Magna: Digital Ad Spend Is Growing – Yet Slowing – In 2019 And Beyond

Global digital ad spend may be starting to slow, but it’s still growing like gangbusters compared with the rest of the market.

IPG-owned Magna Global predicts in its latest spending forecast, released Monday, that digital ad sales will increase by 14% this year and represent more than half (51%) of total global ad sales ($304 billion) for the first time.

And although global digital ad spend is down from 19% growth in 2018, it’s head and shoulders above linear TV ad revenues, which are set to shrink by 2% this year. The decline in digital decline will continue into next year yet will still clock in at 11% in 2020, at which point digital will comprise 54% of total global ad spend.

In the United States, digital ad spend is on track to grow by 13% in 2019 and increased by 16% in the first quarter, which sounds healthy on the surface, but less so when compared to the last 1.5 years, when the market experienced 19-22% growth in digital ad sales every quarter.

WPP’s GroupM also predicts a decrease in global digital ad growth rates, although its numbers are, as usual, a bit more cautious at 13% this year.

Regardless of how deep the dip in digital ad growth will be, it’s an inevitable trend, said Vincent Letang, EVP of global market intelligence at Magna.

“We’ve been expecting the plateauing of growth rates here for a while,” Letang said, pointing to a deceleration in usage volume and pricing for both Facebook and Google. “The market is maturing not just in the United States, but globally.”

But it’s been hard to predict exactly when the dip would occur because of what Letang referred to as the “dark matter” of ad spend: small and medium-sized businesses. Magna works primarily with large national brands, which makes it harder to gather insights on search and social at the local level.

Though still strong, particularly in the United States, economists anticipate that economic growth will start to cool over the next few quarters and into 2020. “At that point, SMBs will feel it too, and will contribute to the drop off in digital ad spend, which they’re probably already starting to do,” Letang said.

But there are buckets of cash on the horizon. Political spending is set to explode with a 4.7% increase in 2020 with the US presidential election cycle and other seasonal tent poles, such as the Summer Olympics, will also contribute to an uptick in digital ad spend.

Local TV will benefit most from 2020’s packed calendar of cyclical events, Letang said, although digital will get a little shot in the arm, particularly from political campaigns.

“Political spending will mitigate the organic slowdown we’re seeing for digital,” he said. “During the midterms, political spend on social brought in an estimated incremental 1% to Facebook’s revenues – and we think it’s going to be bigger this time. An increase of 1.5% or 2% here starts to become noticeable.”

But occasional infusions of political ad spend aside, TV advertising isn’t succumbing to the premature prognostications of its death, at least not yet.

Although linear TV ad revenue will decrease this year by 2% globally to $175 billion, and by 3% in the United States to $41 billion, brands continue to seek it out as a bastion of brand safety – which is also why marketers are willing to tolerate TV’s higher prices.

“The cost of traditional television grows by about 10% every year, and it’s been accelerating,” Letang said. “But a combination of a good economic environment, good sales and brand safety concerns are helping stabilize TV revenue.”

Newcomers, like direct-to-consumer brands and technology companies such as Airbnb, Uber, Facebook, Google, Spotify and Hulu, are also starting to spend more on TV, which helps.

“That’s good for TV vendors, because it really is incremental,” Letang said. “And they pay full price because they don’t have the historically lower base rates that CPG brands have had on TV for years.”

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