Economic recovery will lift all boats, but the contrast has never been wider between digital ad sales accelerating (+20% to $419bn) and linear ad sales (linear TV, linear radio, print, OOH, cinema) which are barely stabilizing (+3% to $238bn after 2020’s -18% decline). COVID may be receding in most markets but the changes to lifestyles, media consumption and business models continue to fuel an acceleration in the adoption of digital marketing from both national consumer brands and small, local and “direct” businesses. Digital growth from consumer brands comes partly at the expense of traditional linear channels but in the case of small businesses (that represent the bulk of search and social ad spend), it is mostly incremental to the advertising pie.
All of the 70 ad markets monitored by MAGNA will grow to some degree in 2021 and 2022. In 2021, Asia Pacific ad markets will grow by +13%, EMEA markets by +12%. Latin America and North America will both grow by nearly +15%. Everywhere, the pattern is similar, with linear ad sales to grow by low- to mid-single digits and digital ad sales growing by +20% or more. The United States remains the largest market and will increase by +15% in 2021, and will still remain ahead of China (+16%), Japan (+9%), the United Kingdom (+17%) and Germany (+11%) among the top five markets.
Nearly all digital ad formats will grow by double-digits in 2021 as total digital ad sales will account for 64% of global all-media ad spend. They will reach two-thirds of all advertising sales in 2022. The explosion of ecommerce will boost search by +20% to $200 billion, while growing marketing adoption and media consumption will drive social media by +26% to $119 billion. Video ads will grow by +24% to $57 billion as short-form, long-form AVOD and OTT ad spend are all fueled by increased reach and viewing. Out-stream video and static banners may grow at a more subdued pace (single-digits) due to the increasing limitations to tracking and targeting on websites (on Safari and soon Chrome) and apps (on iOS14).
Among linear ad formats, MAGNA expects linear television ad sales to recover as consumer brands (e.g. automotive, drinks) compete for returning consumers in a brand-safe environment. Advertiser demand will drive CPM inflation (average +8%) which offsets eroding ratings. In addition, international sports events bring additional ad budgets: Global TV ad sales will thus grow by +3% to $153 billion. Radio and out-of-home media will benefit from businesses re-opening in several key verticals (e.g. automotive, retail, entertainment) as well as a gradual return to consumer mobility that will restore their audiences; ad sales will increase by +5% and +10% respectively. Print ad sales will not quite stabilize as the return of key verticals (fashion, beauty, travel) will not offset the continued decline in circulation and ad pages. Newspaper and magazine ad sales will decrease by -4% and -5% respectively.
The scale reached by digital media owners and the stagnation of linear ad spend is forcing traditional media owners to consolidate to compete more effectively and invest in cross-media technology. MAGNA believes the spring announcements in the US (Warner/Discovery) and in France (TF1/M6 with a combined market share of 85%) are just the beginning of a new wave of mergers and acquisitions globally.
US AD MARKET: +15% TO $259 BILLION
In the US, media companies’ net advertising revenues (NAR) will reach a new all-time high of $259 billion in 2021. That will be an increase of $34 billion (+15%) over 2020. The +15% growth will mostly be driven by digital advertising acceleration (+24%) while linear ad sales will only show modest growth (+4% excluding political). The new growth forecast represents the strongest acceleration in 40 years and stands nine percentage points above the previous MAGNA forecast (published March 2021). The upward revision comes from a better-than-expected start of the year and an increasingly strong economic outlook for the coming months: For example, the International Monetary Fund (IMF) recently increased its full-year, real GDP forecast to +6.4%. Marketing activity and advertising spending will be fueled by strong consumption, a fast-recovering job market, the reopening of many businesses (restaurants, theaters, amusement parks…) and the return of normal events and sports schedules, plus the Olympics.
Following a strong 1Q21 (+16%, driven by huge digital growth), MAGNA expects second quarter ad sales to grow by at least +35% year-over-year (YOY), against a historically low quarter in 2Q20 (-17%). Strong YOY growth will continue in 3Q21: +13% with $900m of incremental ad spend generated around the Tokyo Olympics. Growth will slow down to +4% in 4Q21, which compares against a strong quarter in 4Q20 that was boosted by record political spending and a robust holiday season.
Digital advertising sales will grow by +24% to reach $179bn, to approach 70% of total ad sales. Unlike linear media, the digital market quickly rebounded from its lows in the second quarter of 2020, and it has been red hot ever since. First-quarter digital ad sales were up +35% YOY and the second quarter is expected to grow by at least +40% YOY.
Within digital media, social, video and search will drive growth. Both social media and digital video will grow +28% this year, while search will gain +23%. Video will be driven by the short-form segment, as both YouTube and Twitch continue to report strong results, and the long-form segment, as the proliferation of AVOD platforms in 2020 (Peacock, Paramount+, etc.) demonstrate, will capture dollars lost in linear TV. Digital audio will also grow in 2021 (+17%) as consumption and marketing usage in podcasts continues to increase rapidly.
Non-political linear advertising sales (linear TV, radio, print, out-of-home and cinema) will increase by +4% to $81 billion, but due to the lack of political spend this year, total linear ad sales (including political) will be merely stable. Linear ad spend has been slow to recover in 1Q21 and ad sales were still down vs 2020 (-11% YOY), but more easily, the return of sports, and consumer mobility will help stabilize the market in the next three quarters. Within linear media, out of home will show the highest growth, +11% over 2020, following a heavy decline in 2020 (-25%) and in 1Q21 (-28%), as mobility recovers and advertising spending comes back from entertainment, retail and travel (all among top 5 spending verticals). Local TV will benefit from the recovery of its No. 1 industry vertical, automotive (Jan-April car sales up 29%), driving non-political ad sales by +10%. Radio ad sales will increase by +7% to $10bn, thanks to automotive and entertainment verticals (both in the Top 4 radio verticals). Print is the only linear ad format that will not grow again in 2021 (-14%), though national newspapers and magazines will fare better than their local counterparts. National TV ad sales will grow by 5% to $38 billion helped by stronger pricing and incremental spending around the Tokyo Olympics.
Traditional media owners’ cross-platform ad sales (linear+digital) will grow by +5% in 2021, with total television ad revenues up +6% (including long-form AVOD +25%) and audio ad sales up +10% (including audio streaming and podcasting up +35%). The digital ad sales of newspaper and magazine publishers, which now stand at half of total publishing ad sales, will grow further this year (+14%) but not enough to offset the continuing decline of print ad sales (total ad revenues -14%).
In 2022, MAGNA expects the US advertising market to grow by +8% to reach $280bn, thanks to continued economic growth (GDP growth between +3.5% and +4.3%) and more cyclical drivers (Winter Olympics in 1Q22, mid-term elections in 4Q22). Marketing and advertising activity will also benefit from a full year of an open economy compared to 2021, when the first quarter was still partly hampered by COVID. This is a two-percentage point upward revision from MAGNA’s previous report in March.
MAGNA believes the recent merger announcement between Warner Media and Discovery is the first of a new wave of consolidations to come in the media industry. Facing stagnation in linear media consumption and linear ad sales that are still the bulk of their business revenues, traditional media companies have no choice but to grow in scale, in order to compete with digital media giants, and invest in cross-platform advertising solutions. Traditional media owners are moving now as they believe antitrust authorities are ready to consider market shares in the broader media market and thus approve horizontal consolidations that would have been unthinkable just five years ago. The US TV market remains relatively fragmented following the merger of Warner and Discovery: The top three TV ad vendors (currently NBC, ViacomCBS and Warner/Discovery) will control just 60% of the US TV advertising market, compared to 90%+ for the top three broadcasters in most other advanced markets. Moreover, they will control only 15% of the broader, cross-platform ad market compared to 30% for Google or 16% for Facebook. Media consolidation is global, and international markets remain a step ahead as the top two French broadcasters (combined market share 90%) just announced their own merger plans.