In its fall forecast update, MAGNA Intelligence predicts that media owners net advertising revenues (NAR) will grow by 6.5% to $179 billion this year, the strongest growth rate since 2010 (6.6%). MAGNA is increasing its full-year forecast from 6.2% in the previous update (June 2016) following a stronger-than expected first-half (up nearly 7% yoy). In 2017, market growth is expected to slow down to 1.4%, mostly due to the lack of cyclical even-year drivers while the underlying demand will remain strong, the report stated.
Neutralizing the record incremental ad sales generated by political ad spend and Olympic Games (P&O, $3.1 billion and 700 million resp.) this year, 2016 advertising growth would be 4.4% (similar to last year: +4.3%) and will slow down to 3.5% in 2017. Digital media advertising sales will grow 15% this year and +12% next year, while traditional media ad sales (consolidating linear television, radio, print and OOH) will decrease by 1.5% this year and 2.2% next year.
Digital advertising sales across all formats will equal TV ad sales for the first time ever this year, as both will generate approximately $68 billion, i.e. a market share of 38.5%. Digital advertising sales will then reach $105 billion by the end of the decade, a 51% market share. The main digital media drivers this year are social media (growing 44% this year to nearly $16bn), and online video (32%). After barely two years of existence, social video advertising already represents $2.2 billion (i.e. 14% of total social media NAR or 24% of total video ad formats) and appears to be a massive game changer combining the impact of video and the scale of social media.
Meanwhile, national TV NAR remained robust in the first half (4.6% excl. P&O) thanks to a strong recovery in pricing offsetting the continued decline of ratings supply. For the full year 2016, NAR is expected to grow by 3.2% (excluding Olympics), slowing down to 1.5% next year. In the next four years, MAGNA is predicting holistic video advertising (TV and online video, all platforms, all screens) to grow by a 7% CAGR while holistic audio (radio and audio streaming)will plateau at 1% and holistic print and holistic print NAR (newspapers and magazine, paper and digital) will decline by a 7% CAGR.
Strong First Half for Advertising Spending
Media owners advertising sales are expected to increase by 6.5% this year (2016) and by 1.5% in 2017. Neutralizing the impact of incremental ad spend driven by even-year events over the period 2015-2017 (“Political & Olympic” effect or “P&O”) advertising sales would increase by 4.4% in 2016 and by 3.5% in 2017. MAGNA is increasing its full-year forecast to +6.5% from +6.2% in the previous update (June 2016) following a stronger-than expected first-half.
Media vendor advertising sales were indeed strong in the first half (6.1% overall, excl. P&O), arguably over a weak 2015 period. Ad sales were driven by national TV (4.6%), digital media (18.3%) and OOH (3.8%) while print and radio advertising sales continued to decrease (9% and 2% respectively). The first quarter actually showed the strongest year-over-year growth rate recorded in over a decade (7.6%, excluding P&O) followed by a robust second quarter (4.7%).
The second half is likely to show weaker growth simply because the 2015 comps will suddenly become much higher leading to a full year growth of 4.4% excl. P&O. “For next year (2017) we anticipate market growth to slow down to 1.4%, mostly due to the lack of cyclical even-year drivers while the underlying demand will remain strong,” added the report. Neutralizing the record incremental ad sales generated by Political ad spend and Olympic Games (P&O, $3.1 billion and 700 million respectively) this year, 2016 advertising growth would be 4.4% (similar to last year: 4.3%) and will slow down only slightly to 3.5% in 2017.
Looking at individual media categories, the +6.5% growth overall for 2016 will be almost entirely driven by digital media (+15% to $68 billion) and television (+7.4% to $68 billion) while print media and radio advertising sales will continue to decline (newspapers 11% to $12 billion, magazines 11% to $8bn, radio -4% to $14 billion). Meanwhile OOH media, including cinema, will grow by 4% to $7.5 billion. Consolidating all traditional media categories (TV, print, radio, OOH), NAR will decrease by 1.5% this year to $107bn and by another 2.2% next year.
Local Television: No Real Growth Beyond Robust Political Revenues
Local television is facing a similar erosion as national TV in terms of viewing and ratings but it does not experience a similar pricing surge as a result, because of weaker underlying demand. “We believe local television stations, and local media more generally, are suffering from the competition of digital media platforms like search and social, whose features (geo-targetability, scalability, accountability, no creative cost, low entry barriers) are increasingly attractive to small and local advertisers. Excluding political ad sales, local TV NAR will down 1% this year to $20 billion,” the report stated.
The good news for local television station is that they remain relevant and dominant over political advertising, far above other traditional local media (print, radio, OOH) and despite the rise of digital political spend (see box). Adding an estimated $3 billion in incremental political ad sales this year, total local TV sales should grow by 12%.