Direct-to-consumer (DTC) marketing budgets are starting to include larger-scale media, which is having a massive impact on national TV ad spend, according to Magna’s fall 2019 ad spend forecast, released Thursday.
Marketing spend in the DTC category increased 30% YoY in Q2 2019. And DTCs spent 50% more on national TV in particular.
“These new brands are starting to reach scale, and therefore starting to invest a lot of money in advertising,” said Michael Leszega, manager of marketing intelligence at Magna.
While many of the world’s largest DTC brands initially grew through digital, they now need to expand into mass media to continue growing. In Q2, the top 35 DTC ad spenders, including Wayfair, Peloton and HomeLight, spent half as much on national TV as technology giants Facebook, Amazon, Netflix and Google.
“Many of these brands are finally reaching scale in their production,” Leszega said. “Before they were trying to target their message to early adopters. Now they’re looking to broadcast their message to more consumers.” Magna expects the DTCs to continue spending in national TV.
Despite all the DTC dollars, TV ad revenues were flat at $22 billion as ratings continue their double-digit decline. Lower ratings, mean fewer shows, which means less supply. Yet, linear TV is the only way brands can get mass reach, which is why demand for the inventory is high, and TV prices are still increasing due to that scarcity.
Total network TV ad revenues were up 1.1% including digital ad sales. Hulu in particular grew 45% in the first half of the year.
The cost of DTC involvement
DTC brands are also contributing to rising prices on national TV, where Magna predicts double-digit inflation on CPMs in 2020.
“There’s a ton of scarcity combined with real robust and continued demand, and new player demand like DTC,” Leszega said.
TV isn’t the only traditional medium where DTC brands are spending. Out of home, which was up 7% in the first half of the year to $4.6 billion, is a major investment area for these brands, which contributed to OOH’s fastest growth rate in a decade in Q2, when spend was up 7.7% YoY.
But that doesn’t mean DTC brands are abandoning digital, which was up 19% YoY to $47 billion in the first half of the year. Digital ad spend was driven by 25% YoY growth in digital video spend. And just as DTC brands are expanding their budgets from digital to linear TV, legacy advertisers, particularly in the pharma sector, are starting to shift more budget to digital, Leszega said.
DTC brands are also driving the growth of new media formats like podcasting, which Magna predicts will grow by 27% to $850 million in 2020, and over-the-top TV, which Magna forecasts will generate $4.3 billion for media owners that same year.
Magna revised its global ad spend forecast for 2019 upward to 6.3% from 5.1% in June thanks to a robust economy and strong consumer spending.
Magna expected the ad market to slow along with GDP, which was down by 1% during the first half of this year. But because personal consumption was up 7%, the ad sales market saw its strongest growth rate of the century.
“People were out there spending,” Leszega said. “When people are spending sales go up, and when sales go up, advertising budgets go up with it.”
The growth in consumer spending had a positive impact on all media types, both linear and digital. Even declining media broadcast radio grew 0.7% in the first half of the year, while total ad spend on mass media was up 0.2% to $61 billion.
Consumer confidence will remain high next year, despite the threat of a recession and a looming trade war, as businesses eat the costs of high tariffs rather than passing them along to consumers, Leszega said.
As a result, Magna increased its total ad spend forecast for 2020 to 6.2% from 5.8% in June, as it expects the US election to add an incremental $5.5 billion in revenue that year.
“While the fed does expect GDP to decline, consumption will remain more stable than government spending, net exports and private investment,” he said. “There is a bright spot for the economy.”