April 06, 2019

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%). 

  1. 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%).
  2.     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).
  3.     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).
  4.     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%).
  5.     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.
  6.     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%).
  7.     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%.
  8.     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.
  9.     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.”

 

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