‘Stratospheric’ ad market has peaked, growth rates unsustainable, TV faces ‘erosion’ in 2023 but advertisers not pulling for December half – yet
Leading media owners and agencies are in solidarity: The unprecedented and unsustainable growth surge in the $22 billion ad market over the past 12 months has peaked in the first half of this year and matching comparable reporting period increases is impossible. Linear TV, say new forecasts from Mediabrands’ investment arm Magna and GroupM, will hit real growth headwinds for 2023 but radio and Out of Home will join digital media as the next-wave growth darlings.
The million dollar question is: Does it go into reverse? But we don’t see the market tanking.
The super boomtimes are over as TV broadcasters, first out of the media gate for an unprecedented Covid growth surge - which hit high double digits last year - face a reality check. Linear TV will see “erosion… begin again in 2023 as viewing shifts away from television to digital formats”, per Magna’s latest forecast out overnight. It does predict a further three per cent rise for TV in 2022.
Overall, the ad market will lift by 10 per cent in 2022, says Magna, led by digital formats at a 13 per cent rise to hit overall ad market spending of $22.8 billion. Radio and Out of Home have another two years ahead to recover lost Covid territory but will outpace linear TV which has peaked – broadcasters canvassed by Mi3 suggest the December half could show negative or lineball growth for linear TV or, pending economic conditions, a low single-digit rise.
“We’re coming up against massive market gains of 17-18 per cent last year,” said one senior network executive who did not want to be named as listed media companies head into a blockout period for earnings updates. “The second half will be flat, maybe up or down a point but that’s ok. It’s still above 2019 levels.”
OMG CEO Peter Horgan said it was a “fair observation” that the ad market had peaked in recent months after flagging earlier this year that the second half might prove tough. “The growth levels last year were unsustainable,” he said. “It was extraordinary growth. Television was stronger than anticipated in its bounceback but we always knew it would moderate once [government] stimulus was withdrawn. The challenge now is this collision between consumer confidence, which is under enormous duress due to interest rates bumping into healthy household balance sheets. The million dollar question is: Does it go into reverse? But we don’t see the market tanking.”
Mediabrands CEO Mark Coad said a combination of government spending in the March quarter and a federal election in the June quarter masked some of the settling of the market this year, born out by Standard Media Index (SMI) data.
“The market is still in growth but I agree, it’s not the same levels as last year,” he said. “The Covid bounce-out was never going to be sustained.”
Government up 60 per cent, auto down down
Governments certainly did their bit for the media sector through Covid. SMI AUNZ Managing Director Jane Ractliffe said total federal and state government spending last year was up 60 per cent to $440m on 2019 levels although $200m dropped out of the auto sector, equating to $200m, over the same period.
Overall, ad volumes flowing through media agencies remains the highest on record for SMI – 2019 saw $8.1bn spent via media agencies, hitting a record in 2021 of $8.47bn. Even the March quarter just gone broke new records with a rise of 9.4 per cent in volumes through media agencies to almost $2bn. But even the usually upbeat SMI boss was philosophical on the likelihood of the ad market having peaked.
“The rebound last year was stratospheric,” she said. “The volume SMI reported in June 21 was the highest ever for the first six months since 2007. The trouble now is it’s such a high hurdle in comparative growth to get back over. It’s a very optimistic person that says that can go ad infinitum.” Ratcliffe says media agency volumes were still up 10 per cent for the four months to April this year.
GroupM CEO Aimee Buchanan said she viewed the slowing in growth as a “normalisation after a massive year in 2021” but there was still overall growth in the December half of circa three per cent.
Supply chains remained the biggest challenge for GroupM’s client portfolio, she said, which was impacting spending plans but the wave of sober economic and markets behaviour had not created any knee-jerk reactions so far.
“It’s more related to supply chain pressures,” she said. “We haven’t seen a heap of adjustments yet. China’s shutdown is impacting global brands and impacting global business quite significantly. In auto, every time you advertise you create demand and managing that without product is tough.”
Creative agencies see shifting pipeline
Creative agencies, which are typically an early feeder into forward advertising demand from brands with their pipeline of work, are noting some changes in where marketers are spending budget and time.
“Advertisers are focusing a lot more on making sure that their presence is as useful as it can be - so a lot more of the work we're getting is briefs like ‘is my UX or UI kind of shit? Is it as good as it could be’?” said Ali Tilling, Chief Strategy Officer at VMLY&R.
“Clients bought all this martech, adtech and CX two years ago when it was all kind of the rage and now they’re not really quite sure what to do with it. Have they integrated it properly? Is that fitting with their overall strategy? So there’s a lot more work that sits a little bit further upstream.”
Tilling did have some concerns based on the current pipeline of work, however. “If more is going on marketing mix versus pure advertising and that continues, then there is a question mark about what that means for brand growth,” she said. “Especially for big brands, actually, because we know how a brand grows is through reach and being distinctive. Those are the things that advertising achieves for you.”
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