Digital advertising is the “bright spot”
Despite a pace of economic decline that will produce the worst economy since the Great Depression, the ad market might end up falling by little more than we saw in 2001. It will certainly be better than in 2008, during the fallout of the global financial crisis.
And much like the overall economy, the advertising industry is experiencing a K-shaped recovery – the pandemic has seen rapid acceleration for e-commerce and advanced digital services and cratered industries like restaurants, bars, travel, entertainment and traditional retail.
The bright side, though, is that the underlying rate of decline for advertising is not quite as bad as we thought it would be in our June forecast when we predicted a 13% decline. We think the decline will be closer to 9% because of the strength in digital advertising in particular or, more specifically, the unexpected pace at which digital’s small-business-skewed customer base expanded its spending.
Digital advertising is the “bright spot” in an otherwise dark year for the industry. We estimate that pure-play digital advertising will grow by 5% during 2020 on an underlying (ex-political advertising) basis, following on 2019’s 17% rate of growth. During 2021, we estimate that digital advertising will account for 55% of all advertising we track. Political advertising has proved to be an important source of growth for digital media during 2020 as roughly 4% in total digital advertising was for political candidates and issues advertising, representing around 3% of the year’s gains.
National TV advertising will see a decline of 7.9% during 2020 and rebound to grow by 6.6% during 2021 before returning to a flat or slightly declining longer-term trend. At this pace, national TV is faring better than every other category of media other than digital. Post 2Q, advertising has held up well because most of the dominant advertisers adapted their behaviors, at least on an aggregated basis, which translates to national TV ad spending at levels that resemble pre-pandemic levels.
Underlying (ex-political) advertising for local TV will see a decline of 21% this year after a flat 2019 but, next year, we should see a 2.7% underlying gain. Revenue for political and issue advertising reached record levels by the end of November, with the hotly contested run-off elections for Georgia’s Senate seats still to come. If trends play out as expected, political and issue advertising on local broadcast and cable could reach approximately $7 billion for the year.
Some other key takeaways:
Print media is expected to decline 20% for magazine publishers and a 30% decline for newspaper publishers.It is our view that neither the magazine nor newspaper sectors will ever exceed $10 billion in ad revenue in their current forms, even including existing digital properties.
OOH advertising, including its digital extensions, will decline by 31% during 2020 on an underlying (ex-political advertising) basis, following on 2019’s 10% rate of growth. Next year should see a partial rebound of 23% growth, which tapers off toward 5% in subsequent years.
Cinema advertising is unlikely to see any meaningful rebound until traditional movie-going returns, and this will require studios to resume launching their major titles in theaters rather than via direct-to-consumer platforms. Even once the virus has receded, it seems unlikely studios will release as many titles in theaters as they did in pre-pandemic years, meaning admissions are likely to remain below 2019 levels for some time.
Audio advertising, including its digital extensions, will fall by 27% during 2020 on an underlying (ex-political advertising) basis, following on 2019’s 2.1% rate of growth. Next year should see muted growth of around 6.6%, reflecting a weak local market for advertising and a first half that will probably be particularly negative for locally oriented media.
Direct mail is estimated to generate around $13 billion in revenue during 2020, down 26% on an underlying basis but only 21% including political advertising. We expect to see a partial rebound next year for 17% growth, or 10% including political, before resuming single-digit declines.
2021 and Beyond: Looking at 2021, an assumed second-half return to normalcy paired with the significant growth that followed the trough of 2Q this year leads to expectations for robust growth of 11.8% on an ex-political basis, or 6% including it. For subsequent years, we anticipate slightly higher growth than we previously forecast—now 5% in 2022 followed by 4% in 2023 and 2024—to reflect what we think will be an accelerated pace of investment in digital media by marketers of all sizes.