Nothing lasts forever. Ad revenue growth decelerated for the second year in a row after heady post-COVID ad revenue gains.
US digital ad revenue grew at a slower rate in 2023 compared to 2022, hampered by inflation, climbing interest rates and advertising industry layoffs, according to the IAB/PwC Internet Advertising Revenue Report released Tuesday.
Digital ad revenues increased 7.3% from 2022’s total of $209.7 billion. But in 2022, overall ad revenue growth still made in the double digits, with an average of 10.3% for the year.
From CTV to audio to programmatic, multiple ad formats saw some form of correction from the pandemic’s sky-high revenue growth. Overall revenue growth also paled in comparison to 2021’s runaway post-pandemic growth of 35.4% YOY.
Still, US digital advertising revenues broke records in 2023, reaching a new high of $225 billion.
“We are still growing at a healthy clip,” said Jack Koch, SVP of research and insights at the IAB. “We’re seeing a bit more of what we’re used to seeing – a normalization.”
The growth winners
Though programmatic ad revenue growth is slowing in comparison to prior years, it still rose by $4.8 billion, growing 4.4% over 2022 to reach $114.2 billion.
Digital video, retail media and audio all grew revenue above the mean 7.3% growth. Digital video revenues, which include both CTV and online video, grew 10.6% to $52.1 billion in 2023. CTV/OTT is expected to be 2024’s most quickly growing media channel, according to the report. Streaming services will launch more ad tiers, finesse their ad-supported models and continue to make live sports licensing deals.
Retail media ad networks also grew like gangbusters in 2023, increasing 16.3% to $43.7 billion. And its growth is likely to continue apace. “Everybody with a retail front is starting a retail network,” Koch said. Digital audio revenues increased slightly more, 18.9%, to land at a much smaller $7 billion total.
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Unlike CTV and retail media, which have been hot for a while, social bounced back in 2023 after a slowdown in 2022. Social media revenue increased 8.7% from 2022 to $64.9 billion in 2023. The channel recovered, in part, due to the strength of the creator economy, Koch said.
Creators often lean into niche interests, and their content “collapses the marketing funnel,” when consumers turn to YouTube Shorts, Instagram Reels or TikTok videos to do everything from conduct product research to purchase items. In tandem, advertisers have also improved their ability to run measurable, brand-safe campaigns on creator content. Measurability and brand safety are prerequisites to taking a channel from niche to mainstream, according to Koch.
Not all channels fared so well. Display revenue grew 4% to $66.1 billion in 2023 (down from 12% growth in 2022) as more advertisers moved their ad budgets to video. And while search revenue increased 5.2% in 2023 to reach $88.8 billion, its share of total digital ad revenue has steadily fallen from 43.9% in 2019 to 39.5% in 2023.
Bumps ahead
The IAB report examines not only revenue trends but broader industry issues for advertisers to pay attention to. Privacy is not going anywhere, for instance. More states are passing laws, a federal data privacy law is on the table, and calls for consumer privacy protections are only getting louder.
Companies are increasingly looking at the limitations of the data their customers feel comfortable sharing with them. They are putting consumer opt-ins in place and ensuring that customers can access their data as well as ask for its deletion, Koch said. In addition, he noted that many advertisers are using first-party data, CDPs, data clean rooms and other approaches to reach addressable audiences.
Koch pointed to CTV and retail media as examples of channels successfully adjusting to the changes in data-driven advertising. The IAB is keeping an eye on further M&A activity that might mirror Walmart’s acquisition of Vizio this year. In other words, strategic moves that combine the reach, targeting and measurement capabilities of retail media and CTV.
Generative AI is another area the IAB is monitoring. Advertisers have already demonstrated that generative AI tools can churn out ad creative, which can lower production costs and increase efficiency. The full extent of what AI can do remains to be seen, but as the technology gains adoption, the IAB will consider if it will eventually appear in a future report as its own category.
