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September 28, 2021

The unprecedented growth in advertising spending in the first half (+32%) was more than low comps due to the COVID lockdown and recession last year. It was caused by a unique combination of national brands reconnecting with consumers and competing for a limited amount of traditional media inventory, while the lasting changes of COVID on lifestyles and marketing methods continue to fuel huge digital advertising spending from both big brands and small businesses. These ongoing organic growth engines, combined with Olympic budgets and the Mid-Term election spending, will continue to generate double-digit spending growth in the second half and into 2022.

KEY FINDINGS

  •     Boosted by economic recovery, advertising spending grew by +32% year-over-year in the first half of 2021 to reach $130 billion.
  •     All major industry verticals grew ad spending in the first half, with automotive, finance, restaurants and retail showing the largest growth vs. 2020 (+50% or more).
  •     As a result, the advertising revenues of traditional media owners (incl. long-form video, audio, publishing, OOH) grew by +11% year-over-year while pure-play digital ad formats (incl. search, social, short-form video, digital audio) expanded by +49%.
  •     Cross-platform video advertising format sales grew by +20% while audio ad formats grew +29%.
  •     Driven by continued economic strength, Olympic spend, and recovery from some lagging verticals in the second half, full-year ad spend will reach $278 billion this year (+23% vs 2020).
  •     At the end of 2021, the “COVID Recovery Index” for ad spending will reach 124 overall (24% above pre-COVID levels): index 91 for traditional media owners, index 158 for digital pure players.
  •     Looking at spending verticals, only four (auto, travel, restaurants, personal care) will remain under index 100 at end-2021 but they will all catch up to pre-COVID levels in 2022.
  •     A return to normal business conditions for all verticals, a robust macro-economic outlook, and the mid-term election boost will fuel double-digit growth again in 2022: +12%, to reach the $300 billion mark for the first time.

THE ADVERTISING ROLLER-COASTER

With 50 years of data and correlations tracking ad spending and the economy, MAGNA has long established the link between advertising spending and the economic environment: media budgets (higher-funnel media formats) rise and fall faster than any other economic or business indicator and amplify short-term fluctuations. At the same time, pure-play “direct” digital formats (search, social media) continue to benefit from organic growth in adoption by marketers and consumers and the acceleration of e-commerce. Together, these factors explained the resilience of spend in the U.S. in 2020 (digital pure-play growth of +16% nearly offsetting traditional media sales decline of -14%). The same factors explain the soaring rebound in 2021 so far, with the economy performing above expectations and marketing activity recovering even faster than the economy, with only a couple of media channels or industry verticals lagging behind.

The economic recovery (full-year real GDP forecast +6%, personal consumption +12.5%), is causing a surge of marketing activity in most industry verticals, fueling an acceleration in advertising spending and media owners’ revenues, above and beyond expectations. Based on MAGNA’s analysis of media owners’ advertising revenues, ad sales totaled $130bn in the first half of 2021, a record growth of +32% against the same period in 2020. Advertising sales were up +16% year-over-year in the first quarter, and growth accelerated +50% in 2Q21 due to the historically weak comp in 2Q20.

All media types benefitted from the ad spend recovery in the first half to various degrees. The cross-platform ad sales of traditional media owners were slower to recover initially but grew by +11% over Jan-June (1Q: -8% yoy, 2Q +36%). Meanwhile, digital pure players ad sales showed explosive growth: +49% to $81.5bn (1Q21: +38%, 2Q21: +60%). Looking at the top 10 industry verticals, all of them increased ad spending compared to 2020. Advertising spending growth was above average for automotive (+56%), finance/insurance (+50%), restaurants (+50%) and technology (+45%). Because their businesses have been slower to recover, entertainment and travel showed below-average growth so far: +8% and +32% respectively. MAGNA anticipates triple-digit growth for travel and entertainment in the second half as Americans start travelling again and delayed blockbusters are released in movie theaters. Conversely some verticals may slow down ad spend growth in the second half as they face rampant supply issues, e.g. automotive.

FIRST HALF 2021: TRADITIONAL MEDIA OWNERS RECORD +11% IN CROSS-PLATFORM AD SALES

Video Media advertising (holistic, cross platform ad sales, all video formats) grew by +20% in the first half with all segments showing significant recovery against 2020. Broadcast and cable’s national ad sales were up +10%, local stations and local cable sales were up +13%, CTV/OTT/AVOD ad sales (including full episode players like Hulu) grew by +41% and digital video pure players (including YouTube and Twitch) expanded by +68%.

Audio Media ad sales (from traditional radio broadcasters and pure players, including broadcast radio, audio streaming and podcasting) grew by +29% against a weak first half in 2020.

Publishing ad sales (newspaper and magazine brands, paper and digital) were flat (+1%), which is better than the long-term trend (approx. -10% per year), mostly thanks to digital ad sales that now represent more than half publisher’s ad revenues. Out of home ad sales were slow to recover as consumer mobility remained below normal in several regions and segments (airports, public transports) throughout the first half. But growth in other segments (roadside billboards, street furniture) stabilized total ad sales at around $3.4 billion (+2% yoy). According to the Apple Consumer Mobility Index, Driving Mobility stood at index 160 in June (100=Jan 2020) while Transit Mobility was still lagging in June (index 93), but it accelerated to 116 by mid-September.

DIGITAL PURE PLAYERS CONTINUE TO BENEFIT FROM EXPLOSIVE ADVERTISING GROWTH: +49%

Based on financial reports, MAGNA estimates that the advertising revenues of digital pure players (search, social, video, digital audio, banners, programmatic) grew by +49% to $81.5bn in the first half. 2Q21 sales grew by +60% yoy (+17% qoq) following a growth of +38% in 1Q21. All digital formats have benefitted from a rapid acceleration in digital marketing from both large consumer brands and – even more so – even small businesses (many of them starting digital marketing in the aftermath of the COVID crisis). As a result, search and social media ad sales grew by +49% each in the first half (to $44.9bn and $27.4bn resp.) while digital audio pure play (streaming and podcasting) grew by +51% and digital video pure play by +68%.

While ad sales grew by a similar amount within all three major digital segments, growth drivers are quite different by format. For search, half the growth comes from growing usage (queries and clicks) and pricing (cost per click up approx. 20%); for pure-play, short-form digital video formats, usage and views were essentially flat and pricing was the main driver; finally for social media formats, usage is plateauing, and growth is fueled by ad load increases and the continued shift to more valuable and costly ad formats (such as stories). The fact that inflation – vs. cheap rates a year ago – is the main driver of digital dollars this year, rather than volume, suggests that growth rates will slow down in the second half of 2021, and in 2022.

2021 FULL YEAR FORECAST RAISED TO +23%

Following stronger-than-expected ad spend across the board in the first half and looking at a strong economic outlook in the second half, MAGNA raises its full-year ad revenue forecast. With the additional booster of Summer Olympics in 3Q, further mobility recovery and holiday sales in 4Q21, media owners’ advertising revenues will reach $278 billion this year, +23% vs 2020. Adjusting for cyclical effects (incremental Olympic ad spend but very little political ad spend vs 2020) the normalized growth reaches +26%.

As a result, MAGNA anticipates that at the end of 2021, the U.S. ad market COVID Recovery Index will stand at 124 (i.e. 24% more spend than pre-COVID all-time highs of 2019.) Most, but not all, media types have fully recovered in just one year. Traditional media owners’ ad revenues will stand at index 91 (100=2019), long-form video media (incl. national and local TV) at index 98. OOH will stand at index 87 and cinema media at just 31, as most theaters remained closed for many months in 2021.

2022: DOUBLE-DIGIT GROWTH TO COMPLETE COVID RECOVERY

Following this V-shaped recovery in 2021, growth rates are bound to slow down somewhat in 2022, but MAGNA still anticipates double-digit growth, bringing the market above the $300 billion mark for the first time. COVID vaccination has reached 64% but new cases have risen back to 150,000 per day due to the circulation of the more contagious Delta variant in a population that is gradually returning to a normal lifestyle. However, the effectiveness of existing vaccines against variants suggests that local authorities and employers will continue to incentivize or mandate vaccination rather than implement new restrictions to business and mobility that would hamper economic recovery.

In a year that should finally be entirely free of COVID-restrictions, without any remaining supply issues (affecting industries such as auto) or capacity issues (affecting travel, restaurants, theaters and local businesses), economic growth and consumption will remain strong and all industry verticals will finally catch up with pre-COVID levels of ad spend. Adding the incremental revenues generated by winter Olympics ($700 million) and political advertising around the Mid-Terms (close to $6 billion), media owners’ advertising revenues will grow by +12% to reach $310bn.

Again, most media industries should benefit from the sustained demand: video (+9%), audio (+6%), OOH (+11%), search (+16%) and social (+17%).

The MAGNA methodology focuses on the analysis on actual advertising revenues from all media owners, enabling MAGNA to gain visibility on ad spend and ad sales from all advertisers – large and small, local and national – as well as every media type.

Next MAGNA ad forecast update (U.S.+Global): December 2021.

 

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