Ad spend is back, thanks to its usual hero: digital advertising.
US media advertising sales surged 4.4% in Q2 after two weak quarters, beating June expectations of 3.6%. Full-year spend for 2023 is expected to increase by 5.2%, according to a Magna forecast released Monday.
Magna also revised the 2024 ad spend forecast upward from 5% to 5.6%. That figure increases to 8% when taking events like the Olympics and political campaigns into account.
Q2 2023 benefited from easier comps than recent quarters. Q2 2022 ad revenues grew at a more measured pace than Q4 2021 or Q1 2022, which saw dramatic post-COVID spikes in ad spend.
The spring of hope, the winter of despair
But Q2 was a tale of two media types. A brightening US economic outlook in the second quarter contributed to increased spending in digital, which rose 8.7% YOY. But traditional media companies, including linear TV, print, radio and cinema, saw ad spend plummet by 4.1% YOY.
“We see a divergence between digital media that are recovering and traditional media that are not recovering,” said Vincent Letang, EVP of global market intelligence at Magna. “Digital growth is not enough to offset the erosion of revenues derived from legacy formats.”
Take out-of-home, the only traditional format that performed well this quarter, growing 2.5%. Magna’s out of-home category combines static and digital out-of-home (DOOH) ad revenues, meaning that the category’s growth happened on the back of DOOH’s 9% growth.
TV spend paints a grimmer picture. Linear TV ratings and views have been free-falling for years, and only pricing inflation kept revenues stable. But now, CPM costs are increasing by low single digits instead of by double digits, Letang said. And the “lack of fresh scripted programming” resulting from the writers and actors strike may only further erode ratings.
Nonlinear TV (comprising CTV, AVOD and FAST) grew 7% in the first half of 2023, but that growth isn’t enough to offset linear TV’s ongoing losses.
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Long-term stability aside, in 2024, linear TV will get a shot in the arm because “local TV remains the number-one destination” for political spending and the Paris Summer Olympics will bring hundreds of millions of ad dollars to national TV, Letang said.
Walking the primrose path
On the digital advertising front, strong performers include search, social, retail media and what Magna calls short-form digital video (primarily YouTube and Twitch, as well as outstream video). Search has grown 6% to $94.6 billion in 2023 and is forecast to grow 7% to $100.8 billion in 2024.
Social spend grew by nearly 12% in Q2, rebounding after having “a very bad year” in 2022, Letang said, caused by Apple’s AppTrackingTransparency changes. Last year also brought the rapid rise of vertical short-form videos, which initially posed a challenge for advertisers. Although consumers loved “snacking” on these videos, it took time for advertisers to fill those new ad spots with video ads.
“It takes time for ad formats to adjust and be monetized as well as the previous [types],” Letang said. Now that the industry has grappled with and “digested” these shifts, monetization is improving.
Retail media growth has soared 22% in 2023, reaching $35.6 billion in ad spend, and is projected to grow 19% to $42.2 billion in 2024. The channel is also helping its buddies, “fueling digital growth” in social commerce, digital and display.
What’s more, retail media isn’t “cannibalizing other media formats for the most part,” Letang said. Instead, CPGs that have “huge” trade marketing agreements with retailers are now redirecting some money into digital media through retail media networks.
Comeback kids
Inflation battered CPG companies in 2022, forcing them to raise their consumer prices to cover their own costs. But after last year’s dip in ad spend, the category showed surprising resilience in Q2, with personal care ad spend up 16% and food and beverage up 12% YOY. Pharma ad spend increased 12%, retail grew 9% and restaurant rose 8% YOY, while tech fell 3% and finance decreased 8% in ad spending.
While the automotive sector’s ad spend grew 3%, the relatively paltry figure fell below the Q2 average of 4.4%. “It’s underwhelming,” Letang said, given that car sales have been increasing by 15% almost every month.
Still, buoyant consumer spend on “big-ticket items” like cars and travel is a good sign for advertisers. “Automotive and travel are two categories that you would expect to slow down when there’s anxiety about the economy,” Letang said. “People decided, despite everything, to not cancel their vacation plans in ’23.”
