While media companies have been talking about tough economic conditions for more than a year, a prominent investment firm estimates overall advertising and marketing spend has grown at a roughly mid-single-digit rate so far in 2023. However, within that, there is a wide gulf between bottom-of-funnel digital performance advertising and top-of-funnel brand advertising such as radio.
The good news is brand advertising is headed for a “soft landing” recovery next year and beyond, according to B Riley Securities.
Growth will be most concentrated in digital channels, such as digital audio and connected TV “that have stronger long-term secular tailwinds,” it says in a new report.
B Riley’s Media & Entertainment report, issued Wednesday, is based on data from over 50 publicly-traded ad agency holding companies, media owners, and adtech intermediaries. The report singles out a couple of radio companies covered by B. Riley, whose stock is trading at or near 52-week lows that it expects “would be the most significant beneficiaries.” Those are iHeartMedia and Cumulus Media.
Looking at ad categories across all media spending, B Riley says consumer packaged goods, travel, and food/drink have been increasing spending at the strongest rate while telecom, and financial services have been the weakest categories.
The growth in 2023 has been concentrated in performance marketing with red-hot retail media leading, the report says, as “brand advertising spend still looks to be in a recession.”
An analysis of legacy media owners by B Riley shows “brand advertising is clearly where the weakness is concentrated” and that national advertisers have pulled back on spending more so than local or regional advertisers. “Although the softness is even further concentrated in ‘traditional’ media channels such as cable/network TV, AM/FM radio, and print news, the digital extensions of those forms of media (i.e., connected TV, streaming audio/podcasts, digital news) are also experiencing either modest declines or a significant deceleration in growth,” the report says.
Incoming: Ad Spend Rebound
However, the outlook for 2024 is appreciably brighter. Confident about the future trajectory of interest rates, consumer spending, and the broader economy, advertisers are expected to open up their checkbook, resulting in a rebound in brand advertising spend. “We believe a soft landing economic scenario would likely result in a significant uptick in brand advertising spend,” the report says, pointing to iHeart and Cumulus as being among the biggest beneficiaries within the companies it covers.
As evidence of the “divergence” in ad spend between digital and traditional media, B Riley estimates that legacy media ad spend declined 5% in second quarter 2023 while digital media ad revenue rose 7% for a total ad revenue increase of 6%. It estimates that AM/FM/satellite radio fell 7% in Q2, while cable/network TV dropped 6%, broadcast TV decreased 4%, out of home rose 1%, and newspapers tumbled 9%. However, digital audio (which includes Spotify, SiriusXM, iHeart, Audacy and Cumulus) increased 8% year-over-year in Q2. All figures exclude political ad sales.
“Amidst an uncertain economic outlook, brands have clearly leaned more into these performance marketing channels that have tangible and measurable ROAS,” B Riley says in the report. “With the lean into performance marketing, digital extensions of traditional forms of brand advertising (i.e., CTV and digital audio) have not been immune from the pullback.”