As Ad Economy Continues Rebound, Fear Of Media Price Inflation Rises With It

With general economic inflation ticking up in the U.S., there are indications that this may begin to impact advertising price inflation too, especially for high-demand media with pent-up demand for key consumer product categories.

Digital media has already begin demonstration ad price inflation, including data earlier this year showing a pronounced surge in average ad prices for Facebook.

The recently concluded prime-time network upfront advertising marketplace also signals a surge in average ad prices, according to data released last week by Media Dynamics, which shows prime-time CPMs surging more than 19% over the broadcast networks’ 2020-21 season, and more than 24% over their 2019-20 season.

To some extent, that reflects the continue reduction in the supply of network inventory caused by the erosion of their average ratings, but the volume gains of the recent upfront ad marketplace also indicates there was some pent-up demand from big marketers boosting their ad spending.

According to an analysis published by GroupM’s business intelligence unit over the weekend a number of large consumer marketers -- including PepsiCo, JP Morgan Chase, Wells Fargo, Bank of American and Citigroup -- reported second quarter suggest in ad spending of more than 30% on a year-over-year basis.

“While the numbers were up against soft comparables, rapid levels of growth in media spending nonetheless have inflationary consequences,” GroupM’s Brian Wieser notes in the report.

And this morning, MediaPost broke a story based on new data from Standard Media Index, showing the U.S. ad economy continuing to expand at significant double digit rates in June, albeit at slightly more moderate levels than April and May, which had softer 2020 comparisons due to the pandemic.

While analysts had originally forecasted a relatively moderate rate of ad price inflation coming into 2021 -- about 3% overall -- pent up demand, combined by surging ad budgets and rising commodity prices for many consumer products marketing categories -- suggests that might prove to be conservative at best.

That said, GroupM’s Wieser noted that U.S. marketers still have “tools at their disposal to help manage inflation,” especially readjusting their media mix and shifting more of their budgets into lower cost media. While that could be a boon for some analogue media -- especially newspapers and magazines, which continue to lag the rest of the media economy -- it likely has only so much latitude relative to communications goals.

Wieser’s other ad inflation-fighting strategies:

  • Broadening the basket of marketing “goods” to optimize.

  • Changing country mixes for global budgets to favor lower inflation markets.

  • Changing the mix of brands marketed towards higher value brands.

  • Extending the duration of media commitments.

  • Creating natural hedges by producing media content directly.

1 comment about "As Ad Economy Continues Rebound, Fear Of Media Price Inflation Rises With It".
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  1. Ed Papazian from Media Dynamics Inc, July 19, 2021 at 12:58 p.m.

    Interesting, Joe. I have been saying or some time that advertisers who prefer to use "TV" in its various distribution forms to influence consumers will have to reconcile themselves to the fact that the bargain basement days for quality TV time and ad placements are ending. Which means that CPMs will soon rise dramatically---led,at first, by the promise of better targeting---"addressable TV", "advanced TV", CTV, AVOD, etc.--- but also by major CPM hikes for "linear TV" as well. What we reported for the just  completed "linear TV" prime time upfront for the broadcast TV networks---CPMs up 19%---is just the beginning. The sellers will try to match such gains next year---and may succeed---again.

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