flat. Of the 70 markets analyzed by MAGNA, 41 showed some level of NAR growth in 2017 while 29 markets showed declines, including half of the top ten markets (US, UK, Canada, Australia, China).

MAGNA believes several markets have entered a new phase in the transition from a media landscape once characterized by near-universal, cross-generational TV reach, a television-centric media market, and stable and predictable audiences, into a rapidly evolving, generationally-divided, supply-demand-driven ad market.

In the first stage, linear audience starts to decrease but reach remains high (it still runs at around 90% of all adults in most mature markets), and most TV verticals are keen to secure their share of a shrinking number of impressions. In this first stage, CPM inflation accelerates to stabilize net advertising spending and revenues.

In a second phase, television costs become too high for some product categories or brands, and others are struggling to reach some of their key targets (e.g. Millennials, high income households), encouraging them to explore alternatives to television campaigns (e.g. digital video). Demand for linear TV thus falters and CPM inflation cools down, no longer offsetting ratings declines.

When we reach that phase, television can still post revenue growth in a good year, for instance when it can capitalize on international or national events, but it will basically plateau in the mid-term. As more markets are gradually entering the second phase of this transition, MAGNA expects global TV NAR to grow by just +2.5% in 2018 and the average growth rate will be just +0.1% over the next four years.

Multichannel television (cable/satellite channels) will continue to slightly outperform national free-to-air networks in terms of NAR (four year CAGR +1.9% vs -0.8%) thanks to their growing share of viewing. The gap is narrowing however, as the growth of multichannel penetration is slowing down in mature markets and some – most notably in North America – have reached the point where multichannel subscriptions and the technical reach of cable networks are beginning to shrink. This is caused by the sudden acceleration of “cord-cutting” since the beginning of 2017, and the increasingly attractive over-the-top SVOD offerings (e.g. in the US), or because of “skinny bundles” or a-la-carte channel picking becoming available to consumers (e.g. in the US Canada).

Beyond the reach and pricing concern, one area of worry for television in 2017-2018 is the decrease in the spending in two crucial client categories: Consumer Packaged Goods (CPG) and Automotive.

Many among the multinational companies that dominate the CPG sector are engaged in all-around cost cutting. Besides the renewed focus on “Brand Safety” (or the lack of it, in some digital media), has not so far triggered a massive return to traditional television.

CPG will remain a core category for television, as it still provides the reach and scale that consumer products need to build and maintain brand equity and retail sales, but CPG advertisers are now reducing and diversifying their spending in most markets. They also reduce the numbers of products and brands advertised on television and sometimes skip television in product launches.