ADVERTISING FORECASTS – WINTER 2019 UPDATE

US Ad Market remains strong, but rest of the world slows down.

•     US Media Owners’ Total Advertising Revenues Grew by a Stronger-than-Expected +5.1% in 2019 to $224 billion (excluding cyclical: +7.2%).
•     Linear Ad Sales Declined by -6% This Year While Digital Ad Sales Continued to Grow Double Digits (+16%).
•     MAGNA expects More Growth in the US in 2020 as Ongoing Digital Growth and Record Political Spending Will Mitigate the Impact of Economic Slowdown: Total Growth +6.6% (excluding cyclical: +4.4%).
•     Advertising Slows Down in the Rest of the World, Due to Economic Slowdown and Political Instability in Latam and EMEA.
•     Global Ad Market Grew by +5.2% in 2019, and will Grow Again by +5.7% in 2020 (excluding cyclical: +4.6%).

GLOBAL MARKET PLACE

•     Media owners’ advertising revenues grew by an estimated +5.2% this year, to $595 billion This is in line with MAGNA’s previous forecasts for global full-year growth (June 2019: +5.0%).
•     Digital advertising sales (search, video, social, display) continued to grow by double digits, although it is maturing, as predicted by MAGNA: +15% this year globally. It’s a noticeable slowdown compared to +18% to +20% growth rates of the last four years. Digital ad sales will represent more than half of global ad sales for the first time this year: 51.5% ($306bn).
•     Social media continues to be the fastest-growing digital format (+25% down from +34% in 2018) ahead of digital video (+23% down from 30%), and search (+14% down from +19%) while static display formats generate stagnating revenues. All digital ad formats are slowing down due to the maturity of digital media consumption and digital marketing in most markets.
•     Search remains the #1 digital format with 47% of total digital ad revenues ($144 billion) as brands re-allocate parts of their trade marketing budgets from brick-and-mortar retail to product search on ecommerce platforms.
•     Traditional linear ad sales (linear TV, print, linear radio, OOH) decreased by -3.4% to $289 billion, representing less than half of total ad sales for the first time (48.5%).
•     Global linear television ad revenues shrank by -4% this year, the poorest performance since 2009, as pricing increases can no longer offset the accelerated decline of linear audiences, especially in an odd-numbered year without cyclical events/drivers. Print ad sales declined by -10%, in line with previous years, while radio advertising revenues were stable. Out-of-home advertising was the only traditional media to show significant growth (+6%), driven by digital OOH revenues (+20%).
•     Ad spend grew in 62 of the 70 countries analyzed by MAGNA, including all the top markets this year: US +5%, China +9%, Russia +7%, India +13%, UK +7%, Germany +2%. Among the markets that did not grow in 2019, several Asia and Latam countries where the economy suffers from ripple effects of the US/China trade war and/or domestic unrest (Peru, Chile, Malaysia, Vietnam, Lebanon).
•     APAC market grew the most in 2019 (+6.3%) ahead of North America (+5.1%) and EMEA (+4.3%). Latam grew much below expectations (+4.1%) due to economic crises, political uncertainty, and government spending cuts (Mexico).
•     Global advertising spend has now been growing for ten consecutive years (2010-2019) and MAGNA forecasts more growth in 2020: total +5.7%, linear -0.7%, digital +11.7%. North America will grow by +6.5%, APAC by 5.9%, EMEA by 4.1% and LATAM by +6.1%
•     The return of cyclical events (US Elections, Summer Olympics, Europe’s Football Championship) will mitigate the impact of the global economic slowdown. MAGNA estimates that cyclical events will generate more than seven billion dollars of extra ad spend globally in 2020 i.e. a 1.1% uplift. Excluding the impact of cyclical events, the normalized global market growth would be +4.6% in 2020 instead of +5.7%, down from +6.3% in 2019 and +6.8% in 2018.

US MARKET PLACE

•     Total advertising sales (linear+digital) grew by +5.1% in 2019 to $224 billion this year. In 2020, normalized growth (excluding cyclical) is predicted to slow down from +7.2% to just +4.4% due to the economic slowdown, but factoring in record cyclical revenues, actual revenue growth will reach +6.6% next year.
•     Media owners’ linear advertising sales decreased by -3% to $95bn this year (excluding cyclical effects). MAGNA predicts a further -4.4% in 2020 as continued growth in out-of-home media (+6% in 2019) and the resilience of national television (-1% to -2%) and radio (-1%) won’t offset the bigger revenue declines in print media (-14% in 2019) and local broadcast television (-4% excl. cyclical).
•     Factoring in cyclical ad spend (or lack of), the decline of linear advertising was even more pronounced this year (-6%) but actual linear ad sales will stabilize in 2020 as linear media will attract the bulk of the $6.2 billion generated around the election cycle and the summer Olympics.
•     National television advertising sales declined by an estimated -3% to $42 billion this year and will decline further in 2020 as a slowing economy may impact ad spend from major verticals (e.g. auto). Ratings decline and CPM inflation are both accelerating in a “scissors” effect but pricing strength no longer offsets volume weakness to stabilize revenues. Even factoring the incremental ad revenues generated around the Summer Olympics ($750 million), nominal growth will be -1% in 2020. The Technology and Entertainment verticals will increase their TV spend in 2020 to support product launches and the “streaming war”, offsetting most of the cuts from other industries (e.g. Automotive).
•     Audio media is showing improving performances in 2019 as linear radio stabilized ad revenues around $13.5 billion, following decreases of -2% per year in recent years and major media owners going in and out of bankruptcy. Adding the fast-growing advertising revenues of digital audio and podcasting (+10% to $3.2 billion), total audio media ad sales increased by almost +2% to $16.7 billion.
•     Local TV is suffering from declining spending from key verticals (car dealers, retail, restaurants) as non-political ad revenues are eroding by -4% per year, but stations will benefit from $3.5 billion of incremental revenues from political spending in 2020, driving total ad sales to $21 billion (+13%).
•     Meanwhile digital ad sales continues to grow by double digits, even though the growth rates are slowing down from +20% in 2018 to +16% in 2019 (as predicted) as volumes are maturing. Social media ad sales grew by +27% this year (from +34% in 2018) while digital video ad revenues increased by +22% (2018: +30%). Search remains the #1 digital format, growing by +16% to $62 billion.
•     The rise of Amazon as a major advertising vendor (+40% this year) makes it a real competitor to Google and Facebook, with 12% of the search market and 4% of the total digital advertising market, growing from almost nothing two years ago. Amazon ad products are in fact growing the advertising pie, as major brands re-allocate some of the trade marketing and below-the-line budgets from traditional retail chains to online product search as ecommerce reaches 30% of total general merchandise sales (vs 10% at the beginning of the decade).
•     Digital media spend will continue to mature in 2020 but MAGNA anticipates double-digit growth again: +11% to 143 billion (60% of total advertising spend). Digital media (social and video in particular) will also get a significant share of political spend for the first time. MAGNA predicts that one billion dollars of political spending will go into digital formats in 2020.
•     While digital media formats will attract 60% of total advertising spend in the US next year, they only capture approx. 35% of the ad budgets of national consumer brands, while the bulk of digital spend comes from millions of small, local, direct advertisers spending $10,000 a year or less with Google or Facebook. Meanwhile, consumer brands still dedicate approx. half of their budget to television.

According to Vincent Létang, EVP, Global Market Intelligence at MAGNA, and author of the report:

“The global advertising market grew on par with MAGNA’s forecasts, at around +5%, but it was the result of the US market growing beyond expectation while the rest of the world grew less than expected. Ironically, while the US and Chinese economies remain strong so far, despite the trade war, and marketing spend grew strongly in both markets this year, the trade war made collateral casualties in several countries depending on US or China trade, and marketing spending was hit. Three growth engines should mitigate the global economic slowdown expected in 2020, to generate an eleventh year of growth for advertising spending and revenues. The return of cyclical events (with record political spending in the US), the marketing activity of the tech and entertainment sectors (promoting new tech products and VOD offerings) and the reallocation of trade marketing budgets from brick-and-mortar retail to ecommerce platforms’ product search.”