Globally, media owner advertising revenues will grow by +5.4 per cent in 2016, to $480 billion, and by 3.1 per cent in 2017, acording to MAGNA Intelligence. That compares with +4.8 per cent and +3.2 per cent in the December 2015 forecast.
This year’s events (US elections, UEFA Euro 2016 , Summer Olympics in Brazil, and Copa America in the US) will generate incremental advertising spending and thus boost media owner advertising revenues compared to 2015 (when no such events took place.) Neutralizing the impact of those cyclical events in 2015, 2016 and 2017, the global advertising market would grow by approximately +4 per cent in both 2015 and 2016, which suggests no significant acceleration in the underlying ad demand beyond the cyclical drivers, as the economic environment remains uncertain.
MAGNA’S +5.4 per cent prediction for global growth in 2016 is the result of digital media advertising sales growing +15 per cent while traditional media advertising sales will be flat (+1 per cent). The only traditional media categories to see increasing advertising sales will be television (+4.4 per cent at $179 billion) and out-of-home media (OOH) (+3.8 per cent at $31 billion). Radio will be flat (-0.2 per cent at $32 billion) and print media advertising revenues will continue their long-term decline (-8 per cent to $70 billion) caused by audience erosion.
Digital media advertising sales will increase by +15 per cent to $170 billion globally this year, driven by mobile advertising (+44 per cent), video formats (+35 per cent) and social formats (+43 per cent) while search remains robust (+14 per cent) and banner format sales in decline (-6 per cent) due to ad blocking and the competition of other formats. Digital media advertising sales will reach $192 billion (a 39 per cent market share) by the end of 2017, surpassing TV at $178 billion (a 36 per cent market share) to become the number one media category globally. Mobile advertising will account for 42 per cent of total digital advertising by the end of 2016 and will approach 50 per cent by the end of 2017, reflecting further shifts in digital media usage by consumers and related strategies by marketers.
Television advertising sales are predicted to increase by +4.4 per cent this year (to $179 billion), of which approximately 2 per cent is due to the cyclical events of 2016. Above and before the direct impact of those events, television sales have been strong in many large markets in the first quarter of 2016 (US, U.K., France, Italy, Germany, etc.) as an increasing CPM inflation offsets ratings erosion.
Globally, inflation on Free TV channels was +6 per cent in 2015 on a CPM basis (an average +4 per cent in North America and Europe and +7 per cent in APAC). MAGNA predicts television cost inflation to increase to +7 per cent in 2016-2017 and +8 per cent in North America. In most mature markets inflation is driven by declining linear audiences and ratings, leading to shortages of supply. This is particularly clear in the US where this scarcity is creating a very competitive scatter market, with “premiums” in the double-digits for the first time in over two years.
Another driver for television globally is more dynamic spending exhibited by some traditional large TV-centric categories (automotive, personal care, food and beverages) since 2015. Growth in those sectors was caused by a healthier market (car sales finally recovering in Europe) and in some cases by marketers slowing down the diversification to digital media and re-allocating budgets to linear television. The premiere sporting events in 2016 are sure to draw additional spending in male-oriented categories such as auto and beverage in particular.
Of the 72 markets analysed by MAGNA in this update, 67 are forecasted to experience advertising revenue growth this year and only five (Singapore, Finland, Ecuador, Kazakhstan, Hong Kong) will experience a decrease, compared to 15 in 2015. The biggest contributors to the higher 2016 forecast are the US (from +5.7 per cent to +6.2 per cent, including cyclical events) and China (from +5.5 per cent to +8.4 per cent). The biggest negative revision comes from Brazil where a deep economic recession is aggravated by political uncertainty (from +5 per cent to +1.9 per cent).
In the US, media owner advertising sales will grow by an estimated +6.2 per cent in 2016 to $178 billion, and will grow again by +1.2 per cent in 2017. This will be the strongest annual growth since 2010 (+6.6 per cent). Digital media will equal TV advertising sales for the first time ever (both $68 billion, a market share of 38.5 per cent).
Even-year events (Elections and Olympics) are expected to bring a record incremental advertising spend of $3.5 billion, mostly directed towards television. Neutralizing the estimated impact of these events on US media owners advertising revenues, year-over-year growth would still be +4.1 per cent this year, instead of +6.2 per cent.
Western Europe advertising revenues will grow by +3.8 per cent in 2016 to reach nearly $100 billion, as France and Italy finally join the U.K. and Spain to show relatively positive growth. Regional growth will then slow down to +2.2 per cent in 2017. In Central and Eastern Europe, advertising revenues are predicted to increase by +5.3 per cent in 2016 (to $16 billion) and then by +4.8 per cent in 2017. In Asia-Pacific, media owner advertising sales are forecasted to increase by an estimated +6 per cent this year (to $139 billion) and by +4.9 per cent next year.
The weakest region this year will be Latin America, as the slowdown in advertising sales, which started last year, proves longer and deeper than expected. This is mostly caused by an economic environment that gradually worsened since the second half of 2015, and was aggravated by the political crisis in Brazil this year. The 2016 Summer Olympics, hosted by Brazil,, won’t be enough to offset the advertising slowdown in the region. Advertising sales will grow by +3.3 per cent to $22.6 billion (previous forecast: +5.4 per cent) which means a decline in real terms, as economic inflation is typically much higher in most LatAm markets.
According to Vincent Letang, EVP, Director of Global Forecasting at MAGNA and author of the report: “Advertising sales were dynamic in the first quarter of 2016, for both television and digital media, in many large markets (including US, U.K., Germany, Italy and France). The mixed economic outlook and political uncertainty (Brazil, “Brexit”) is likely to gradually reduce the level of growth in the remainder of the year and in 2017, but full-year 2016 global growth (forecast at +5.4 per cent) should remain the strongest in six years (since +8.5 per cent in 2010) thanks to cyclical events and stronger television pricing.”
US Ad Market to Experience Strongest Growth in Six Years
In North America, advertising revenues of media owners grew by +2.5 per cent in 2015, to reach $178 billion, with growth in the US (+2.5 per cent) stronger than Canada (+1.9 per cent). North America remains the biggest advertising market in the world ahead of APAC, with approx. 36 per cent of global advertising sales. 2016 will prove even stronger: +6 per cent, (previous forecast +5.5 per cent) with the US (+6.2 per cent) growing much faster than Canada (+2.4 per cent).
In the US, media owners advertising sales grew by +2.5 per cent to $168 billion in 2015 and expected to increase by +6.2 per cent in 2016 and +1.2 per cent in 2017. Neutralizing the impact of incremental ad spend driven by even-year events over the period 2015-2017 (in the case of the US: Political & Olympic advertising spend or “P&O”) advertising sales will increase by +4.1 per cent in 2016, hence a similar rate as in 2015 (+4.2 per cent). In other words, the stronger growth in 2016 is mostly due to the cyclical booster while the underlying ad growth remains constant, at a robust rate.
Media vendor advertising sales were very strong in the first quarter of 2016: +8 per cent overall, driven by national TV (+6 per cent), digital media (+20 per cent) and OOH (+3 per cent). Print and radio advertising sales continued to decrease, but at a lower rate than in 2014-2015. Overall, that was the strongest quarter recorded in over a decade.
This may sound paradoxical considering that the US economy slowed down rather abruptly in the same quarter: personal consumption was up a modest +2 per cent (compared to +3.4 per cent in 2015) and real GDP grew by only +0.5 per cent. Industrial production was down -2 per cent Macro-economic forecasters, however, anticipate that US economic activity will resume at a higher rate in 2Q16 and for the remainder of the year, in line with previous forecasts (between +2 per cent and +2.3 per cent GDP growth for each quarter). Nevertheless, the full-year 2016 GDP growth forecast has been revised down to +1.7 per cent because of the weakness in 1Q.
Following the strong 1Q performance, MAGNA anticipates that advertising spending growth will slow down in the next three quarters as year-over-year comps get tougher and because some companies might reflect on economic signals and adjust their full-year media expenditure budgets. Nevertheless, the outlook remains positive on a full-year basis and the 2016 all-media forecast has increased to +6.2 per cent (including P&O), half a point above MAGNA previous forecast (+5.7 per cent in December 2015). Excluding P&O effects, our 2016 forecast is increased from +3.6 per cent to +4.1 per cent.
Looking at individual media categories, the +6.2 per cent growth overall for 2016 will be almost entirely driven by digital media (+14 per cent) and television (+7 per cent) while print media and radio advertising sales will continue to decline (newspapers -11 per cent, magazines -10 per cent, radio -3.5 per cent). OOH media, including cinema) will grow by +3 per cent.
National Television advertising sales have been more dynamic since the second half of 2015. The turning point was 3Q15 when scatter CPM pricing suddenly increased. This inflation was caused by a decline in ratings generating inventory shortage (e.g. -11 per cent in Q3 for broadcast networks, primetime, adults 18-19) while demand remained strong. It may also have been catalysed by a surge in advertising spend from a brand new category of product, “Daily Fantasy Sports” websites (DFS), exacerbating inventory shortage. 4Q15 advertising sales were up +5.2 per cent year-over-year. Partly due to legal issues, DFS operators have since reduced the scale of their partnerships and advertising spend with TV networks, but national TV advertising sales did not slow down: revenues were up by +5.7 per cent in the first quarter of 2016, the strongest performance in almost three years. Cable network advertising sales grew by +5 per cent.English broadcast networks by +8 per cent and Spanish broadcast networks by +10 per cent.
It must be noted that the 1Q16 performance was caused by strong pricing, weak comps from 2015, along with disproportionate concentration on a small numbers of big spenders in automotive, pharmaceuticals, telecoms and CPG (food, personal care). At least two of these factors may not be replicated in the next few quarters. Comps will start to be much tougher in 3Q and 4Q. Nevertheless MAGNA increases full-year national TV forecast to +2.6 per cent (previously: +1 per cent) excluding even-year P&O events. Factoring in incremental Olympics spending (approx. $700 million in 2016, see box) and incremental political spending (approx. $200 million), national TV advertising sales will grow by +4.8 per cent this year (to $44.8 billion) and decrease by –0.9 per cent next year (due to the absence of P&O drivers).
The Summer of Sports: A Record Year for National TV
The 2016 Summer Olympics are expected to bring in approx. $700 million of incremental dollars this year for national television, i.e. the highest-ever bonanza, and +15 per cent more than the 2012 London games four years ago. Why?
The Copa America will be another driver this year for national TV. Normally reserved to Latin American teams, this international soccer tournament is being played on US soil for the first time ever this June, and involving the US national team, alongside the star-laden squads of Brazil and Argentina. Matches are being shown on Univision (in Spanish) and Fox Sports (in English). Because of the growing interest for soccer from viewers and sponsors, the event is bound to drive higher advertising spend than the previous Copa America played in Chile in 2015, benefiting Spanish-speaking television in particular (full-year advertising sales forecast: +11 per cent). The summer of global sports events will be completed by the UEFA Euro showed by ESPN and ESPN Deportes starting in mid-June.
Despite the strong market in the first quarter this year, MAGNA remains cautious about the level of demand for the rest of the year and for 2017 because of the similarity with a 2014 precedent, that showed advertising demand lagging the economic signals. TV advertising sales were robust in the first quarter of 2014 despite the US economy stalling (some blamed a severe winter.) When the disappointing 1Q sales and profits gradually materialized, some advertisers overreacted and reduced media budgets for 2Q and the following quarters. Despite the fact that the economy recovered immediately from that temporary 1Q slowdown, many of those budgets were never replenished, which contributed to a poor year for national TV advertising revenues in a healthy full-year economic environment.
In the mid-term, the growth potential for national TV will depend upon the dynamic of supply and demand. The supply side is the more predictable: primetime ratings have consistently declined between -7 per cent and -9 per cent per year in the last three years (adults 18-49), and we anticipate linear primetime viewing will continue to erode at the same pace in the next few years.
The level of demand (and price sensitivity) is more hypothetical. Since 3Q15, shrinking supply and robust demand have created a level of CPM inflation that has offset the inventory decrease to generate net advertising sales growth. We believe that this inflation surge was tolerated because some big spending categories that are heavily dependent on television (CPG, auto, entertainment, pharmaceuticals) have so far accepted high-single and sometimes double-digit CPM inflation to keep securing a level of reach and pressure that is deemed necessary to their business model and ROI model, in the context of scarcity. That may remain the case as long as alternatives to linear TV are not perceived as fully available for them, at scale, and with measurable ROI. However, MAGNA believes that those alternatives (e.g. online video) are becoming better substitutes to linear television for the need of various brands and industries, and marketers will gradually become more aware of them in the coming months and years.
Local television will, as usual, be the primary benefactor of a record volume of political advertising spend this year. Thanks to an estimated $3 billion of incremental political spending, total advertising sales will grow by +11 per cent to $24.3 billion. Total advertising revenues will grow by +9 per cent for local broadcast stations and by +18 per cent for local cable advertising. Local cable TV advertising is made of commercials inserted locally in cable networks by Multichannel Video Providers Distributors (“MVPDs”: cable, satellite, telco TV) carrying the signal. This is a relatively small part of local TV advertising today because the inventory is limited to two minutes per hour. However the geo-targeting capability of that format is even better than those offered by broadcast stations, especially since MVPDs have developed “household addressability”, which is a particularly attractive feature for political advertisers. Total television (local and national, broadcast and cable), including P&O spend will grow by +7 per cent to $68.2 billion this year.
Digital Media Advertising
Digital media advertising revenues grew by an impressive +20 per cent last year to reach $59 billion. The 2015 growth was mostly being driven by video (+33 per cent to $5.4 billion) and social media (+55 per cent to $10.9 billion), while search remains the biggest format (+17 per cent to $29.2 billion). Mobile-based advertising sales continued its explosive growth, increasing by +64 per cent to reach $20 billion, i.e. one-third of total digital revenues.
In 2016, MAGNA expects digital media sales to again grow by double-digits (+15 per cent) to $68 billion, equalling the market share of television (38 per cent). By 2020, digital advertising sales will represent 51 per cent of total US advertising at $104 billion, which is a 12 per cent annual growth rate compared to 34 per cent for linear television. Online video and social media formats will again show the strongest growth in 2016 with +34 per cent and +41 per cent respectively, while search advertising sales will grow by a robust +14 per cent. Display banners will generate less advertising sales (-12 per cent) due to the competition of more attractive formats and the rise of ad blockers. Mobile-based campaigns will generate 43 per cent of digital advertising dollars in 2016 and then equal the advertising sales generated on fixed internet impressions as early as 2017. By the end of the decade, mobile will account for 69 per cent of total digital advertising.
Linear radio ad sales are expected to decrease by -3.5 per cent in 2016 to $14 billion. It will be the fourth year in a row that radio advertising sales decrease, suggesting that the medium has entered into a long-term erosion of advertising sales similar to the one experienced by print media. The decline of linear radio will be more gradual and less steep than that of print (-10 per cent per year), but ultimately caused by similar factors: audience erosion, competition from digital media and challenged pricing power.
The overall reach and consumption of linear radio remain high overall, but younger targets are becoming harder to reach as they shift to digital audio streaming. Digital audio advertising revenues represented approximately $2 billion dollars in 2015, in MAGNA’s estimates, evenly split between online streaming from traditional radio players, growing by +5 per cent with advertising revenues of “pure players” (Pandora, Spotify, etc.) growing by +40 per cent. Aggregating linear (legacy) radio adverting sales ($14.4 billion) and digital audio advertising ($2.2 billion), MAGNA estimates that the audio advertising market was stable in 2015, at $16.6 billion. Linear talk radio and popular hosts will remain relevant for local advertisers as long as people drive automobiles, but digital audio will continue to grow much faster than linear radio, representing 25 per cent of the audio advertising market by 2020, compared to 16 per cent today.
More than 90 per cent of advertising revenues for both radio and newspapers come from local advertisers. These budgets have been under increasing pressure in the last few years because many local and regional businesses tend to consolidate nationally or join national franchises (retail, restaurants, etc.), local marketing budgets face the gravitational attraction of centralized budgets that would rather use digital media (for direct-response campaigns) and national media (for branding and awareness campaigns). This attraction is strengthens every year as national marketers can leverage, for instance, the increasing ability of digital and national media to geo-target, which results in local dollars gradually transferred to national budgets and hampers the sales of local media categories.
OOH Media advertising sales grew by +4.6 per cent in 2015 to $7.3 billion, driven by the organic growth of digital panels (+15 per cent) providing better yield, more flexible placement opportunities and better audience measurement. Cinema advertising (+13 per cent) was driven by strong movie releases and the introduction of TV-like trading metrics (GRPs). These innovations allow OOH and cinema to tap into branding budgets and TV budgets in a more significant way than ever before. OOH advertising sales (including cinema) grew by +3.3 per cent in the first quarter; we expect a similar growth for 2016 (+3.2 per cent) as OOH benefits from cyclical events, before a slowdown in 2017 (+2.7 per cent).
Digital Media Will Account for Half of the World’s Ad Sales by 2020
Globally, digital advertising increased by +18.3 per cent in 2015 to $149 billion. It is expected to increase by double-digits again this: +14.8 per cent to $170 billion. This is higher than previous expectations, following a strong first quarter in many large markets.
Because of the critical mass reached by digital media spend in most markets, growth rates will gradually slowdown in the following years (+12.5 per cent in 2017), although digital will remain by far the fastest-growing media category. In 2016, digital will grow to represent 36 per cent of total advertising budgets, nearly matching TV’s format-leading 37 per cent share. As previously forecasted by MAGNA, digital will then surpass TV and become the largest advertising category in 2017. Digital advertising will grow by a CAGR of +12 per cent through 2020, at which point it will represent $263 billion, or nearly half of global advertising spend.
Mobile is now the main driver of digital advertising, as usage quickly transitions towards mobile devices. Mobile advertising sales grew by +61 per cent last year to reach $51 billion, representing just over one-third of total digital spend. Mobile advertising revenues will further increase by +42 per cent in 2016 to reach 42 per cent of total digital advertising sales, and with 2017’s +30 per cent growth, mobile will approach half of total digital advertising budgets. All digital growth in 2016 will come from mobile spend, with desktop actually shrinking by -0.3 per cent. By 2020, mobile will represent two-thirds of total digital spend, and will grow by an average +28 per cent CAGR through 2020.
Much of the growth in digital media spending comes from the growth of programmatic spend. Within banner display and video formats, programmatic spend will grow from $14.2 billion in 2015 to $19.5 billion in 2016, and ultimately to $36.8 billion by 2019. In 2015, programmatic transactions represented 31 per cent of total banner display and video advertising sales, but by 2019 the growth of programmatic in video especially will push total penetration to 50 per cent. This doesn’t even consider the fact that search and social are already essentially 100 per cent programmatic. When looking across all digital formats, the portion of digital budgets that are transacted programmatic through a technology platform is already approaching three quarters of total digital spend. The opportunity for advertisers and agencies to leverage consumer data and behavioural data in branding campaigns to achieve improved targeting and efficiency, is making display and video formats more attractive to some mainstream categories such as automotive, finance and CPG/FMCG, and thus contribute to the overall growth of digital media spend.
Paid Search remains the largest portion of digital advertising budgets, representing nearly half of total digital spend. In addition, 2016’s expected growth rate of +14 per cent (+2 per cent desktop growth, +38 per cent mobile growth) means that search will again provide the largest total dollar increase year-over-year across all digital formats (nearly $10 billion globally). This is after a strong first quarter, in which search grew by +17 per cent. Search advertising alone will grow to $83 billion in 2016, larger than total print advertising spend (newspapers and magazines combined) which represents $70 billion. Search remains attractive and relevant in part thanks to the new functionalities that Google has introduced in the last 15 months, including the ability to bid for tablet and mobile impressions, as well as the introduction of “Remarketing Lists for Search Ads” and incorporating “Similar Audiences” targeting properties. This makes search more attractive for brand advertising, in addition to its core user base of “long tail” direct response marketers and local businesses. From the perspective of large, brand-oriented advertisers, these functions make it easier to incorporate unified audience targeting across search, display and video. Even in markets where Google is not dominant, such as in China, Baidu and other competitors are experiencing equally impressive growth.
Behind search advertising, social is the next largest driver of incremental dollars in digital advertising. Social media advertising sales will grow by +38 per cent in 2016 to $31 billion, following 2015’s +50 per cent growth.
This is partially the result of a very strong first quarter, in which social media advertising sales grew by over +50 per cent globally. Growth in 2017 will remain strong at just over +20 per cent, and by the end of 2017 social will represent 20 per cent of total digital advertising budgets. Search and social combined represent 85 per cent of total incremental dollars in digital advertising in 2016. More than any digital format, social is driven by mobile usage. Not only will mobile advertising represent more than 80 per cent of total social spend in 2016, but essentially all of social growth comes from mobile. Desktop is expected to be barely positive in 2016, however, up from previous expectations that desktop spend would shrink. This is because the launch of Facebook video is lifting all ships as more valuable inventory is introduced. Having reached well over a billion users, social networks fuelled advertising sales growth by increased time spent and increased revenue per user, driven by the roll-out of video in the last 18 months. In the US, we believe that video formats represented already 12 per cent of total social media advertising sales in 2015 and is growing rapidly. (Note: for the time being, and to avoid double-counting, social video advertising sales are included in our “Social” totals, and not in the “Video” totals in the MAGNA US main breakdown)
While online video advertising is still smaller than search and social, it is growing rapidly, with +35 per cent growth expected in 2016 following a dynamic quarter (+42 per cent). Online video is also driven by mobile advertising (as mobile bandwidth and mobile experiences both improve), desktop growth remains robust at +23 per cent expected growth in 2016.
Display advertising brings up the tail-end of digital budgets, with slowing mobile display growth cancelling out negative desktop display growth in 2016. Over the long-term, display growth will shrink as advertisers favour more impactful search, social and video advertising inventory and display formats are impacted by growth in ad blocker usage.
The next Global Advertising Revenue Forecasts by MAGNA will be published in December 2016.
The next US Advertising Revenue Forecasts by MAGNA will be published in August 2016.