Vaccines are reaching arms and advertisers are putting hands in pockets and getting out their checkbooks.
Interpublic Group’s media intelligence unit Magna revised its U.S. ad spend forecast upwards as the world reopens again, projecting 6.4% growth to $240 billion in 2021. That’s 2.3% higher than its December forecast.
Adjusting the forecast upwards was “a pretty easy call,” said Vincent Letang, EVP of global market intelligence at Magna, as organizations like the FED increased its GDP projections.
“The economy looks significantly stronger than back in December, and the pace of vaccination is going well,” he said. “That reinforces confidence and economic recovery.”
Q4 spending was particularly strong, as advertisers spent on holiday shopping. Political ad spend around the 2020 election was 75% higher than in 2016, adding close to $7 billion in incremental revenue for media owners.
“Even excluding political spend, it was still a very strong quarter,” Letang said.
Overall, digital and linear media spending combined will grow 6% year over year in Q1 and 15% year over year in Q2 over a historically low spending quarter last year. In Q3, ad spend will grow 6%, fueled in part by $800 million in incremental spending around the summer Olympics. Q4 will have tougher comps, growing just 2% year over year.
“We were always expecting growth in 2021,” Letang said. “The economy recovering faster than previously expected will benefit every vertical, and therefore every media channel.”
Digital media will drive the rebound, as advertisers can shift their budgets easily and small businesses spend more to stay afloat during the pandemic.
Social media, online video, search, digital audio and digital out of home will grow 13% in 2021 to $161 billion, leading digital media to capture two-thirds (67%) of total ad sales.
Facebook, Google and Amazon will reap the benefits of this shift, growing ad revenues by 17% to capture 82% market share, while other digital pure-play businesses grow 27% year over year.
Digital was buoyed by shifts in consumer behavior and brands prioritizing performance media as they cut budgets during the recession.
“We did see digital growth pause in Q2 last year, but it recovered almost immediately,” Letang said. “It's increasingly clear digital media was not only resilient during COVID, but it thrived during COVID, and possibly because of COVID.”
Meanwhile, linear media will grow just 1% to $77 billion this year, with the rebound not starting up again until the second half of the year.
“We are cautious with linear spending in 2021,” Letang said. “We don't think it will ever come back to pre-COVID levels because it was already eroding long term.”
In 2020, digital media grew about 13% year over year while linear declined by about 17%, leading to flat overall growth for the ad industry.
But because digital media is now the majority of ad spend and still growing organically, the ad industry will bounce back faster from the current recession than it did during the 2008-2009 recession.
“At the time, the advertising market was 90% linear media,” Letang said. “The decline of linear spend back then had been pretty similar to what we had last year, except there was no sizable digital advertising market to mitigate the decline.”
The brands come back
As the economy recovers, verticals including automotive, travel, drinks and movies will spend again after “heavy cuts last year,” Letang said.
Travel brands in particular, which generally spend the bulk of their budgets on digital and performance media, may need to invest in branding campaigns to boost consumer confidence and education around safe travel.
As for food and drink, the return of a full sports season and the summer Olympics will likely lead to increased spending.
The only vertical where growth is not guaranteed is retail, which is “still fundamentally faced with the brick-and-mortar crisis, rise of e-commerce and store closures in every segment,” Letang said.
“Even the economic recovery will not put an end to that.”