US Ad Spend Revenues Increase

1.In its fall forecast published October 3, MAGNA predicts that media owners net advertising revenues will grow by +6.3% to $179 billion this year, the strongest growth rate since 2010.

2.This is marginally above our previous forecast (+6.2% published in June 2016) following a strong first half and despite lower political ad spend expectations.

3.Without the incremental ad sales generated by Political and Olympics ad spend ($3bn and $700m resp.), ad market growth would be +4.4% this year and will
slow down to +3.5% in 2017.

4.Digital media ad sales will grow by +15% this year and +12% next year, whiletraditional media ad sales will decrease by -1.5% this year and -2.2% next year.

5.This  yeardigital  advertising  sales  will  equal  TV  ad dollarsfor  the  first  time  with  both generating $68 billion, a market share of 38.5%.

6.Digital ad sales will then reach $105 billion by 2020, a 51% market share.  

7.The main driver this year is social media (+44% to nearly $16bn), ahead of digital video (+32%).

8.Social video ad formats will attract$2.2bnof ad dollars this year i.e. 14% of total social media ad sales, and 24% of total digital video ad sales.

9.National  TV  is  resilient.  Ad  sales  grew  +4.6% in  the  first  half  thanks  to  strong pricing  offsetting  the  continued erosion  of  ratings. Full  year  ad  revenues  will  grow  by  +3.2%  (excl.  P&O),  slowing  down  to  +1.5% next year.

Media owners advertising sales are expected to increase by +6.3% in 2016 and by +1.6% in 2017. Neutralizing the  impact  of  incremental  ad  spend  driven  by  even-year  events  over  the  period  2015-2017  (“Political  &  Olympic”  effect  or  “P&O”)  advertising  sales  would  increase  by  +4.4%  in  2016  (previously:  +4.1%)  and by+3.5% in 2017 (prev. +3.4%).

Media vendor advertising sales were strong in the first half of the year (+6.1% overall, excl. P&O), arguably over a weak 2015 period. Ad sales were driven by national TV (+4.6%), digital media (+18.3%) and Out-Of-Home  media  (OOH)  (+3.8%) while the advertising  sales  of print  and  radio  decreased  (-9%  and -2% respectively).

Looking  at  individual  media  categories,  the  +6.3%  growth  overall  for  2016  will  be  almost  entirely  driven  by  digital media (+15% to $68bn) and television (+6.9% to $68bn) while print media and radio advertising sales will continue to decline (newspapers -11% to $12bn, magazines
-11% to $8bn, radio -4% to $14bn). Meanwhile OOH media, including cinema, will grow by +4% to $7.5bn. Consolidating all traditional media categories (TV, print, radio, OOH), ad sales will decrease by -1.5% this year to $107bn and by another -2.2% next year.

National  Television  advertising  sales  grew  steadily,  by  +4.6%  (excl.  P&O),  in  the  first  half  of  the  year.  This  compares to a –
0.5% decline for the same period last year. We expect lower growth in the second half, mostly due to stronger comps, but we have increased the full-year 2016 growth expectation to +3.2% excl. P&O.

The current  strength  of  pricing is likely  caused  by  television  ratings  erosion  having  reached  a  tipping  point.  

Many  big  brands  in  mainstream  consumer verticals  (CPG,  food,  entertainment  etc.),  traditionally  heavy  on  national television, have been willing to tolerate higher levels of inflation than before, in order to secure their share of a shrinking supply of traditional linear national television ratings, deemed essential to their business model . Some  of  those  advertisers  do  not  perceive  the  alternatives  to  national  TV  (e.g. the  various  forms  of  digital video) as not sufficient or not appropriate yet. However we believe that those alternatives will gradually become  more  attractive  due  to  better  trading  mechanisms,  better  cross-screen  measurement  and  planning.  The deal between MAGNA and Google announced earlier this year was the first-ever TV-style deal between a major agency group and a major digital video provider aimed at making “Google Preferred” YouTube inventory a workable complement or alternative to the shrinking national television inventory, for volume and reach.

Looking at national TV segments, cable networks ad revenues will grow +3.9% to reach $26bn in ad sales this year;  English-Speaking  broadcast  networks  will  grow  ad  revenues  by  +8%  to  $15bn,  including  an  estimated  $700  million  derived  from  incremental  Olympic  sales  (excluding  Olympics:  +2.2%).  Spanish-Language networks ad sales will grow by +8.5%, in great part due to the incremental sales generated by Copa America, the first-ever Pan-American soccer tournament hosted by the US. For 2017 we anticipate supply to continue shrinking and pricing to remain dynamic. In 2017, total national TV ad sales will grow again, by +1.5%, to $45 billion.

Local  television is facing a similar ratings  erosion  as  national  TV but it does not experience a similar pricing surge as a result, because of weaker underlying demand. Excluding political ad sales, local TV ad sales would be down -1% this year to $20 billion. The good news for local stations is that they maintain dominant in political advertising, far above other traditional local media (print, radio, OOH) and despite the rise of digital. Adding an  estimated  $2.8 billion  in  incremental  political  ad  sales  this  year  (+3% vs  2012),  total  local  TV  ad sales should grow by +10% this year, but decrease by -11% next year, showing no real impetus beyond the cyclical political bonanza.

Digital media advertising salesare forecast to grow by 15% this year to reach $68 billion. Growth is entirely driven by mobile-based impressions (+45%) while desktop-based impression generate stagnating ad sales (-0.6%). In terms of formats, video and social continue to show explosive growth (+32% and +44% respectively) while search will grow by a robust 14%. Meanwhile, static display banners will start to attract fewer dollars due to lower demand and ad blocking.

As  predicted  by  MAGNA  for  the  last  two  years,  2016  is  the  year  when  digital  media  ad  sales  finally  equal television ad sales making digital media the #1 category, as the curves cross each other at $68.5bn or 38% market share. From that point, digital media will grow to $105 billion by 2020, a 51% market share.The biggest driver to digital media this year has been social video, with ad sales predicted to reach $2.2bn, which already represents 14% of total social media sales and 24% of total video formats ad sales. Social video is particularly attractive to TV-centric brands that were spending very little with paid social format until now, but are eager to complement shrinking reach of their television campaign.