Expect some moderate growth in advertising in 2018. That growth will be boosted in part by big events like the Olympics and midterm political elections. Below are summaries of the newly issued forecasts from WPP’s GroupM, Interpublic’s Magna, and Publicis Groupe’s Zenith.
WPP’s GroupM is forecasting global ad expenditure growth of 4.3% in 2018 to nearly $558 billion. That estimate is based on the assumption that 2017 expenditures will be 3.1% to about $535 billion.
For North America, the firm estimates that expenditures will reach almost $200 billion next year -- up 3.4%, following a 2.2% gain this year to more than $193 million. The release of the new forecast was timed to this week’s UBS Global Media and Communications Conference in New York.
GroupM attributes the modestly improved outlook for next year to better-than-expected GDP growth with rising consumer demand, fixed investment, industrial production and exports. But the firm cautioned that excessive debt -- potentially weakening productivity and resulting stagnant interest rates -- could impact the economy negatively.
"Growth is wide with more people working, but shallow with wages growing slowly. If the global economy sustains its rising demand for labor, it may reveal a widening skills gap. Then, competition should raise wages, spurring investment in productivity and helping inflation to finally surpass central bank targets,” said Adam Smith, futures director.
Advertising’s share of global GDP is predicted to be 0.7% in 2017 and 0.69% in 2018, reflecting the continuing long-term trend of decreasing share for advertising. GroupM asserted in its report that the perceived decrease is more about a greater volume of dollars earmarked for ads now directed to data and technology for consumer engagement in digital.
“For every dollar that migrates from legacy to digital media, GroupM estimates 25 cents goes to technology and data,” said Smith. “This is not counted in a now antiquated concept of working media investment. We also know that in periods of low inflation, marketing money gets reallocated to promotion; this is a cyclical challenge, not a structural one.”
Six countries are expected to drive 68% of incremental investment next year, per the GroupM forecast, including the U.S., China, Argentina, Japan, India, and the UK.
In the U.S., unemployment is 4.4% and falling; real wages are growing 2.5% and rising, and consumer confidence is at a 17-year high, although consumer spending growth remains sober at 2.7% in 2017 and 2.3% predicted for 2018.
Globally, television investment will grow 0.4% in 2017 and 2.2% in 2018, but TV will lose one share point this year and another next year. However, excluding China (and its heavily regulated TV industry) TV will grow 3% this year and 4% next year, with share stable (41%). GroupM stressed that those figures refer to advertising investment for content on traditional TV devices. “We know that time spent with TV content remains healthy, but monetizing those hours gets harder as audiences diffuse across platforms more quickly than the industry can create measurement solutions,” the GroupM report states.
Digital investment growth is expected grow 11.5% in 2017 and 11.3% next year and its share of expenditure is forecast to increase from 34.1% this year to 36.4% in 2018.
The GroupM report stated that digital investment will exceed traditional TV in seventeen markets by the end of this year including Australia, Canada, Denmark, China, Finland, France, Hong Kong, Ireland, Hungary, Germany, The Netherlands, New Zealand, Norway, Sweden, Switzerland, Taiwan, and the U.K. As for the U.S., the firm said it believes digital will not surpass TV until 2020.
Google and Facebook will account for 84% of all digital investment globally in 2017 (excluding China). That said, the forecast also states that Amazon is on a fast-track to “figure more prominently in the consolidation of digital ad investment with a few dominant players.” GroupM estimates the sum of Amazon’s on-platform search and display advertising combined with its off-platform advertising revenues is in the low single-digit billions.
As digital continues to grow, programmatic buying is expected to grow with it. However, in GroupM’s analysis of the U.S., specifically, programmatic budgets are estimated at 20% of digital spending (excluding social platforms) and have not increased as quickly as expected. “GroupM believes concerns over supply chain integrity and brand safety are to blame.”
Meanwhile, out-of-home advertising is resurging somewhat, per the GroupM study, which notes that beside digital, it was the only media to grow share in 2017, one-tenth of a percentage point to 6.2%. OOH will add another tenth of a point in share next share as “the combination of location data with purchase, social media and viewing behavior presents an increasingly compelling proposition.”
Magna, the IPG Mediabrands’ intelligence unit, forecasts media owners’ net advertising revenues to grow by 5.2% to $535 billion in 2018. That compares to estimated growth this year of 4.1% with next year’s growth due mainly to the impact of cyclical drivers including FIFA Football World Cup, Winter Olympics and U.S. mid-term election spending.
Excluding the $5 billion of incremental ad spend generated by those cyclical events, the 2018 growth would be 4.1%, compared to estimated 5.1% growth in 2017.
Digital and mobile advertising sales will grow by 13% in 2018 to reach $237 billion or 44% of global advertising revenues. Digital and mobile ad sales will comprise 50% of total advertising sales by 2020.
In the U.S. advertising sales will grow by 5% in 2018 to reach $195 billion. Excluding the incremental ad sales generated by even-year events (Olympics et al, totaling $3.7 billion), 2018 growth will only be +3.2% compared to +3.9% in 2017 and +5.9% in 2016.
The slowdown is mostly caused by offline media sales (e.g., national television: -1% excluding political and sports). The sports component of the 2018 gain, estimated at $800 million, will not grow compared to previous years due to unfavorable time zones (Russia, Korea) and the absence of some U.S. athletes (soccer, ice hockey).
Magna surmised that in the current heated political environment, mid-term election advertising spend could increase by 20% compared to the 2014 cycle.
“The classic quadrennial drivers will offset the underlying slowdown of the global advertising market in 2018 to generate decent growth (+5.2%), stated Vincent Letang, executive vice president, global market intelligence, Magna. “The transition to a digital-centric media world accelerates as digital ad sales continue to grow as fast - and often faster - than expected. We are now forecasting digital ad sales to represent 50% of all ad dollars by 2020. Meanwhile linear television struggles in most major markets (US, UK, Australia etc.) as CPM inflation is no longer strong enough to compensate for declining ratings and lower demand from consumer goods.”
Magna forecasts that the fastest-growing regions in 2018 will be Central and Eastern Europe (7.2%), and Latin America (9.3%), followed by APAC (5.9%) and North America (5.0%). Western Europe will slow-down to 2.7% as political uncertainty in the UK, Spain and Germany may negatively impact business confidence.
Sixty-five of the 70 markets analyzed by Magna experienced some level of growth in 2017 while five saw lower ad sales.
In 2018 Within the top 20 markets, the highest growth rates are expected from India (12%) and Russia (10%) while China also remains robust (9%) despite some vertical spending slowing down.
Magna surmised that linear television ad revenues will grow again in 2018 (2.5% to $183 billion) due primarily to cyclical events (which will generate nearly $5 billion of incremental ad spend). Without the incremental even-year ad sales, TV would be flat next year (-0.1%) instead of being up +2.5%.
Online and mobile advertising sales (display, video, search, social) will grow by 13% next year to $237 billion. while offline ad sales (linear television, print, broadcast radio, out-of-home) will decrease by -0.5% to $298 billion.
Out-of-Home will be the only other offline media channel to grow in 2018, alongside TV (3% to $33 billion) while print ad sales will decrease by 11% to $54 billion and radio ad revenues will shrink by 2% to $28 billion.
Digital advertising sales surpassed television in 2017, as previously forecast, reaching a 41% market share (compared to 35% for linear television).
Magna anticipates that digital media sales will reach 44% of total ad sales in 2018 and 50% by 2020 ($291 billion).
Within digital, the majority of advertising sales (55%) is now generated by impressions and clicks on mobile devices. Mobile ad sales grew by 39% in 2017 and will grow again by 27% in 2018 to reach 62% of all digital ad sales.
Magna said that search and social formats continue to drive digital advertising growth (growing by +16% and +40%, respectively, in 2017) as billions of below-the-line direct marketing dollars are being redirected towards these formats. Social and search now represent 70% of digital media spend, compared to 24% for display banners and video.
Publicis Groupe’s Zenith is forecasting 4.1% global ad growth in 2018 to $578 billion, a bit lower than the agency's projected growth of 4.4% for full-year 2017. For the U.S., Zenith is projecting 3% to $204 billion in 2018.
For the first time, Zenith has demonstrated the return on investment for internet ad spend, and not just its scale, according to the Publicis Groupe agency's latest Advertising Expenditure Forecasts. Advertisers spent 27% of their budgets on internet advertising in 2014, which produced only 21% of brand experience. By 2015, brands were using internet advertising more effectively: accounting for 30% of both budgets and paid brand experience.
Last year was the first time internet advertising started working harder than advertising in other media, when brand experience exceeded budget share. In 2016 internet advertising accounted for 34% of global ad budgets but produced 35% of brand experience.
Zenith describes brand experience as a combination of two factors: reach - how likely consumers are to encounter brand messages at each touchpoint - and influence -how likely each message is to consumer attitudes or behavior. It covers all touchpoints across paid, owned and earned media, but because the report compares it to advertising expenditure, Zenith only measures the brand experience of paid media.
Zenith estimates the value from Internet advertising will rise from $203 billion in 2017 to $225 billion in 2020. The share of advertising expenditure allocated to internet advertising will also continue to grow, reaching 40% in 2018 and 44% in 2020.
Globally, the 10 biggest-contributing cities will increase by a total of $7.5 billion between 2016 and 2019, representing 11% of growth over these years. These ten cities will be in descending order: New York (where ad spend will grow by $1.4 billion), Tokyo, Jakarta, Los Angeles, Shanghai, Houston, Dallas, Beijing, London and Chicago (which will grow by $0.6 billion).
The concentration of growth in two countries cannot be underestimated. Collectively, the U.S. and China will contribute 47% of new ad dollars from 2017 to 2020, and half of the top 10 cities for growth through 2019 are U.S.-based, including NY, LA, Houston, Dallas, and Chicago.
“The strength in the U.S. is indicative how this market increasingly pioneers the development of new technologies, tools and technique that serve as market differentiators in the U.S. and an incubator for the rest of the world,” says Sean Reardon, CEO, Zenith U.S., Moxie and MRY.
Most of this spend, perhaps unsurprisingly, will be captured by just five big platforms both based in the U.S. and China – Google and Facebook, as well as Baidu, Alibaba and Tencent. Between them, these five platforms increased their share of global internet ad spend from 61% in 2014 to 72% in 2016, and captured 83% of the growth in internet ad spend during the same time frame.
The rise of the internet has had huge consequences for the other media, though brands are seemingly returning to classic options. The decline of print has been a fact of life for years, so I was quite surprised to see that it is now slowing noticeably, says Jonathan Barnard, head of forecasting, Zenith. "Brands should not blindly increase their internet ad budgets without ensuring that they are concentrating on the right digital channels, he says, which will vary by category and by brand. "They should consider that ‘traditional’ media may be more effective for specific purposes."
Still, uncertainty about the future may be the most pressing problem cited by Zenith clients. They are feeling pressure from the growth of online media and the power wielded by the "big platforms, big countries and big cities," reports Zenith.
At the end of November, agency's clients reported an average response of 57 points in terms of expected brand growth in 2018, down from 67 year-over-year. (0 means everyone expects decline in 2018 and 100 means everyone expects growth.) Food and drink brands have been the least affected, with a score of 66 this year, down just a point from 67 last year. Packaged goods, retail and telecom brands, on the other hand, have all fallen to 50, expecting no growth, down from positive scores last year.