MAGNA ADVERTISING FORECAST (SPRING 2019)
- Fourth Quarter 2018 Recorded Strongest Advertising Growth in 18 years (+12%) Driven by Digital, Audio and OOH.
- MAGNA Predicts a Tenth Consecutive Year of Growth for Advertising Revenues in 2019.
- Digital Ad Sales will Grow +12% in 2019, While Linear Ad Sales to Shrink -5%.
- Amazon Becomes a Major Advertising Vendor (Doubling Ad Sales) as well as a Major Ad Spender (+50%).
TEN KEY FINDINGS
- MAGNA just published updated estimates and forecasts on US media owners’ net advertising revenues (NAR). It reveals that advertising sales reached a new all-time high in 2018, at $212 billion. Advertising spending grew by almost +10% (+9.6% exactly), driven by the robust economic environment and cyclical ad spend (Winter Olympics, FIFA World Cup, Midterm Elections). It was the ninth consecutive year of growth and the strongest growth of the twenty-first century, exceeding the performance of 2016 (+9%).
- Fourth quarter 2018 showed the strongest quarterly growth in 18 years (almost +12%), strongest since the third quarter of 2000. Local TV had its best quarter in years with total ad sales up +33% year-over-year, thanks to the record levels of political spend in October. Excluding political and digital sales, ad revenues were down -2.6% yoy, but it was the best quarterly performance of the year (average -3.7%). National TV sales were down -1.3% in line with the three previous quarters (between 0% and -1% excluding cyclical sales). Total Audio Media ad sales were up +2% (best performance in five years): digital audio sales slowed down to +5% but linear radio ad sales grew by +1%, the first positive quarter in five years. Out-of-home had its best quarter in more than a decade, as ad sales grew by +8.5% excl. cinema (digital screens: +20%, static panels: +6%). Digital ad sales were up +20%, in line with previous quarters, with the strongest growth coming from Social (+28% excl. cyclical), Digital Video (+32%) and Search (+22%).
- Among the best performers in 2018: Paid Search (ad sales up +23% to reach $54bn) and Out-of-Home (+4.5% to $8 billion). One player showed record growth in both the supply side and the demand side of the ad market: Amazon more than doubled its advertising revenues in 2018, reaching an estimated $6 billion, based on financial reports, to emerge as a real competitor to Google; Amazon also increased its ad spending by +50% last year, to join the club of the ten largest advertisers (#6 behind P&G, ATT, Geico, Comcast and GM).
- OOH had another very strong year (fourth quarter +8.5%, full year +4.5%), partly due to the huge increase of ad spend from the technology sector. OOH is the only linear media type to experience consistent organic revenue growth. Ad sales grew by an average +4% per year in the last nine years, compared to -1% for all non-digital media sales (linear TV, print, radio, OOH) over the same period, according to a new report on global OOH advertising trends by MAGNA and RAPPORT (the OOH specialist agency of IPG Mediabrands).
- For 2019, MAGNA predicts ad revenues to grow for a tenth consecutive year (2010-2019) to reach $217 billion. The rate of growth will slow down, however, to just +1.9% (or +4.1% excluding cyclical events), as the economic environment starts to cool down. Real GDP will grow by +2.4% accord to the Philadelphia Fed, a decent performance, but a slowdown compared to 2018 (+2.9%).
- Finance, Insurance, Pharmaceutical and Technology are the main drivers in terms of spending verticals. Within Technology, “FAANG” giants are ramping up their advertising budgets, esp. with linear media (television and OOH). MAGNA expects more growth from the Technology sector in 2019: cloud services, smart home devices, the launch of 5G by wireless operators and the introduction of new subscription VOD services from Disney and Apple, are all expected to drive competition and ad spend. Many “Direct-to-Consumer” brands reached scale and started running branding campaigns in traditional media in 2018, in addition to digital media and eCommerce environments. They, too, will collectively contribute to ad spend growth in 2019. Pharma will remain a growth industry, but television budgets could suffer from an upcoming regulation mandating a drug’s listed prices to be mentioned in TV commercials. This may encourage some pharma brands to explore digital alternatives, including digital video (which may be exempt from that new regulation). For more on vertical trends, see MAGNA’s latest “Industry Report”, analyzing and forecasting ad spend patterns across all the large spending verticals.
- Digital ad sales will grow double-digits again in 2019 (+12% to $124 billion) while linear ad sales will decrease by -5% to $92 billion. As digital media now accounts for more than 50% of advertising spending (30% for national consumer brands) growth rates are expected to slow down somewhat. Digital advertising sales will grow by $13 billion to reach $124 billion in 2019, compared to an increase of $18 billion in 2018. The fastest-growing digital formats will be Social (+23%), Video (+19%), and Search (+13%).
- National TV ad revenues will decrease by -3% at $41 billion as the growth of digital sales (+20% for Hulu, Full Episode Players and OTT) partly offsets the erosion of linear ad sales (-3.6%, or -2.0% excluding cyclical events). Linear TV ratings continue to decline due to cord cutting and the long-term shift towards subscription-based VOD, triggering growing cost-per-thousand inflation, as demand from CPG verticals remains robust. Local TV ad sales are expected to decrease by -18% to $18.2 billion as key verticals (Auto, Restaurants) are cutting ad spend or redirecting budgets towards national TV and digital media. Adjusted for the (lack of) elections in 2019, the normalized growth rate will be -5%.
- Elsewhere, Audio NAR will decrease by -3% to $15.6 billion (linear radio -5%, digital audio +4%). Broadcast radio suffers from stagnating pricing, music streaming shifts towards ad-free premium business models and podcasts, though exploding in terms of usage and sponsorship opportunities, remain hard to monetize for publishers. Magazine and newspaper publishers will also face declining ad revenues: -10% at $20.3 billion as digital/mobile sales (+7% at $8 billion) do not offset the erosion of national and local ad sales (-18% at $12 billion). Finally, OOH will grow by +2.8% as new digital screens (Outfront Liveboard in New York, Pearl Media in the new Salesforces Transit Center in San Francisco, etc.) will again attract brands from sectors like Technology, Luxury and Travel.
- The media landscape is set to change in 2019 as OTT and VOD reach mass market and become more competitive with the launch of new services. This may prompt SVOD players (Netflix, Amazon) to explore hybrid, ad-supported business models and thus provide new opportunities for advertisers to reach consumers. Based on the ad revenues of Roku and other specialized OTT players, plus the share of Youtube and Hulu consumption that takes place on TV screens, MAGNA estimate that OTT-based advertising revenues reached $2.7 billion in 2018, growing +54% yoy. MAGNA expects OTT-based ad sales to grow again sharply in the next two years: +39% to $3.8 billion and +31% in 2020 to reach $5 billion.
According to Vincent Letang, EVP, Global Market Intelligence at MAGNA and author of the report: “One of the drivers of the historically long and historically strong era of growth the US market is experiencing, lies in the technology sector introducing mass consumer products and services. While doing so, internet giants ironically discover what CPG marketers knew all along: the power of traditional editorial media (television, out-of- home in particular) to build mass brand awareness.”
Next Forecast Update: June 2019.
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