In the ever-evolving landscape of advertising, it is essential to stay up to date with the latest market trends and forecasts. One such authoritative source is MAGNA, the leading global media investment and intelligence company. In their recent US Ad Forecast for Fall 2023, they shed light on the recovery of digital advertising and its impact on the overall market.
The key findings of MAGNA's US Ad Forecast for Fall 2023 highlight the contrasting performance of digital media formats and traditional media companies. While total advertising spending experienced a re-acceleration of +4.4% year-over-year in the second quarter of 2023, only pure-play digital media vendors, including Search, Social, and Video, witnessed significant growth (+8.7% in 2Q23). On the other hand, traditional media companies continued to struggle with a decline of -4.1% in the same quarter.
The recovery in ad spend in 2Q23 can be attributed to a general improvement in the economy and easier year-over-year comparisons. Additionally, the better economic outlook and the continuous influx of retail media dollars into digital ad formats prompted MAGNA to raise its full-year, all-media ad spend forecast for 2023 by one percentage point, to +5.2%.
Looking ahead to 2024, MAGNA raises the ad spend forecast from +5.0% to +5.6% (+8.0% including cyclical spend). Digital media owners are projected to grow ad sales by +9.8% in the next year, while cyclical spending will help mitigate the erosion of non-cyclical ad sales for traditional media owners (-2.0% excluding cyclical, +4.3% including cyclical/political).
Vincent Létang, EVP Global Market Intelligence and author of the report, emphasizes the resilience of the media industry and the support of advertisers in driving brand growth and sales through media investment. As the US economy and advertising spending have been stronger than expected, MAGNA raises its full-year ad revenue growth forecast to +5.2% for 2023, amounting to $337 billion.
MAGNA's analysis of media companies' financial reports reveals that ad revenue and ad spend recovered in the second quarter of 2023. Advertising sales grew by +4.4% year-over-year, exceeding MAGNA's previous expectation of +3.6%. This growth comes after two quarters of stagnation (+1% year-over-year in 4Q22 and 1Q23). However, the recovery was primarily driven by pure-play digital media formats, such as Search, Commerce, Social, and Pureplay Short-Form Video, which experienced growth rates of +8.7% year-over-year in 2Q23, up from +5.6% in 1Q23 and +7.2% for 1H23.
In contrast, traditional media companies, including TV, radio, publishing, out-of-home, and cinema, struggled with eroding ad sales (-4.1% in 2Q23 after -6.0% in 1Q23). Social media formats saw a significant growth of almost +12% in the second quarter, compared to +7% in 1Q23 and nearly zero in the previous two quarters. Short-form digital video platforms, such as Youtube and Twitch, also experienced a resurgence with a growth rate of +7.5% in 2Q23, following a flat performance in 1Q23. Search and Commerce formats remained robust, driven by retail media activity, growing at almost +9%.
While digital media formats thrived, traditional media owners faced challenges as most ad formats continued to suffer declining sales. Cross-platform national TV ad sales and audio ad sales declined by -4% and -5% respectively. Publishing saw a significant decline of -7% in ad sales, while local TV experienced a decline of -5%. The only traditional media category that grew in the first half of 2023 was out-of-home (OOH) advertising, which saw a growth rate of +2.5% in the second quarter. Despite the growth of their digital formats, traditional media owners struggled to sustain or grow their ad revenues.
The improvement in advertising spending in 2Q23 can be attributed to a general improvement in the economy and easier year-over-year comparisons. Real GDP grew by +2.4% (annualized) in the second quarter, surpassing the +1% expected growth. Inflation continued to recede, with the core consumer inflation index dropping to +3.3% in August. Consumer confidence also showed gradual improvement, with an index of 70 in August compared to the index of 50 a year ago. Unemployment remained under 4%. However, one source of concern was the slowdown in retail sales, which declined by -0.6% year-over-year in June. This slowdown may lead some consumer brands to restrict marketing budgets and advertising spending. Despite this concern, MAGNA observed a strong dynamic in advertising spending from the travel, pharma, retail, and consumer packaged goods (CPG) sectors. The slowdown in inflation in recent months may explain the recovery in CPG brand business and marketing spending, following a difficult year in 2022 when high inflation impacted the sales of premium brands. Auto and entertainment brands experienced flat or slight growth in ad spend.
Finance and technology, two large verticals, witnessed a decline in ad spend compared to the previous year. It is important to note that these trends reflect total ad spend, including digital media formats. When analyzing traditional media spending only, most key verticals spent less than the previous year, except for travel and pharma, which are relatively smaller spending verticals.
With the improving economic outlook and easier year-over-year comparisons, MAGNA maintains its growth forecast for the second half of 2023. The forecast predicts a growth rate of +7% to +8% in the third and fourth quarters, bringing the full-year growth to +5.2% (excluding cyclical). This forecast represents an increase from the previous update in June 2023, which projected a growth rate of +4.2%.
MAGNA also raises the 2023 revenue forecast for digital media owners, such as Google, Meta, and Amazon, from +7.9% to +9.6%. However, the ad revenue expectation for traditional media owners in radio, television, publishing, and out-of-home advertising is downgraded from -3.2% to -3.6%. In 2023, digital pure players are expected to capture a record 69% of total ad spend, with the big three alone capturing 59%.
Looking ahead to 2024, MAGNA forecasts an increase in non-cyclical growth from +5.0% to +5.6%, driven by the easy year-over-year comparisons in the first half and the influx of retail media dollars into digital advertising. Pure-play digital media owners are projected to grow their ad sales by +9.8%, while traditional media owners are expected to experience a decline of -2.0%. Incorporating cyclical events, such as political ad spend and additional spending around the summer Olympics, the revenue forecast for traditional media owners is projected to reach +4.3%, and the total ad spend forecast is expected to reach +8.0% to $364 billion.
Digital media formats are expected to outperform traditional media types in the next 18 months, with high-single-digit or low double-digit growth rates. Social media formats and short-form digital video formats are finally recovering from the challenges faced in 2022, driven by modifications to privacy settings and the rise of short vertical video content. Social media formats are projected to grow ad revenues by +10.9%, while short-form video formats are expected to grow by +9.1%. However, MAGNA does not anticipate these formats to return to the +20% or +30% growth rates observed pre-COVID or in 2021.
Search and Commerce formats will continue to benefit from retail media activity, with retail media networks generating 30% of search advertising sales, including Amazon. Retail media activity is projected to grow by +22% in 2023 and +17% in 2024. Total search, including traditional search engines like Google, is expected to grow by +9.8% in 2024, reaching $143 billion.
Despite the growth of digital ad sales, most traditional media owners will continue to face stagnation or decline in their ad revenues. Non-cyclical linear ad sales for national TV are projected to decline by -3%, while local TV ad revenues are expected to grow by +28%, thanks to political demand and induced spot inflation. Other media types, such as digital audio formats (streaming and podcasting), are expected to offset the decline in broadcast radio, stabilizing total audio revenues. Out-of-home advertising is also projected to grow by +5% in 2024, while direct mail sales will decline by -4%.
MAGNA AD FORECAST – FALL 2023 UPDATE – KEY FIGURES
MAGNA's US Ad Forecast for Fall 2023 provides valuable insights into the recovery of digital advertising and the challenges faced by traditional media owners. As the economy improves, digital media formats are expected to thrive, while traditional media owners strive to adapt to changing consumer behavior and preferences. By staying informed about the latest market trends and forecasts, businesses can make strategic decisions to optimize their advertising investments and achieve maximum impact.
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