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Digital deflation knocks TV advertising from its perch

Stuart Lauchlan Profile picture for user slauchlan December 8, 2015
TV advertising's still around but it's losing out to digital alternatives, according to two new studies. Mobile and programmatic are the ways ahead.

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TV advertising has lost out to ‘digital deflation’ as global ad spending focuses on ‘non-traditional’ platforms in 2016 and beyond.

Television ad sales are expected to decrease globally for the first time ever aside from a recession year, according to Interpublic Group’s Magna Global arm.

Overall, Magna Global predicts that global ad spending will grow by 4.6% to $526 billion in 2016, but the firm warns that a surge in digital spending means that the underlying trend is an erosion of the grip of TV as an ad platform.

That’s at least in part down to ‘digital deflation’. The theory behind that is simple enough. Digital ads are typically cheaper, meaning that ‘traditional’ media sellers come under increased pressure to cut their prices, which in turn leads to a slowing down of growth in the wider ad market.
Certainly, breaking down the Magna Global numbers tells its own story:

  • Digital media ad sales grew 17.2% to $160 billion over the past year, while traditional media ad sales were down 2.2% to $393 billion.
  • Television ($193 billion) and radio ($32 billion) were flat on $193 billion and $32 billion respectively.
  • Print ad revenues were also down, newspapers by 8.6% to $61 billion, magazines by 10.1% to $25 billion.

According to Vincent Letang, EVP, Director of Global Forecasting at Magna Global:

Traditional linear TV advertising stopped growing in 2015 for the first time outside a recession year. New generations increasingly rely on online VOD (sometimes ad-funded, sometimes premium ad-free) for video entertainment, while advertisers are keen to embrace new digital formats (video, social).

Both supply and demand for linear TV impression are therefore decreasing, leading to little or no spending growth outside even-numbered years over the next five years. As a result digital media ad sales will become the number one contributor to global ad sales by 2017.

Digital growth is mostly being driven by video, up 42% to $6.3 billion, and social media, up 50% to $10.5 billion.

Search remains the biggest ad opportunity, up 15% to $28.6 billion, and is still the biggest digital category, accounting for 48% of spend.

Mobile-based campaigns were up 58% to $19.8 billion, or one-third of total digital spend, with expectations that mobile will account for two-thirds by 2020.

Banner display, representing 18% of total digital budgets, is the second biggest spend area, but growth has failed to just 3.1%. Only desktop, down 1%, has a poorer growth rate now.

The emerging sweet spot that’s coming up is around programmatic advertising. Magna Global expects the global value of inventory transacted in a programmatic way to grow from $14.2 billion in 2015, to $36.8 billion in 2019.

The United States remains the largest programmatic market by spend in the world by far, representing over half of all global programmatic spend, followed by the UK, Japan, China and Germany.

The rise in programmatic spend is currently coming atthe further expense of traditional banner advertising, but the emphasis will shift:

The largest share of programmatic spend comes from desktop banner display inventory today, but by 2019 video will represent over half of all spend.

Magna Global attributes video’s performance to:

a combination of growth in developing markets from digital natives like YouTube, and also publishers in developed markets being aggressive with new video formats and video content creation. New video offerings from Yahoo! and Snapchat, as well as incremental content being offered through Hulu or Amazon generate a huge amount of additional video ad inventory to meet the demand.

Reaching a zenith

The conclusions from Global Magna chime with a second study from ZenithOptimedia, which says TV's share of the advertising budget will be overtaken by digital for the first time in 2018.

In its Advertising Expenditure Forecast of December 2015, The firm concludes that TV’s glory days peaked back in 2012 when it held 39.7% of spend and is now on a decline towards 34.8% by 2018. Search and video are again identified as primary factors in the shift of fortunes. The study says:

Paid search is essentially a direct response channel (together with classified), while television is the pre-eminent brand awareness channel which is expected to remain so for many years to come. Television offers unparalleled capacity to build reach, while online video offers pinpoint targeting and the potential for personalisation of marketing messages.

Again ZenithOptimedia bigs up mobile advertising as the leading platform, accounting for 50.2% of all digital advertising as it grows at an average rate of 32% a year between 2015 and 2018. By 2018, mobile advertising will total $114 billion in 2018, up from $50 billion this year.

There is however one crumb of comfort for TV traditionalists. Steve King, CEO of ZenithOptimedia Worldwide says:

Television remains by far the most important channel for brand communication.

If that reach can be combined with the targeted potential of online media technologies, the potential will be enormous, concludes the ZenithOptimedia report:

One of the reasons for television’s loss of share is the rapid growth of paid search, which is essentially a direct response channel, while television is the pre-eminent brand awareness channel — and we expect it to remain so for many years to come. Television offers unparalleled capacity to build reach, while online video offers pinpoint targeting and personalisation of marketing messages.

And TV as a platform will get a bump in 2016 from a series of ‘one off’ events, including the US Presidential and General elections, the Rio Summer Olympics, the UEFA Football championship in Europe and the Copa America Centenario Pan-American Football tournament, which is hosted by the US next year.

My take

It’s that time of year when the crystal balls are dusted down and the ‘world in 2016’ predictions come thick and fast. The conclusions of these two studies are more confirmatory than revelatory, but the push towards mobile and programmatic digital outreach is clearly set to be one of the major shaping trends of 2016 and beyond.

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