In what likely is the first comprehensive analysis of actual data from big agency media buys of its kind, Madison Avenue’s major agency holding companies have boosted their spending in digital media by $3 billion during a nine-month period ending with June 2015, and most of it came at the expense of traditional media. The data, which was released Wednesday by Standard Media Index, looked at the those months, because they happen to coincide with the so-called “broadcast year,” which is the way TV networks and stations typically account for their advertising revenues. Not surprisingly, the biggest hit in Madison Avenue’s digital media shift is coming from their TV advertising budgets.
“The results show that digital is siphoning share away from other media, with the bulk of it coming from television,” explained SMI’s Bree Sutton, noting that national TV ad spending trends have been reflecting that.
“On the national TV front, the scatter market has clawed back about 35% of the ad revenue lost in the soft 14-15 upfront, however the remainder of those dollars have flowed into digital,” she pointed out.
What makes the analysis so significant is that it’s not based on third-party estimates, but is derived from actual media buys processed by big ad agencies representing about 80% of holding company billings. The analysis estimates only about $1 billion of the $3 billion in digital spending was “organic,” meaning it came from new budgets earmarked for digital media. The rest presumably came at the expense of other media.
While digital spending is up a total of 16% during the nine-month period, national TV spending fell by $1.1 billion, or about 4%. And total TV spending fell about $1.5 billion (about $5%).
While there are some macro factors driving those declines -- including comparisons with year-ago spending that included the World Cup Soccer tournament -- there clearly is a more secular shift going on too.The SMI analysis estimates about $350 million of digital’s growth came at the expense of “print” media, and about $150 million came out of radio.
This is all inferential and does not neccessarily enable us to determine exactly what budgets the various gains and losses can be attributed to. In fact, most advertisers don't have "budgets" for any particular medium, their media mix as well as total ad spending is decided on a year by year basis. Still, there is no denying that some dollars that would have been spent in "traditional" media are flowing to digital and this trend will, no doubt increase, though at a declining rate.
Ed: You are correct. The data shows that traditional media spending declined by nearly $2 billion and digital grew by about $3 billion and we are reporting on the inference that some of that about $2 billion in budgets shifted from traditional to digital media.
Are advertisers shifting dollars from TV based on effectiveness or based on efficiencies. Of course, something is more efficient only when is is at least as effective or more than what it replaces. The ultimate measurement of effectiveness in on a business outcome - sales, and not on on an intermediate result such as GRPs or impressions.
Here’s what Erwin Ephron had to say about these kinds of efficiency shifts, and Erwin was ususally right:
“When we shift dollars from Prime to Cable, from monthlies to weeklies, or from 30s to 15s, or pages to half pages, and think we’ve gotten the same plan for less money, we’re defying both the market and common sense.”
Excellent article and comments. Just today in Media Post’s Online Publishing Insider a terrific articule by Paolo Gaudiano pointed out that the "digital king" has no clothes as evidenced by low CTRs, viewability, and fraud issues. Makes one wonder what is the logic behind the shift of dollars. Digital gives metrics but the metrics it provides are terrible. Time to rethink.
Adding digital to the media mix is like adding a new tool to your toolbox. Each tool does something unique ... knowing when and how to use them is the key. Using the new tool just because it's new ... is never a smart decision.
@ David, I doubt that advertisers are shifting dollars into digital based on cost efficiencies as digital video buys come in at higher CPMs than TV. I doubt that they are shifting dollars due to effectiveness gains also, as these are very hard to determine and, in most cases, the digital ad "budget" is still a small proportion of the total spending.
A more likely scenario is that many branding advertisers----and not without reason----have decided that now is the time to really get their feet wet with digital media and lay the foundation for more and better targeted use of this medium in the future, as a result of a general uneasiness about exactly where TV is heading, concerns about continued audience fragmentation, the aging of network audiences, etc. The problem is that suddenly a lot of advertisers who, frankly, weren't paying very close attention, have been hit with digital's fraud/bot/ "viewability" issues, which, if not solved by the digital ad sellers, will slow down ad revenue growth considerably.
Ed give up the Ghost. The shift is a by-product of successful testing which is done in real time. TV is causing audience fragmentation by going OTT apps across all major newtorks independently.
Leonard, I see that you are now using the outmoded "effective frequency " concept rather than the far superior "recency" theory in your postings. The former assumed that you needed to say it 2-6 times, but not more often, to communicate "effectively"while the latter contended that saying it once was sufficient, albeit with repetition every week. As for me, I'm off to proof reading class so I can correct more of my typos before posting them. Sigh!
No surprise here. IRS tax records show that, if corporations spent the same percentage of gross revenues today on advertising that they did 10 years ago, the U.S. advertising economy would be $56 BILLION richer. We've absolutely reached tipping point, as outlined in this comprehensive analysis a few months ago: https://www.borrellassociates.com/industry-papers/papers/local-advertising-at-the-tipping-point-jun-15-detail
As Joe knows, analysts have been predicting this for the last 2-3 years, its just finally showing up in the actual buy data. The next optics on this are likely to be on TV sellars balance sheets where, if they're unable to bury it in cross-platform upfront media buys, it's likely to put a dent in guidance on forecasted revenue. With OTT becoming more pervasive, the channel allocations both in spend and accounting will interesting to observe. This is just the tip of the spear as they say.
From the advertisers' viewpoint, the most pressing issue will be the declining number of commercial GRPs available to them as the share of ad-free TV viweing rises---which is certainly in the cards. It is already clear that this is having an effect on reach capabilities and many agencies should be modifying their TV reach tables to bring them in line with current realities. We did an interesting analysis of this which will appearing soon in our free newsletter, "Media Matters".
It's also worth speculating on how the broadcast TV networks and some of the major cable players will respond to declining shares of the total viewing pie. One approach will be to launch their own ad-free SVOD services, but this may further add to the rating erosion that is already underway. Or the networks and cable channels may continue to demand higher and higher CPMs while, at the same time, adding to their ad clutter "loads"in an attempt to recoup lost ad revenues. Neither of these alternatives is a desireable one. In response, advertisers may switch TV funds to cheaper forms of TV---non-prime dayparts, moving more broadcast dollars into cable, etc. And there's always digital media---if sufficient worthwhile content can be developed and the vexing "visibility" and attendent CPM pricing issues can be dealt with.
As I've said before, if I were heading a broadcast network, including a stable of major cable channels, I'd be exploring every reasonable way to compete much more aggressively with the SVOD services which are stealing my viewers. This would involve cooperation with other broadcast entities and, most likely, a major change in the kinds of primetime fare that is being offered. Also on the agenda would be a plan to deny SVOD rivals access to program content whose development was funded by the networks. In other words, if network A buys a first run drama or comedy series from a producer and becomes said producer's "partner" regarding future syndication sales, work things out so the show isn't available to a competing SVOD service. Or, putting it bluntly--- start fighting back. Make the "enemy" take the very high risks of developing its own first-run content, with its high failure rates.
Ed broadcast newtorks are competing against technology. I appreciate your comment on speculating what theory I have in my head but you are wrong again. Good Luck next Time.
@Leonard, your post appeared twice but this has been corrected since I replied. My comment was merely a friendly joke about the redundency.
David you are right, " The ultimate measurement of effectiveness in on a business outcome - sales".
But how many media outlets are developing and/or offering sales as a measurement or result? Until that shift occurs we will still have to depend on CTR, GRPs, views and similar metrics.
Richard, your article reference and quote, "the Digital King" has no clothes", sounds strikingly similar in context to an earlier article published on the Magicneering wordpress blog titled, "The-Internet-Is-The-Emperor-Of-Advertising-And-The-Emperor-Has-No-Clothes!" This indicates to me that a shift has begun to hold digital media accountable for results. A trend that will surely spread to all media.