When advertisers around the world turned off the spigot in March as COVID-19 hit, it seemed the ad market was in for a terrible downturn.
While global ad spend will shrink across the board this year, the dip was far less worse than expected in June, thanks to increased digital spend, likely by small businesses.
GroupM said global ad spend will decline by 5.8% this year, less than the 12% decline it predicted in June. Magna also shifted its June forecast of a 7.2% decline to a 4.2% dip. And Zenith is forecasting a 7.5% drop in ad spend, compared to a June prediction of a 9.1% decrease.
All three firms credited the adjustment to robust digital spending, as small businesses adopted e-commerce at a rapid pace and larger businesses shifted ad spend paused in Q2 into the back half of the year.
The former is an interesting paradox, as small businesses are hit hardest by the pandemic.
“There is a disconnect between economic activity and advertising activity,” said Brian Wieser, global head of intelligence at GroupM. “Smaller businesses have been incredibly resilient, and while many are in a world of hurt, it hasn't stopped them from advertising.”
Given 2020’s tough comparables, 2021 growth looks robust. Magna predicts 4% growth next year, Zenith forecasts a 5.6% increase and GroupM predicts 12.3% growth. But global ad spend won’t exceed 2019 levels until 2022, when the economy rebounds from the crisis.
“The real comparison to look at the health of the ad industry vs. previously is the 2022 to 2024 numbers,” Wieser explained.
All three forecasts are based on the assumption that a vaccine will be widely distributed by the second half of the year.
As businesses adapt to a rapid shift to digital consumption and commerce, they’re investing more in those areas, even as the economy suffers.
Excluding political advertising, digital is expected to take a 61% share of global ad spend as it grows by 8.2% this year, per GroupM. Magna also forecasts 8% year-on-year growth for digital spend to $336 billion, bringing the medium’s share to 59% of total ad spend.
While both numbers represent a slowdown from digital’s double-digit growth over the past few years, they’ve been revised upward from GroupM and Magna’s respective predictions of a -2.3% dip and 1% growth.
“We underestimated the strength of digital media and the organic factors driving its growth,” said Vincent Letang, EVP of global market intelligence at Magna. “That’s creating a cushion between this organic growth and the macroeconomic environment.”
Small businesses are buoying social media ad spend, which Zenith predicts will grow 14% this year, as they embrace e-commerce and new features such as click-and-collect. These businesses are also fueling the growth of retailer media on sites such as Walmart.com and Amazon, which will grow 46% year over year to $51 billion.
“It’s probably small amounts [of money] over millions of small businesses,” Letang explained. “That’s the only way to explain stronger than expected ad revenue that Google and Facebook reported.”
Facebook alone gained 2 million new advertisers in the first nine months of the year, each spending an average of $8,000 in 2020, Zenith found. But as new platforms such as Snap and TikTok gain ground, their combined share of social media spend grew from 36% to 44% this year -- while Facebook’s shrunk from 53% to 46%.
Zenith predicts social media will drive ad spend recovery through 2023, growing at an average rate of 11% each year.
The uptick in streaming video consumption during the pandemic led global advertising revenue to grow as well. Zenith said the reach of ad-supported video on demand services grew 9% this year to almost 59 million households — or 48% of total streaming homes.
But digital video consumption is growing beyond just streaming platforms. Magna pegged digital video ad spend growth at 15% this year, while GroupM said “digital extensions,” or the digital revenue of linear TV, outdoor and radio media owners, will make up 15% of traditional ad revenue at $37 billion, up from 7% five years ago.
This growth came at the expense of linear media, which declined in 2020 as live events and productions were paused. Linear spend is expected to rebound next year, as live events return and the Olympics is rescheduled for 2021. GroupM said linear TV ad spend will decline 15% this year, but will rebound to 7.8% growth in 2021, and Magna predicts a 16% dip in linear TV spend this year, rebounding to 5% growth next year.
But despite the short-term bump, linear media is undergoing a long-term erosion that won’t ever fully recover. Magna said out of home revenue shrank by 24% this year, radio by 28% and cinema by 80%. GroupM measured a 31% decline in out of home spend including digital, a 24% dip in audio spend including digital and a 75% decline in cinema ad spend.
“Linear media spending will not go back to where it was pre-COVID, at least not in 2021,” Letang said. “If we look at the long-term, it probably won't return to where it was.”
China, U.K. and U.S. are resilient
While the economic downturn extended across the globe, China, the U.S. and the U.K. proved most resilient in terms of ad spending, according to GroupM and Magna.
Per GroupM, U.S. ad spend dropped 7.3%, U.K. ad spend declined 4.4% and China ad spend actually grew 6.2% in 2020 as the economy recovered faster in the region.
“We can estimate that half of the countries reported better expectations for 2020 than they expected in June,” GroupM’s Wieser said. “But the global improvement on average is so high because so much of the out-performance comes from China, the U.S. and the U.K.”
Magna said North America was the most resilient market overall, reporting just a 1.5% decline in ad spend, while EMEA ad spend dropped 6.4% and APAC shrank by 4.9%.
Zenith credits the U.S. resilience to heavy political ad spending in 2020, which will create tough comparisons for 2021.