The breathtaking growth of total ad spend across the global marketplace is like a “once in a lifetime planetary alignment, something rare, short lived, but spectacular,” according to Vincent Létang, Executive VP, Global Market Research at IPG Mediabrands' Magna. So what caused the unprecedented expansion? And what happens when those planets start to drift apart in the years ahead?
In case you missed Monday’s Big 3 forecasts, global ad revenues throttled up 22% in 2021, propelled by a so-called V-shaped economic recovery, a 6% increase in global gross domestic product (GDP) and what Létang called a “tremendous acceleration” in digital growth. “That's your once in a lifetime planetary alignments,” he told the Global TMT Conference presented this week by investment bank UBS. While 2021 is poised for another significant advertising uptick, economic growth “will slow down everywhere” and the rocket-fueled growth in digital – accelerated by the pandemic – “will mature somewhat,” mainly because it’s grown so much in the last two years. Consumer targeting being restricted by Apple’s iOS 14 and the elimination of third party cookies will also be contributing factors.
But that won’t slow the frenzied pace of new products and services being launched which is the foundation of advertising. “It's a strong time for that. It contributed to the strength of ‘21 and it will continue into ’22,” Létang told the virtual conference, pointing to three red-hot emerging services: food delivery apps, crypto trading, and sports betting. That last one is a category several radio companies are booking big business with. And don’t forget the streaming wars, with players like Amazon Prime Video, Netflix, Disney+ and others competing fiercely to establish their leadership position.
Ad Revenues Concentrated Among 3 Companies
Calling it a “ridiculously strong advertising market,” Brian Wieser, Global President of Business Intelligence at GroupM, said 2021 may be the fastest growing year ever going all the way back to the 1970s. By GroupM’s arithmetic, the U.S. ad market soared 28% in 2021, excluding political. But unfortunately, the wealth was not evenly spread and has instead become highly concentrated with Alphabet (Google), Meta (Facebook) and Amazon cornering more than 50% of advertising globally outside of China. “The trend continues where you have a relatively small number of people increasingly concentrating the world,” he said.
Like Magna, GroupM sees the ad economy being powered by new brands and services replacing older ones that go away. The typical business exists for 10 years and the “characteristics of a business that exists today will be different than one that existed 10 years ago,” Wieser explained. That includes how much a business spends on advertising. Whereas a typical business ten years ago may have spent 1% of their budget on advertising, today it might be more like 2%. After all, for ecommerce-oriented companies built entirely around distributing products online, there’s no rent to pay. “The advertising intensity of that business that forms today probably is higher, and it probably contributes to more rapid growth,” Wieser noted. “So we think that some of the metrics that are contributing to this planetary alignment include new business formation, the really rapid pace of growth, especially in the U.S., but not only in the U.S.”
Advertising Becomes Bigger Piece Of Global GDP
Zenith, too, sees advertising becoming more important to the worldwide economy, as it becomes a larger piece of the global GDP. “We've seen that rising steadily even before the pandemic,” said Zenith CEO Lauren Hanrahan, calling for it to hit 0.80% by 2024. “This will be the biggest rise in advertising share of the GDP since the late 90s,” she told the UBS conference. But as with the other forecasters, Hanrahan sees digital changing the advertising landscape. Social media will be the fastest growing channel between 2021 and 2024, chugging along at an average annual growth rate of 14.8%, closely followed by online video at 14%.
“What you're really seeing here is that the money is following the audience. People have the same hunger for entertainment that they've always had. So what they're watching maybe hasn't changed, but how they get it has,” Hanrahan said. After starting out as a way of communicating with friends, social media has evolved into an entertainment platform with Hanrahan pointing to TikTok as a great example of the evolution. Social’s ascendancy is such that it is poised to overtake television by next year, accounting for 26.5% of all advertising.
Television will come in third place at 22.5%. And despite a shrinking supply of eyeballs watching traditional television, TV ad prices are forecast rise by 11% in 2022, far outpacing the inflation seen in other ad channels. “Brands really need to confront their dependence on a medium that is delivering smaller audiences for higher prices,” Hanrahan cautioned. “We know they still want content. That content has just simply fragmented into more diverse sources of online video. So brands have to follow these audiences.”