It looks like the ad market has settled into a post-recession growth pattern that is stable, but in the low single digits as marketers remain cautious and continue to demand optimal ROI for their advertising spending investments as more dollars move to digital channels. Economic and political uncertainties appear to be factors keeping growth at a moderate pace.
Three widely followed forecasts — from Interpublic’s Magna, WPP’s GroupM and Publicis Groupe’s Zenith — are being presented today at the annual UBS media conference in New York. Below are summaries of each forecast.
Magna: 3.6% Ad Revenue Growth Predicted For 2017
Global ad growth will slow in 2017 to 3.6%, with total advertising revenues reaching $510.7 billion, according to Interpublic Group’s Magna. By comparison, Magna estimates that 2016 ad revenue grew at a significantly stronger 5.7% pace, reaching $493 billion.
Magna stated that the slower rate of growth next year is attributable to “economic and political uncertainty and the lack of cyclical events.” If the forecast proves correct, next year’s growth rate would be the lowest in 15 years outside of the recession in 2008-2009.
Digital-based ad sales will become the top media category in 2017, Magna asserted, reaching a market share of 40% ($202 billion), compared to linear TV ad sales ($186 billion, 36%). Digital will grow to capture 50% of the market by 2021 ($299 billion) while linear TV will plateau at $195 billion (33%).
2017 will also be the year when the majority of digital ad sales (52%) are generated by mobile impressions or clicks, driven by the rapid growth in social and search usage on mobile devices.
Magna found that social and search captured the bulk of digital dollar growth in 2016: $23 billion out of $26 billion. It also concluded that the global advertising market is currently growing faster than would be expected in the current economic environment. Magna concluded that was the case due to social and search being fueled by “untapped ‘below-the-line’ marketing budgets, and not just taken away from traditional media budgets.”
By country, this year’s biggest contributors to growth were the U.S., China, Australia and the UK.
U.S. advertising sales grew by nearly 7% this year to $180 billion, which Magna asserted was the strongest growth rate in twelve years. Excluding the incremental spending generated by political and Olympic spend ($3.5 billion), 2016 ad growth would have been 5.1% this year.
In 2017, U.S. growth will be in line with the global outlook, decelerating to 3.6%. That rate of growth would bring total U.S. ad revenues to about $186.5 billion.
The advertising market is increasingly concentrated around a few formats and vendors, per the new Magna forecast. The bulk of net market growth in 2016 ($26 billion out of $27 billion) came from digital ad sales. More specifically, almost 90% of the net dollar growth came from two ad formats only: search and social.
“In some markets, like Western Europe, search and social alone represented 110% of the net market growth, meaning that everything else combined (including online display and video) shrank last year. The two global media vendors dominating search and social, Google and Facebook, together control more than half (54%) of total digital advertising market, versus 44% a year ago.”
With digital-based ad sales approaching 40% of total sales in 2017 and projected to reach 50% by 2021, Magna said the time was right to think less about traditional versus digital channels. “Television, audio entertainment and print/news publishers are monetizing their content on digital and mobile platforms,” the firm stated. “For instance, consolidating linear television (-1% compound annual growth rate over 2017-2021) and the various forms of digital video (cross-platform, cross–screen CAGR +33%) suggests a combined growth of +6% per year in the US.”
The Magna forecast also found:
GroupM: 4.4% Gain In Global Ad Expenditures Seen For 2017
Global ad spending will increase 4.4% to $547.3 billion in 2017, according to GroupM’s latest This Year Next Year forecast. That’s slightly more growth than the 4.3% the firm is projecting for full-year 2016 (to $424.5 billion).
In 201, GroupM foresees a bit more growth -- 5.4%, with ad spend rising to nearly 577 billion.
Growth in North America will continue to lag behind the global pace, per GroupM, which predicts 2.6% growth in the region to $193.6 billion in 2017. That’s slightly off the 2016 pace of 3.1% growth to $188.7 billion that the firm is forecasting for the full year.
The initial 2018 North America forecast is $202.3 billion, up 4.5%.
Next year, all regions are forecast to produce some growth per the GroupM report. Western Europe, Asia-Pacific and Latin America will produce 3.0%, 6.3% and 6.5% ad spend growth, respectively.
According to the GroupM report, net global ad growth in 2017 will total $22.9 billion. The two biggest contributors will be China and the U.S. ($6.2 billion and $4.7 billion, respectively). The UK, Argentina, Japan and India round out the top 6 growth contributors.
“The main change to the world’s economic outlook now compared to a year ago is that corporates are even more reluctant to make big investment decisions,” the GroupM report states. “Some of this is transitory (energy prices), some more enduring (China’s structural adjustment), some political (Brexit, European populism) and some simply because CFOs despair this grinding global recovery will ever reach 'escape velocity'."
“Against this slow-low background our new ad forecasts are not much changed, with global ad growth continuing to shadow nominal GDP at 4.3% in 2016 (last time 4.4%) and 4.4% in 2017 (5.2%).”
2016, the report concludes, "was a maxi-quadrennial without the maxi, as neither the summer Olympics, not the European soccer, nor the US elections surprised to the upside. Ad growth in the developed world looks to have touched a [post-recession] high of 3.2%."
But the lack of a so-called "maxi" this year “makes an easier comp for the faster-growth world, where our lowish 6.1% for 2016 accelerates to a new-normal 7.3% in 2017. The “old normal” 13.8% 2000-2015 is just a memory, except for some in the digital world.”
For 2016, GroupM projects digital’s share of global ad expenditure at 31% rising to 33% in 2017. One new milestone is coming up, the report states: “Next year we predict digital’s share of ad investment in the faster-growth world will at last have caught up with the developed world, to the 33% we just noted. The new and old worlds have been contributing equal tonnage of new digital ad dollars since 2013. If we disregard print, which is negative, then in 2016 digital will capture 72 cents of every new ad dollar, and TV 21 cents. In 2017 this becomes 77 to 17.”
That said, digital’s share of overall ad spend is not as big as traditional TV’s “yet,” per the report which calculates TV’s ad share to be 42% for 2016 and 41% in 2017. “It rode a five-year 44% peak 2010-2014, and some of the share it appears to have shed since then is an artefact of poor measurement,” the report concludes.
However, “10 countries have already witnessed digital overtake TV, with a further five in line in these forecasts: France, Germany, Ireland, Hong Kong and Taiwan. Digital fuels its growth by recruiting long-tail advertisers and winning share from other media. To this it now adds a serious attempt to win TV’s big-brand advertising, an endeavor which will turn as much on digital’s quality as on its undoubted quantity.”
As to the U.S. political election results, the report concluded that the “Trump victory has raised uncertainty. This means more hesitation in important decisions in the short-term, by people, governments and corporates. Advertising spend will likely be negatively impacted until there is clarity on policy.”
While there has been much handwringing in Adland over the UK’s decision (by referendum) to leave the European Union, so far there has been “no discernible effect on advertising investment.”
Zenith: Growth Flat This Year And Next At 4.4%
Publicis Media’s Zenith predicts global ad expenditure will grow 4.4% in 2017, reaching $566 billion. Growth next year will be flat with 2016, but the Publicis-owned agency network estimates global advertising expenditure to increase by $73 billion between 2016 and 2019.
U.S. ad spending next year will climb to almost $190.8 billion, up 4.3%. That will represent a slight uptick in growth versus 2016, when spending here is expected to total $182.6 billion for a gain of 3.5%. Pharmaceuticals and packaged good advertisers and expenditures on social media helped to accelerate ad spend.
Social media platforms have benefited from the rapid adoption of mobile technology and will account for 20% of all Internet advertising in 2019, up from 16% in 2016. By 2019, social media will be only 1% smaller than newspaper advertising ($50.2 billion versus $50.7 billion).
"Social media and online video are driving continued growth in global ad spend, despite political threats to the economy," says Jonathan Barnard, the agency’s head of forecasting. "Just four markets in Asia will provide more than a third of global ad spend growth to 2019, counterbalancing recession in Latin America and the Middle East."
Mobile advertising has slowed its growth -- up 48% in 2016 after 94% growth in 2015 -- and will grow an average of 26% a year
between 2016 and 2019, according to Zenith’s Advertising Expenditure Forecasts. By 2019, mobile advertising will total $160 billion -- well ahead of desktop's $88 billion -- and will be larger
than all other media except television.
Although television continues its reign as the dominant advertising medium at the moment, accounting for 36% of total ad spend in 2016, its future is more precarious. In 2017, ZO expects the Internet to officially overtake television to become the largest single advertising medium.
One of the reasons for television’s loss of share is the rapid growth of paid search, "which is essentially a direct response channel together with classified," states the report -- "while television is the pre-eminent brand awareness channel -- and we expect it to remain so for many years to come."
Meanwhile, so-called audiovisual advertising as a whole -- television plus online video -- is gaining share of display advertising. "Television offers unparalleled capacity to build reach, while online video offers pinpoint targeting and personalization of marketing messages," states the report. Thus, Zenith estimates that audiovisual advertising will account for a record 49.1% of display advertising in 2016, up from 43.8% in 2010, and expects its share to reach 49.9% in 2019.
All these gains mean that other categories will fall, per ZO which predicts that desktop Internet advertising will continue to decrease at an average rate of 4% per year as advertisers follow consumers to mobile. Paid search, by contrast, will grow at an average rate of 11%, driven by continued innovation from search engines, such as personalized search results.
“Growth of the global ad market is being driven by advances in technology, especially mobile and programmatic tech,” said Publicis Media CEO Steve King. “But television remains by far the most important channel for brand communication, and online video, its digital offshoot, is increasing the audiovisual share of global display advertising.”
Newspapers' share of global spend has dropped from 28% to 11% over the past ten years, while magazines' has fallen 13% to 6%. Print will continue to lose readers as publishers move online and Zenith predicts both magazines and newspapers will continue to shrink at average rates of 4% and 5% a year, respectively, between 2016 and 2019.
Despite economic and cultural uncertainty across the world, the global ad market has remained steady -- growing at about 4% to 5% a year -- and Zenith expects this stable growth to continue at least until 2019.
The ranking of the world’s largest ad markets is also currently very stable. The U.S. is still the biggest contributor of new ad dollars to the global market. Between 2015 and 2018, Zenith expects the global ad market to grow by $73 billion. The U.S. will contribute 28% of this extra ad expenditure, closely followed by China, which will contribute 25%. Indonesia comes in third, followed by the UK, and India and the Philippines.
Five of the 10 largest contributors will be emerging markets, and between them they will contribute 38% of new ad spend over the next three years.