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Advertising investments should grow 5% this year, according to a new industry forecast released today by analyst Brian Wieser.
Marketers and advertisers should regard this relatively modest growth as a return to normal, pre-pandemic economic conditions. Since ecommerce boomed during the pandemic and led to increases in retail media investments and other online direct-to-consumer sales, the advertising industry benefited. Marketers largely felt that sustaining high growth would be unsustainable in the long term.
While it’s true that 5% is a slowdown from last year’s 6.5% growth, marketers can consider Wieser’s 5% estimate to be positive news, he argues in the forecast report. Other industry players will find the forecast presents a not-so-rosy outlook. Categories like traditional publishing and TV advertising will, predictably, face modest declines.
Wieser is the founder of advertising investor consultancy Madison and Wall, and most recently led business intelligence practices at GroupM, WPP’s media agency collective. GroupM releases its own advertising forecasts, which Wieser managed during his tenure there; its mid-year advertising forecast expects 2023 growth to be barely higher than Wieser’s, at 5.1%.
The analyst’s independent forecast—the first of its kind—projects advertising investments through 2028, combining annual data dating from 2016 with quarterly data dating from 2018. The forecast projects growth across 20 media types, from publishing to retail media and TV. It also separates how much is invested in digital-only publishers relative to traditional print publishers. To reach his conclusions, Wieser analyzed publicly available data and approximately 80 company earnings reports.
“The first half [of 2023] was up against very different comparables,” Wieser told Adweek. “By the fourth quarter of 2022, we basically had no growth. Many advertisers effectively talked themselves into a downturn.”
What’s driving the ad industry?
Ad industry growth skyrocketed during the pandemic, especially in the retail media category. There was a surge in ecommerce activity as consumers abandoned in-person shopping, and quarantine mandates pushed even the digitally averse to adapt to online shopping.
Other anomalies contributed to the boom, including more Chinese advertisers marketing to U.S. audiences; the introduction of self-service tools that make it easier for small businesses to buy their own media en masse; and a more competitive ecommerce environment as a variety of DTC online businesses went up against traditional CPG companies.
All of it contributed to double-digit growth, and some of these factors will continue to be boons.
“Presuming that the overall economy doesn’t go into a recession or downturn, I would assume no change to the dynamic of money flowing into the U.S. from China or elsewhere abroad, which is a factor that’s really important,” Wieser told Adweek.
Now, the advertising industry’s economics are stabilizing, according to Wieser. This year’s projected 5% bump would indicate the advertising industry is healthy.
Marketers should consider the full picture, argues Wieser in the forecast report. With category expansion mostly complete, it’s unlikely that new channels will appear as suddenly as they did during the pandemic and snag more of marketers’ dollars.
Last year, marketers, spooked by a recession that would never really materialize, held onto their budgets. Many agencies, worried by the prospect of another downturn, laid off employees. The squeeze made little sense, according to Wieser, especially since high inflation should have positively impacted ad spend.
Wieser on what‘s ahead for marketers:
- Industry growth normalizes: Wieser anticipates the industry will see 6% growth in this year’s third quarter, followed by 8% growth in the fourth quarter. These numbers are relatively inflated compared to previous years, but by the end of the year marketers can expect quarterly growth to relax. Pre-pandemic yearly growth between 4% and 5% will become a standard, even good, result. To conclude this, Wieser assumed GDP and personal consumption growth between 1% and 2%. Political advertising may cause growth to swing quite dramatically, he noted, between 3% and 4% growth percentages, and impact every advertising channel.
- Digital spend keeps platforms growing: Digital platforms, including search, social media, retail media and others like YouTube, Yahoo and Apple, make up 64% of digital advertising investments, the forecast concludes. These platforms will continue growing this year to the tune of 11%, according to Wieser. That’s relatively on par with 2022’s overall growth for the category, and far outpaces the industry’s projected 5% total growth.
- Retail media reigns: Investments in retail media and commerce should add up to $42 billion this year. That’s up 20% from 2022, underscoring how quickly retail media became a dominant advertising channel. Amazon and companies like Walmart, Instacart, eBay, Uber, Criteo, Booking.com and Expedia stand to benefit, according to Wieser.
- Publishing margins plummet: In the coming years, publishing will realize mid-single-digit declines. That’s even as digital-only publications stoke the category, making up for dwindling investments in the print category. Ad tech, though, will become an unlikely winner amid these declines. Wieser estimates the category will grow faster this year, assuming media buyers’ increased reliance on programmatic trading.
- Things get worse for TV: Economic circumstances are not getting any better for the television sector, which is experiencing “an existential crisis,” Wieser wrote in the report. Cord cutting, coupled with marketers’ new investments in streaming platforms, are to blame. And by the end of this year, buyers will feel the effects of this year’s SAG-AFTRA and Writer’s Guild of America strikes. Fewer shows mean fewer available advertising spots. Local TV will also suffer, Wieser forecasts, with single-digit declines on the docket. Political advertising will offset declines in the immediate future, though, as campaign advertising heats up throughout the 2024 U.S. presidential election cycle.