DIGITAL ADVERTISING THRIVES IN COVID ECONOMY
MAGNA reveals that the global advertising market place shrank by -4.2% to $569 billion amidst the COVID-induced recession, but some markets (US, China) proved more resilient than initially feared, thanks to the scale and resilience of digital media formats (+8%).
TEN KEY FINDINGS
- According to MAGNA’s latest report, media owners’ linear advertising revenues (linear TV, linear radio, print, OOH) decreased by an estimated -18% in 2020, down to $233 billion globally, due to the global economic recession, in line with MAGNA’s spring forecasts (-16%).
- Digital advertising sales slowed down but continued to grow through the COVID crisis: +8% to reach $336 billion (59% of total advertising transactions).
- Total global advertising revenues (linear + digital) shrank by $25 billion (-4.2%), down to $569 billion – a milder decline than expected in June (-7.2%).
- Travel, automotive and restaurants made the heaviest advertising budget cuts while CPG/FMCG, finance and technology remained stable overall.
- Sixty-six of the 70 markets analyzed by MAGNA shrank this year. The world’s two largest markets, US (-1.3%) and China (+0.2%), were among the most resilient, while other top markets (Japan, UK, Germany, Canada, Australia, Brazil) declined between -4% and -8%.
- The Latin America region suffered the most (-11.3%), followed by EMEA (-6.4%) and APAC (-4.9%).
- Looking at 2021, COVID vaccination, economic recovery and delayed cyclical events will fuel a global rebound for marketing and advertising activity: +7.6% to $612 billion (linear: +3.5%, digital +10.4%, US +4.1%).
- Despite economic recovery, global linear advertising spend will remain $42 billion smaller (15% smaller) than the pre-COVID level of 2019.
- The US market resilience (-1.3% to $227 billion), despite one of the most severe COVID toll, was caused by the scale and organic growth of digital ad formats (+10%), while linear ad spend fell on par with global average (-16%).
- Record levels of political advertising spending brought $6.1 billion in incremental advertising sales and generated two percentage points of extra market growth that benefitted local TV ($3.6 billion) and, for the first time, digital media ($1.5 billion).
Vincent Létang, EVP Global Market Intelligence at MAGNA, and author of the report, said:
“Back in the spring, MAGNA predicted that digital media organic growth factors would drive digital to grow despite the COVID recession (+1% globally, +3% in the US). It turns out digital media resilience was even stronger than expected (+8% globally, +10% in the US) and possibly because of the changes brought by COVID. The pandemic triggered a tremendous acceleration in both supply (digital media usage and audiences, ecommerce) and demand: small businesses embracing digital media to keep their business alive during lockdowns, big brands pivoting towards lower-funnel marketing channels as they typically do in recession times. MAGNA believes the return of consumer mobility, major events and economic recovery will prompt most industry verticals to grow their linear advertising budgets in 2021, but the long-term trajectory has shifted even further towards a digital-centric marketing environment for years to come.
GLOBAL MARKET 2020: ALL-MEDIA ADVERTISING DECREASE BY -4%
The latest MAGNA study of global advertising market trends, reveals that media owners’ advertising revenues decreased by approximately $25 billion in 2020 (-4.2%), from $594 billion in 2019 to $569 billion. Most industry verticals reduced marketing and advertising spending due to the severe economic recession triggered by the COVID pandemic, as global GDP shrank by -4.4% according to the IMF. The global advertising market will, however, recover by +7.6% in 2021, to reach $612 billion, as a gradual return to normal business conditions will fuel robust economic recovery (real GDP growth +5.2%, IMF).
Brand advertising budgets and therefore linear ad formats (linear TV, linear radio, print, out-of-home and cinema) suffered the most from the economic recession and the restrictions to consumer mobility. Global linear ad spend shrank by -17.8% to $232.5 billion, marginally worse than expected by MAGNA in the spring (-16%).
Television remains the largest linear advertising channel with $149 billion in advertising revenues in 2020. Ad sales shrank by -12% in 2020, in line with expectations, due to the cancellation of many TV campaigns in key verticals (e.g. automotive) and the postponement of major sports events. Print, radio and OOH ad sales declined more heavily: -24% to -25%. Out-of-home, the most dynamic linear media channel pre-COVID was hurt by the decline in consumer mobility, traffic and audience, in addition to the fall in demand from local and national advertisers. Finally, theater closures caused cinema advertising to decline by -66% this year.
Digital formats advertising sales (search, video, social, banners) grew by +8% to $336 billion, to reach a market share of 59% globally. Back in June, MAGNA was expecting digital media spend to grow slightly (+1%) despite the COVID recession; in fact, digital media spending grew way beyond expectations partly because the COVID impact accelerated the organic transition towards a digital-centric marketing ecosystem. Digital media consumption (social and video in particular) accelerated since lockdown; e-commerce exploded as large brands and small business ramped up their digital business in addition to “Direct-to-consumer” brands and ecommerce specialists; many local stores or restaurants started to use search and social marketing to advertise delivery, or “click-and-collect” to keep their business alive while stores were closed. Finally, consumer brand marketers showed a preference for lower-funnel marketing tools, at the expense of branding campaigns, that is classic in any recession time. In the last five years, the share of digital media had grown by three to four percent per year to reach 52% in 2019; in 2020 it jumped by seven percent to 59%. The COVID impact on lifestyles and business model will accelerate the digital transition in a lasting way: one year ago MAGNA was forecast the share of digital formats to reach 64% by 2024; now MAGNA expects that market share to reach 68% in 2024 and 70% in 2025.
Search remains the largest digital advertising formats (+7% to $164 billion, 49% of total digital advertising) as product search from ecommerce giants (Alibaba, Amazon) offset the slowdown of classic search engines (Baidu, Google). Social media benefitted from an acceleration in penetration and time spent during and since lockdown, and with an explosion in the volume of ad insertions compensating for a lower revenue per insertion, social ad formats advertising grew by +17% to $87 billion. Digital video ad spend increased by +15% to reach $45 billion, as strong growth from short-form platforms (YouTube) offset the slowdown of full episode players and outstream video.
As the pandemic and economic crisis was global, so was the impact on advertising spending and revenues across markets. Latin America experienced the worst downturn (-11.3%) and EMEA performed below average (-6.4%). Asia Pacific markets shrank by an average -4.9% while North America was the most resilient region (-1.5%) helped by the scale of digital advertising and record levels of political spending. Sixty six of the 70 markets analyzed by MAGNA shrank this year, with two markets growing nominally due to hyper-inflation (Argentina and Ukraine) and two markets showing real albeit moderate advertising growth: China (+0.2%) and Taiwan (+2.0%). Among top ad markets, the two largest, US (-1.3%) and China (+0.2%) were also the most resilient this year, while other top markets (Japan, UK, Germany, Canada, Australia, Brazil) all declined between -4% and -8%.
Where total ad spend was almost stable, it was almost entirely caused by a large and resilient digital media segment, while linear media was down double-digit like everywhere else. In the US and China typically, the share of digital media was already beyond 60% at the beginning of the year, and digital media spend grew by +10% in both markets; US linear media declined on par with the global average (-16%) while the decline of linear ad sales in China was even worse than average (-26%). Conversely the worst performances came from emerging markets where digital media market shares were too small to offset the heavy cuts in linear ad spend (even if digital spending grew too in those markets), e.g. Chile (all-media -17%), Colombia (-20%), Malaysia (-22%).
2021: LINEAR STABILIZES, DIGITAL ACCELERATES
If, as expected, large scale COVID vaccination takes place in the first half of the year, restrictions to business and mobility are gradually lifted, global economic activity should recover strongly. In its October forecast, the IMF predicted +5.2% for global GDP growth. Major events, if they can finally take place (Summer Olympics in Tokyo, UEFA Football Championship in Europe, and the Dubai World Expo) will also fuel the stabilization and recovery in marketing budgets and advertising spending.
In that scenario, MAGNA predicts global ad spend to grow by +7.6% to $612 billion. MAGNA raises its previous forecast (June: +6.1%) by 1.5 percentage point. All regions will recover to some degree: APAC: +11%, LATAM: +9%, EMEA: +8%, North America: +4%. Linear media will stabilize (+3.5%) while digital media will re-accelerate to double-digit growth (+10.4%).
US AD MARKET: +4% IN 2021
The US economy contracted by an estimated -3.5% in 2020 (source Philadelphia Fed Nov. 2020), a worse contraction than the last recession of 2009 (-2.5%), but a less precipitous decline than the -5.5% expected back in May by US economists as consumption and employment recovered faster than expected in the second half.
Despite the severity of the recession, MAGNA’s analysis of media owner’s financials suggests total advertising revenues (linear + digital) fell by just -1% to $221 billion in 2020, a much milder decrease than initially anticipated. This was caused by stronger-than-expected digital media spend (+10% vs 2019) and a huge influx of political spending that partly offset the budget cuts of other verticals in linear media. Excluding the $6.1 billion of incremental advertising revenues from political spenders, non-political advertising revenues would have dropped by -3% vs 2019, which is still a better performance than the advertising market globally (-4.4%).
Linear advertising sales (linear TV, linear radio, print, OOH) have suffered the most in 2020, with full-year sales declining by an estimated -16%, to $81 billion. Excluding linear political ad revenues (approx. $4 billion), the actual decline of linear ad sales would have been closer to -19%. The economic shutdown not only cut down marketing activity from national brands and local businesses, but also affected media consumption for print, radio and out of home. Coupled with a lack of demand from many top local advertisers and industries that remain on the sidelines, linear media formats outside of national television have still not rebounded and continue to suffer in the second half. On a full year basis, MAGNA believes that national television ad sales shrank by -11%, local television by -3% (it would have been -20% excluding political spending), out-of-home by -24%, radio by -28%, print by -30%, and cinema by -80%.
Direct mail had a tough year, like all traditional media formats, as advertising spending declined by -16% despite robust political spend ($600m). The biggest tailwind for direct mail going into 2021 is the reliance of the financial industry, which spends big on the credit card, mortgage and insurance segments and has been less impacted by the crisis than most other industries.
Conversely, digital media advertising sales have quickly rebounded from their second quarter lows (flat vs 2Q19) and ultimately grew by +10% over 2019, to $140bn. Digital media growth was driven by two factors. The first was the sudden acceleration of the long-term shift in retail consumption and other services from brick & mortar shopping to e-commerce, delivery, click & collect, etc. Combined with the classic shift towards lower-funnel marketing channels in recession times, this fueled advertising activity in search (+8%) and social media (+18%). A second factor was the acceleration of digital video consumption, as both SVOD and advertising-funded video platforms benefitted from the new home-centric lifestyles, boosting total digital video growth (long-form, short-form, outstream, OTT) by +19%.
In the third quarter of 2020, following the reopening of many businesses and the return of sports, total advertising revenues grew by +2% vs 3Q19. The market benefitted from record political spending, a strong rebound in digital media spending (+14%) and the stabilization of national television ad sales (-2%) as postponed 2Q campaigns were rescheduled alongside returning sports events. MAGNA expects advertising sales will continue to recover in the fourth quarter of 2020: +6% including political spending, or +2% excluding political. Digital media ad spend will grow by +14% in 4Q as social, video and search are boosted by stronger-than-usual political spending, and ecommerce holiday season shopping. National television ad sales may remain below 2019 levels (-5%) due to poor ratings and a deficit in sports events compared to last year (delayed starts for NBA, NHL and college football).
The 2020 election cycle generated an all-time of $6.1bn in net incremental advertising sales, smashing previous records with +60% growth over 2016. This surge in political spending mitigated the decrease of US advertising revenues in 2020 by two percentage points from -3% for non-political advertising sales, to just -1% overall. Record fund-raising and a great number of competitive races and states, prompted political strategists to increase ad spend on all traditional media, and primarily local TV as usual, while also using digital media on a huge scale for the first time: $1.5bn was spent on political advertising on digital media in 2020, three times more than in 2018. $700m was spent on each of digital video formats and social media. Local television remains the most popular media format and saw +30% growth over 2016 to an estimated $3.6bn in incremental ad revenues. National television, which historically does not see much political spend, also saw an influx of political dollars in 2020, and grew +32% to nearly $300 million.
In 2021, MAGNA expects eight of the ten key industry verticals to improve and increase spend over 2020. As the COVID restrictions are gradually relaxed during the year, Entertainment (e.g. movie releases) and Restaurant will benefit from a gradual reopening, and Food & Drinks brands will benefit from a return to normal sports schedules and social interactions. The Automotive and Travel industries, however, will remain financially fragile. High unemployment rate leads to fewer people making large purchase decisions, such as buying a car, and the lingering effects of the COVID-19 pandemic leads to fewer people traveling. Even if travel and auto consumption recover (and they might be considering the low comps), MAGNA anticipates these sectors to remain cautious with marketing costs and start with direct media rather than linear media.
Assuming COVID vaccination enables semi-normal business conditions for most of the year, cyclical sports events (Olympics) finally happen, and the economic recovery predicted by economists does take place (e.g. IMF GDP +3.9%), MAGNA forecasts US advertising sales to grow by +4.0% (+6% excluding cyclical events) to reach $230 billion, surpassing the 2019 high. Linear advertising sales will stabilize (+1%). National television will grow +5% thanks in part to the Tokyo Summer Olympic games ($800 million of incremental ad sales), and out of home will gain +11% as consumer mobility recovers. Digital ad sales will continue to grow close to double-digits (+8% overall) driven by search (+8%), social (+10%) and video (+12%).
NEXT MAGNA FORECAST UPDATE: March 2021 (US), June 2021 (Global)
KEY MAGNA FORECASTS (DEC. 2020)
|WORLD (INCL. CE)||5.5%||-4.2%||7.6%|
|WORLD (EXCL. CE)||6.5%||-5.1%||8.1%|
|CENTRAL & EASTERN EUROPE||6.9%||-4.7%||9.5%|
|USA (EXCL. CE)||7.8%||-3.3%||6.0%|
|USA (INCL. CE)||5.9%||-1.3%||4.1%|
|TABLE 2: ADVERTISING GROWTH FORECAST – KEY MEDIA (GLOBAL)|
|YOY GROWTH %||2019||2020||2021|
|DIGITAL AD SALES||15.3%||8.2%||10.4%|
|LINEAR AD SALES||-3.6%||-17.8%||3.5%|
|TABLE 3: ADVERTISING GROWTH FORECASTS – US MARKET|
|YOY GROWTH %||2019||2020||2021|
|National TV (incl. CE)||-2.0%||-11.1%||4.6%|
|National TV (excl. CE)||-0.5%||-11.5%||3.3%|
|Local TV (incl. CE)||-15.6%||-3.4%||-20.4%|
|Local TV (excl. CE)||-2.9%||-20.6%||-3.7%|
|GRAND TOTAL (incl. CE)||5.9%||-1.3%||4.1%|
|GRAND TOTAL (excl. CE)||7.8%||-3.3%||6.0%|
CE= cyclical events (US election, Olympics)
|TABLE 4: FORECAST REVISIONS (VS MAGNA’S JUNE FORECAST)|
|YOY GROWTH %||June 20||Dec. 20||Change||June 20||Dec. 20||Change|
|Central and Eastern Europe||-7.7%||-4.7%||+3.0||7.6%||9.5%||+1.9|
|Europe, Middle East, Africa||-9.8%||-6.4%||+3.4||7.1%||8.9%||+1.7|
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