The media and advertising industries are at a series of tipping points that will impact everything from how media companies earn revenue to the value proposition they offer advertisers to the landscape of small local businesses. “It’s a brave new world. There’s a lot going on out there and a lot to be kind of concerned about,” Borrell Associates CEO Gordon Borrell told a packed room Monday morning for the opening session of Borrell Miami.
“Recession bells are ringing,” he said, yet twice as many advertisers told the firm’s researchers they are increasing their budgets in 2023. According to Borrell’s latest survey of ad buyers, 91% said they plan to maintain or increase their ad spending in 2023. The belief is that the pandemic taught marketers a lesson in how they can lose market share by pulling back on advertising, or grow share by increasing it.
While lots of major businesses shut down during the pandemic, many smaller ones survived and thrived. There are 3.9 million more viable small businesses applications that were created in the past five quarters, Borrell told the annual local media conference. That’s 70% more than in the previous five quarters. “Companies are being created and they’re likely to become advertisers,” Borrell said. “So, we're at the tipping point for these SMBs.”
How Local Media Companies Earn Revenue
The tipping point is also changing how local media companies earn revenue. A small handful are getting half or more of their money from digital. “You won't be able to call them newspaper or radio companies or Yellow Pages anymore, because they're getting more than half of their revenue from digital sources,” Borrell declared. “And we're seeing an acceleration of this trend.”
Nowhere is this more apparent than in the radio industry, where over the air revenues have been declining while digital is on a significant upwards trajectory. “Digital is fueling radio's growth. There are five companies that got more net revenue from digital than they got from radio land,” Borrell said, setting the stage for the two-day conference, which attracts radio and TV broadcasters, publishers, vendors and others in the media and advertising ecosystem. There’s also a tipping point for television as audiences shift from linear television to over the top video, he added.
Another tipping point: the rapid rise of retail media. “You can see that these retail networks are now about 20% of total digital advertising,” Borrell remarked. “They've risen incredibly fast, so fast that the CEO of Walmart said, ‘I can't remember a business with the margin structure of the advertising business here at Walmart.’” The discount chain’s ad revenue hit $2.7 billion last year while Amazon booked $37.8 billion in ad revenue. Retail media networks now account for 10% of all ad dollars.
Target had more traffic to its retail network in 2022 than the Washington Post, Borrell said. “It's important because advertisers are much more interested in being around wallet-ready consumers leaning forward, ready to buy something, than they are people reading news. The lesson to be learned is you can work with these retail networks.”
Insights Trump Advertising
Another paradigm shift ahead for digital advertising is the deprecation of third party tracking cookies. The local media industry stands to lose 42% of its digital revenue, or about $4 billion, if cookies go away by the end of next year.
But the disappearance of cookies may actually be a good thing. “Your insights may be more valuable than your advertising,” Borrell predicted. “Three out of every four businesses created since the pandemic are novice marketers,” he added. “That's where you come in. They need to learn more about marketing and selling your market intelligence is really important.”