Analyst Says Ad Market Could See Dot-Com Bubble-Like Growth In Coming Years.


A new report by MoffettNathanson predicts the ad market in the next few years could experience a level of spending increases not seen since before the dot-com bubble at the turn of the century. Due to a combination of brand spending, the continued rise of small-to-medium advertisers, and the broad shift to performance-based marketing, the firm expects U.S. ad spend to rise from around 1.1% of GDP today to roughly 1.6% by 2025. If accurate, that would exceed the previous high of 1.5% set in 2000.


Analyst Michael Nathanson acknowledges that comparisons to the dot-com bubble may create “healthy skepticism” of his outlook but explains in the report that he sees a reconfiguration of how resources are spent in the marketing tunnel. The top of the funnel focused on brand building is where most traditional spending like radio, TV, outdoor and print dominate. Nathanson believes more marketing dollars will be pushed lower, closer to where transactions occur and purchase intent and behavior are captured. There, he says, digital has an upper hand.


“Over the next five years, we expect online ad spend to increase by $196 billion compared to $72 billion increase over 2015-2020,” he said.“We anticipate online advertising will account for 73% of U.S. ad spending by 2025, up from a 52% share today,” he added.


Nathanson projects a 3.2% rise in billings for traditional media overall. “In 2021, we anticipate the advertising market will remain healthy,” he said. Nathanson estimates radio’s share of the ad market will hold steady with revenue flat year-to-year at $12.757 billion. Other forecasters are more bullish on radio than MoffettNathanson. Last week the ad giant Magna raised its estimates for radio billings. Magna now forecasts broadcast radio revenue will increase 2.1% this year, up from an earlier 1.4% projection. And GroupM said last week that it is projecting radio advertising will grow 7.6% this year.


Nathanson did not address the discrepancy in his report but instead said his outlook is in part tied to a different response by advertisers during the past year. In prior recessions, brand marketers cut back on budgets as revenues fell. But Nathanson says in 2020 there was a “massive shift in advertiser behavior” as marketers reallocated spending to more measurable performance-based digital platforms. As a result, Nathanson sees challenges for any media company that is not embracing digital. But he also said he does not anticipate the top of funnel to go away since it serves a different purpose. “Yet, we anticipate the strongest growth to come from stages further down the funnel, which are more closely tied to business outcomes,” he said.


Nathanson believes the acceleration of e-commerce will expand the market for digital advertising. He also notes e-commerce accounts for just 14% of total retail sales today. “There still remains ample opportunity to move commerce, as well as other economic activity, online, which we believe will fuel digital advertising for years to come,” he said.

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