By NAT IVES.  Published by THE WALL STREET JOURNAL on 9 Dec. 2019.

Magna anticipates a slowing economy, reduced digital growth and a challenge for national TV

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Michael Bloomberg spent tens of millions of dollars on television commercials in his first week as a presidential candidate. PHOTO: MICHAEL CIAGLO/GETTY IMAGES

The 2020 elections and the Olympic Games in Tokyo will boost ad spending in the U.S. next year, helping to power growth that would otherwise falter, according to a new forecast from ad-buying group Magna Global.

Magna expects U.S. ad spending to grow 5.1% this year and 6.6% next year. But excluding cyclical events from all year-over-year comparisons, spending would rise 7.2% in 2019 and 4.4% in 2020, according to Magna, which is part of Interpublic Group of Co s.

The prediction reflects expectations of slower economic growth and a tough comparison against this year’s spending, said Vincent Létang, Magna’s executive vice president of global market intelligence.

The underlying 2020 ad market also includes reduced growth for digital media and a stagnating national TV business, Mr. Létang said.

Controlling for cyclical effects, marketers’ U.S. spending on digital advertising is expected to grow 16.1% this year and 10.9% next year. Their spending on national TV advertising is likely to slip 1% this year and 2.7% next year.

TV networks have been able to command significant price hikes for their commercial time year after year, even while audiences shrank because demand stayed strong. It helps that marketers such as direct-to-consumer startups and streaming TV services are adding new money into national TV advertising.

But there are limits to the price increases that certain brands and categories of marketer can accept and get the returns they want, according to Mr. Létang. “We’ve reached a point where prime-time commercials cost a $50 CPM, so 50 dollars to reach a thousand viewers,” he said. “As the economy slows down, the 10% or 12% CPM increase that we’re seeing year after year may become simply too expensive for some brands.”

Happily for national TV broadcasters, the Olympics will generate $700 million of incremental spending, while the streaming-TV battle and new technology products will generate massive spend from tech and entertainment giants next year, Mr. Létang said.

Clayton Ruebensaal, executive vice president of global business-to-business marketing at American Express Co., said TV is still the most efficient way to create an emotional bond with a large audience.

“Yes, the audience has shrunk, but the job TV does has become in some ways more rare and special,” Mr. Ruebensaal said. “The question is who else could come in and do that exact job as well.”

Some startups have developed other ways to engage consumers when TV seems too expensive, he added, citing billboards and transit advertising, and even new takes on direct mail. “You see these young brands using direct mail to create awareness, to tell a story, to create more of an emotional bond than traditional marketers did with deals, offers and conversion messages.”

Global ad spending will rise 5.2% this year and 5.7% next year, according to Magna. Excluding cyclical events, world-wide growth would be 6.3% this year and 4.6% in 2020.

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