With help from events like the Olympics and political elections, advertising expenditure growth is expected to increase a bit in 2016 versus the current year, according to three widely followed agency forecasts that are being issued today at the UBS media conference in New York. The forecasts — from Publicis Groupe’s ZenithOptimedia, WPP’s GroupM and IPG Mediabrands’ Magna Global — follow a similar assessment from Pivotal Research Senior Analyst Brian Wieser last week, who wrote that he believes the ad economy will grow at about 3% or slightly better for the foreseeable future. Below are summaries of the three latest forecasts.
ZenithOptimedia predicts global ad expenditure will grow 4.7% in 2016, reaching $579 billion. Growth next year will be higher than in 2015. The Publicis-owned agency network estimates this year’s global expenditure total will reach $554 billion, up about 3.9%.
U.S. ad spending next year will climb to almost $190 billion, up 3.8%. That will represent a slight uptick in growth versus 2015 when spending here is expected to total $182.6 billion for a gain of 3.5%. Olympics and elections will drive the gains, although the firm noted in its forecast that “growth will be constrained by an ongoing decline in network television ad spend as ratings continue to slide.”
Mobile will overtake desktop computers as the category that receives the majority
(50.2%) of all Internet advertising by 2018, according to ZenithOptimedia's (ZO) Advertising Expenditure Forecasts. Mobile advertising is responsible for nearly all the growth in global ad spend --
projected to grow at an average rate of 32% a year between 2015 and 2018, and to contribute 87% of all of the new ad dollars added to the global market during these years. By 2018, mobile advertising
will total $114 billion, and will be larger than all other media except for television.
Although television continues to reign as the dominant advertising medium at the moment, accounting for 38% of total ad spend in 2015, its future is more precarious. In 2018, 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," says ZO -- "while television is the pre-eminent brand awareness channel -- and we expect it to remain so for many years to come."
The report estimates television will account for 44.7% of display expenditure (i.e., excluding Internet classified and paid search) in 2015, and 42.9% in 2018. That said, TV does not compete directly against search, and the two can complement each other, says ZO, pointing out that paid-search activity can take advantage of the increase in searches driven by a television campaign. "Taking internet classified and search out of the picture, television will remain the principal display medium for many years to come," says the report.
Meanwhile, 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," says the report. Thus, ZO estimates that audiovisual advertising will account for a record 48.4% of display advertising in 2015, up from 44.1% in 2010, and expect its share to reach 48.9% in 2018.
All of these gains mean that other categories must fall. ZenithOptimedia forecasts desktop Internet advertising to peak at $114 billion in 2017 before falling back slightly to $113 billion in 2018. This decrease surprises ZO's Head of Forecasting Jonathan Barnard, who says he is most surprised that "we are actually forecasting global desktop internet advertising to fall in 2018 (by 1%) as spend flows rapidly to mobile Internet."
Programmatic advertising will account for more than half of digital display advertising (53%) for the first time this year, and will increase its share to 60% in 2016, according to ZO's Programmatic Marketing Forecasts. Programmatic ad spend grew from $5 billion in 2012 to $38 billion in 2015, at an average rate of 100% a year. Its growth is slowing down as it extends its dominance of the display market, but ZO expects programmatic advertising to grow another 34% in 2016 and 26% in 2017, at which point two-thirds of global display will be programmatic.
“Growth of the global ad market is being driven by advances in technology, especially mobile and programmatic tech,” said Steve King, ZO's CEO, Worldwide. “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.”
Digital editions will help magazine publishers increase total ad revenues by 2% next year, while traditional print magazine ad spend will shrink to 1.8%. Going online only for publishers is now seen as a smart business move. ZO estimates that U.S. magazine publishers generate 20% of their revenues from digital editions.
Despite economic and cultural uncertainty across the world, the world advertising market has been stable since 2011, growing at about 4% to 5% a year -- and ZO expects this stable growth to continue at least until 2018. Next year in particular will be a relatively strong year, with 4.7% growth in global ad spend thanks to the U.S Presidential Elections, the Summer Olympics, and the UEFA Football Championships in Europe.
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, ZO expects the global ad market to grow by $77 billion. The U.S. will contribute 26% of this extra ad expenditure, closely followed by China, which will contribute 24%. The UK comes in third, contributing 7%, and Indonesia fourth, contributing 5%. The only change that ZO expects between 2015 and 2018 is for Indonesia to displace Canada as the tenth-largest ad market.
GroupM predicts that the ad-spending growth will accelerate in 2016, posting a global increase of 4.5% to nearly $520 billion compared to an increase of 3.4% this year to more than $497 billion.
For both years, the latest WPP media group forecast represents a downgrade from its midyear predictions when it estimated 4.8% growth for 2016 on top of 4% growth this year.
U.S. growth, however, will come in significantly below the global increases for both years. For 2016 GroupM is now projecting an increase of 2.7% to about $178 billion. The 2015 increase is projected to be a tepid 1.8% to approximately $173.3 billion.
Next year’s growth, GroupM reports, “is consistent with projected real GDP growth of 2.5 to 3%. An improved consumer outlook driven by a more positive employment market and a favorable inflation outlook on non-discretionary goods and services will help support broader spending growth.”
That said, the firm added: “Media marketplace will continue to face fragmentation as consumers have more content choices and access driven by continued adaption to mobile and OTT devices. This provides opportunity for consumers to spend increased time with media but also allow more time shifting and more customized choice.”
GroupM’s report also touched on media fragmentation’s impact on measurement. “The ability to measure audiences in this increasingly more complex environment using consistent metrics and methodology is presenting significant challenges. This is affecting media allocation and valuation, which can upset spending trends as more sophisticated data applications and measurement metrics are utilized in media portfolio management.”
The firm also forecast an improved outlook for TV in the U.S. “We are estimating that television will rebound in 2016 to see moderate growth of 2.3% versus flat performance in 2015. This is driven by national-election spending in local broadcast and cable coupled with an estimated incremental spending contribution of 0.4% from the summer Olympics. National television will see 1-2% growth driven by cable and some reinvestment albeit small in national TV from digital.”
Measurement issues are stunting expenditure growth, GroupM stated. “Continued audience challenges in television resulting from lack of content measurement across platforms and the growing competitive challenge of SVOD is clearly inhibiting more robust growth.”
No rebound is expected anytime soon for newspapers, which “will continue the downward growth trajectory while magazines should see a flattening to a slight decrease in growth.”
Digital driven by search, social and video will continue to experience “high single to low double digit growth in aggregate” in the U.S., per the report.
Adam Smith, the company’s top forecaster and chief author of its “This Year Next Year” spending report, stated: “Advertising expenditure continues to grow slower than the world economy, as it has since 2007, and we observe that advertisers’ lack of pricing power in a deflationary world is prompting continued focus on cost control versus investment.”
The three biggest contributors to growth (by country) remain China, the U.S. and the UK. Net global ad growth next year is estimated at $22 billion. China will contribute about $7 billion of that growth, the US nearly $5 billion and the UK close to $2 billion.
The company reports that 2015 will be the first year that absolute spend in traditional media will decline in the “new world,” meaning Latin America, Central and Eastern Europe and Southeast Asia. It’s a half-percentage point decline “but marks a rapid deceleration from the 17% growth recorded as recently as 2010,” GroupM reports.
Print media’s declining share of global advertising is slowing a bit and is predicted to be 18% in 2016 -- down a percentage point from 2015. In recent years print’s share of the media pie has been slipping at an annual of two percentage points. “It’s too soon to say it is stabilizing,” the report states. Issues include “fragmentation, chronic loss of reach and lacking common standards in audience measurement and trading.”
Traditional TV remains healthy on a global basis, shedding about one percentage point a year since its 44% share peak in 2012. In the U.S., GroupM notes that TV share loss has been less than the global average and is expected to be flat this year vs next with roughly a 43% share. “It would look even healthier if its digital gains were properly consolidated with its traditional linear top line.”
As for digital, GroupM is predicting a deceleration in growth next year. Still, the medium will post a robust 14% increase in 2016 to approximately $161 billion, or about 31% of global ad budgets. By comparison, digital spending growth is estimated at 17% for 2015. That said, some “well developed” digital ad markets will see an acceleration in growth next year that’s attributable to a number of factors including organic growth, technical innovation and more efficient ways of producing creative work.
Magna Global is predicting that global ad sales will grow 4.6% in 2016 to $526 billion. But the company (part of IPG Mediabrands) said that if special events like the U.S. political elections and Olympics are “neutralized” for 2014, 2015 and 2016, then growth would be 4.1% in 2015 and 3.7% in 2016, which the firm said suggested “no real 2016 acceleration in the underlying ad demand beyond the cyclical drivers.”
This year, media owner advertising revenues globally are projected to grow 3.2% to $503 billion. This is lower than the firm’s mid-year 2015 forecast of 3.5% growth and represents a slowdown compared to 2014 growth (4.6%). The firm noted that the updated forecast excludes figures for Argentina and Venezuela, which are experiencing a period of “hyper-inflation” that would distort the picture for Latin America. Previous forecasts have been recalculated to align properly with the current estimates.
Digital media advertising sales grew 17% to $160 billion globally in 2015. They are expected to grow by double digits again in 2016 (13.5%) driven by mobile advertising (42%), video formats (35%) and social formats (31%) while banner-format sales will stagnate ( down 2%) due to ad blocking and the competition of other formats.
Global digital revenues will reach 38% market share by the end of 2017, surpassing TV (37%) to become the number one media category. (That will occur in the U.S. a year earlier in 2016). Mobile advertising now accounts for 33% of total digital advertising and will reach 55% by 2018, following a rapid shift in digital media usage and planning strategies.
In the U.S., media owner advertising revenues are expected to grow 5.2% in 2016 to $176 billion, on top of 2.1% growth this year. But if so-called “non-recurring events” like the elections are factored out growth next year would be 3.3% following a 3.8% gain this year, “revealing an underlying slow-down.”
In its report Magna stated: “The US economy outlook remains strong: real GDP grew by 2.4% in 2015 and is predicted to grow by 2.6% next year while unemployment is down to 5%, consumer confidence is near a 10-year high and personal consumption - the macro-economic indicator most correlated to ad spend growth - will accelerate from 3.8% in 2015 to 4.8%.”
In that context, the report surmised, “the right question is probably why US ad spend and ad sales are not increasing faster than that, and indeed in the last two years the observed growth has been consistently below what the statistical regression would suggest in the current economic environment.”
The answer: “We believe the main reason is ‘digital deflation’ linked to the transition from analog to digital media. As media usage and ad dollars gradually migrate from traditional media to digital media and since digital media now represent on average a third of ad budgets, the overall budgets are stagnating and, in some spending categories, shrinking. ‘Digital Deflation’ refers to digital media being on average cheaper than traditional media on a CPM basis; equally important is the deflationary pressure that the shift is exerting on traditional media inventory vendors, some of whom are struggling to maintain prices in the face of shifting demand.”
By media, the estimated 2.1% U.S. growth this year is being driven by digital media while traditional media ad sales will decrease by about 5.5%: television will be down 4.0%, newspapers down 12.8%, magazines down 13.6%, radio down 2.9%, while Out-of-Home (including cinema) will post a gain of 4.0%. OOH will be the only traditional media category in the U.S. to grow thanks to the superior yield brought in by digital panels as well as better measurement and trading metrics allowing OOH and cinema to tap into branding budgets and TV budgets. Radio ad sales will decrease by the same amount as last year (3%), suggesting broadcast radio has now entered a long term decline similar to the one experienced by print media in the last ten years and for similar reasons: reach and listening remains high overall but younger demographics become hard to reach as they shift to digital, mostly on-demand audio.
Meanwhile, in other regions Magna reports that Western Europe advertising revenues will grow for a second year in a row in 2015 (2.9%) to $110 billion, as high-single-digit growth rates in the UK and Spain offset continued sluggishness in France and Italy.
The Western European market is finally back to where it was in 2007, before the long recession kicked in, although some markets are still significantly smaller. The UK market surpassed Germany to become the biggest ad market in Europe and the fourth-largest in the world (behind the US, China and Japan). For 2016 Magna predicts further ad sales growth of 2.5% in Western Europe. In Central and Eastern Europe, ad revenues decreased by 3.0% (to $19 billion) almost entirely due a massive decrease in Russia (down 12%), while the remainder of CEE grew by 4.8%. In 2016, stabilization in energy prices and local macroeconomic conditions should stabilize ad spend in Russia and increase regional growth to +4.1%.
In Asia-Pacific, media owner ad revenues will increase an estimated 5.6% in 2015 to $146 billion, making APAC the second-largest region with 29% of global spend (behind North America but ahead of EMEA). The two Asian BRICs are growing above expectations this year, with China up 9.9%, and India 16.3%. Growth in China next year is expected to be slightly slower (5.2%), as the Chinese economy continues to slow.