When the economy is good, advertisers spend on branding.
But that’s not the case when times are lean, Sir Martin Sorrell, executive chairman of S4 Capital, told AdExchanger.
Serious economic headwinds and inflation, plus ongoing international conflicts, all impact advertising spend, and that means companies need to get choosier about their tech investments to keep growing competitively, said the former WPP CEO.
“ROI is a critical issue for 2023,” Sorrell said. “CEOs are getting worried about top-line growth because it’s harder to come by.”
Now, media companies are prioritizing data activation and performance, he said, and buyers are moving down the purchase funnel to justify their media investments.
Getting to the bottom of it
But for advertisers to get the data they need to justify their spend, buyers and sellers need to reorient their relationship considering the “historical lack of transparency” between agencies and media owners, Sorrell said.
Agencies and holding companies, for example, are “still incentivized to go into [mass] volume-buying deals,” Melissa Wisehart, SVP of global media at S4 subsidiary Media.Monks, told AdExchanger. This dynamic is in conflict not just with the notion of transparency but with a media owner’s ability to deliver against the KPIs that clients are looking for, she said.
Buying media in bulk through a walled garden or from a major broadcaster is typically an inflexible contract. On the other hand, Sorrell said, more automated media buying allows for algorithmic analysis, like advanced attribution models, that can be used to advise clients on their performance against short-term KPIs, like reach and frequency.
But first-party data is critical for optimizing digital media in real time, Sorrell added.
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Right back ATT ya
First-party data is also increasingly important as the ad tech industry deals with signal loss.
Apple’s ATT frameworks, on top of Google’s (eventual) deprecation of the third-party cookie, cut off streams of signal that online platforms had relied on for targeting and attribution.
Still, there are ways to deal with signal loss, Sorrell said.
All it takes is, you know, revamping your entire infrastructure.
Take Meta, for example, which seems to be turning the tables on its post-ATT tumult. Revenue was still down 4% year over year in Q4, but ad impressions increased by 23%, even while the average price per ad dropped 22%.
During Meta’s earnings call last week, CEO Mark Zuckerberg said the company will continue to make strategic cuts, including sunsetting projects that are no longer performing, while investing in AI to support ad performance, content recommendations and privacy-enhancing technologies.
According to Sorrell, investors expected Meta to be down again in Q4, but the stock spiked due to buybacks and a distinct change in approach toward operating efficiency.
But Meta also seems to be getting its mojo back “by remedying efficiency in relation to signal loss,” Sorrell said.
“It’s getting its act together,” he said, “and will continue doing better this year.”
Snap, meanwhile, is still reeling from ATT.
Q4 revenue year over year was roughly flat, and Snap’s ad revenue and average revenue per user were both down.
What’s on TV?
Building a profitable advertising-based business is just as critical for players in the TV space, Sorrell said.
Streaming is only becoming a more important growth driver for broadcasters and tech companies alike.
Microsoft, for instance, stands to gain a lot of ad revenue growth through its partnership with Netflix, and even Apple is reportedly pitching advertisers with a TV product, albeit rather quietly.
Netflix and Disney are also important platforms to watch this year now that they each have a new ad-supported revenue stream, especially if Netflix can get its pricing right.
Premium video will be a crucial driver of the ad industry’s digital transformation, Wisehart added. But only video platforms that can prove returns on data-driven advertising will withstand the competition for profitability.
