MAGNA GLOBAL ADVERTISING FORECAST – JUNE 2022

ADVERTISING MARKET KEEPS GROWING THROUGH ECONOMIC UNCERTAINTY

KEY FINDINGS

The summer update of MAGNA’s “Global Ad Forecast” predicts media owners advertising revenues will grow by +9% in 2022 to $816 billion. They will grow by +6% in 2023.

After a strong start of the year, advertising spending is slowing down amidst economic uncertainty, but organic and cyclical growth factors will support marketing activity and advertising demand.

Digital advertising sales will grow by +13% this year to reach 65% of total ad sales. Digital Video will be the fastest-growing ad format (+16%) followed by Search (+15%), and Social (+11%).

The advertising revenues of traditional media companies will grow in most media: Television and Audio (both +4%), Out-of-Home (+10%), while Print advertising will decline slightly (-3%).

Traditional media companies are deriving a growing percentage of advertising revenues from digital formats (AVOD, CTV, audio streaming, podcasting, etc). In some markets these are already contributing 10% of ad revenues in TV, 20% in audio media, and 50% in publishing, stabilizing revenues for publishers.

Television advertising suffers from rapid erosion of linear viewing, offset by growing AVOD revenues, strong pricing in the first half, and extra spending around cyclical events (mid-terms, Olympics, FIFA World Cup).

APAC advertising revenues will increase by +7% to $273bn, 35% above the pre-COVID spending level, driven by digital advertising growth (+12%).

The second largest ad market, China (15% of global advertising revenues), will grow below average (+8%) due to endemic difficulties (stricter regulatory environment for digital media, severe COVID lockdowns).

Among other top 15 advertising markets the strongest growth will come from India (+15%) and South Korea (+11%) while Germany (+6%) and Italy (+3%) will suffer the most from the post-Ukraine economic environment.

Vincent Létang, EVP, Global Market Research at MAGNA and author of the report, said:

“Most of the headwinds facing the advertising market this year were expected: economic landing following a red hot 2021, continued supply issues generating inflation, and mounting privacy restrictions slowing down the growth of digital ad formats. On top of that, the war In Ukraine now exacerbates inflation and economic uncertainty. Nevertheless, MAGNA believes full-year advertising revenues will grow again in 2022, helped by a strong start to the year, on top of organic and cyclical drivers.

Organic growth factors (continued and broad-based ecommerce spending, digital marketing adoption), strong cyclical drivers (record political spending in the U.S., Winter Olympics and FIFA World Cup), and the strength of emerging or recovering industry verticals (Travel, Entertainment, Betting, Technology) will generate enough marketing demand to offset headwinds and keep the advertising economy growing in full-year 2022.”

GLOBAL FORECAST: +9.2%

Globally, media owners’ advertising revenues will grow by +9.2% this year to nearly $828 billion i.e. 32% above the pre-COVID level of 2019. MAGNA was always expecting the global advertising market to slow down significantly in 2022 following the unprecedented levels of growth observed in 2021 (Global +23%, U.S. +26%) caused by a once-in-a-lifetime “planetary alignment” of factors: the V-shaped economic recovery and the marketing consequences of post-COVID lifestyles. Still, in its December 2021 update, MAGNA was expecting +12% for global, all-media advertising revenues in 2022. The reduction of our forecast from +12% to +9% is due to two main headwinds: a global economic slowdown since 2Q (full-year real GDP growth +3.6% according to IMF compared to +4.9% six months ago), and the mounting restrictions to data-driven targeting affecting digital advertising sales (e.g. the impact Apple iOS changes have had on display and social ad formats).

Nevertheless +9% in 2022 would remain above pre-COVID growth rates (average 2015-2019: +7%). The economic slowdown will really start to affect ad markets in 2Q and 3Q and MAGNA anticipates lower growth over the period 2Q-4Q, as well as throughout 2023. Nevertheless, the full-year 2022 forecast downgrade would have been much steeper if not for a stronger-than-expected first quarter recorded in most markets (+14% in the U.S.). Growth expectations would also be lower if not for the strong cyclical factors of 2022: the U.S. mid-term election (bringing almost $7 billion to local TV stations and digital media), and two global sports events: the Beijing Winter Olympics and FIFA World Cup (Qatar, November). Without cyclical ad dollars, television revenue growth would be below +2% instead of growing by +4% this year.

Offsetting the effect of a weaker economic environment, organic drivers continue to fuel marketing activity and advertising spending. Among these: the competition between brands to gain leadership in new, fast-growing product verticals driven by lifestyle or regulatory changes (e.g. sports betting, food apps, direct-to-consumer disrupters), and the growing adoption of digital advertising by both local businesses and consumer brands, often at the expense of “below-the-line” marketing channels. Most industry verticals are expected to stabilize or increase ad spend this year. Travel, Entertainment, Betting, and Technology are expected to grow the most, while Automotive and CPG/FMCG budgets may be under pressure due to supply chain and cost issues.

Around an average growth rate of +9%, MAGNA anticipates North America to grow the most (+11%) followed by LATAM (+10%), APAC (+8%) and EMEA (+7.5%).

The EMEA economy and ad markets will slow down more than other regions in 2022 because of the impact of the Ukraine war on trade and energy costs and energy supply (40% of natural gas consumed in Western Europe comes from Russia). Additional headwinds include supply chain issues and the slowdown in Chinese imports, hurting manufacturing industries, typically in Germany, or the food and luxury industries in France or Italy. In April 2022, the IMF published real GDP forecasts between +2% and +3% for most of Europe (with Spain and UK slightly higher), i.e., 1 to 2% below the IMF forecasts in October 2021, and significantly below the global average (estimated at +3.6% at the time). Finally, most European economies and ad markets are mature, with all consumer brands and many SMBs already using the full palette of advertising formats, including digital formats and programmatic technologies. Marketing activity and ad spending are therefore more vulnerable to economic slowdown than in emerging regions that are driven by organic growth in media usage and marketing usage. The U.S. ad market (40% of the global advertising revenues) will grow above average (+11% to $326 billion) as it is relatively insulated from the economic consequences of the Ukraine war and boosted by record political advertising. The second largest ad market, China (15% of global advertising revenues) will grow below average (+8%) due to endemic headwinds: stricter and less predictable regulatory environment for digital media giants, severe COVID lockdowns under the “zero COVID” policy. Among other top 15 advertising markets the strongest growth forecast comes from India (+15%) and South Korea (+11%) while Germany and Sweden (both +6%), and Italy (+3%), will suffer the most in the post-Ukraine economic environment.

OUTLOOK BY MEDIA: THE DIGITAL LANDING

Advertising revenues from traditional media owners (TV, radio, OOH, print, cinema) will grow by nearly +4% to $282 billion i.e. 94% of the pre-COVID market size (2019). Out-of-home will perform best with advertising revenues growing by +10% to $30 billion (already 93% of 2019 levels), followed by Audio and Television (both +4%) and Publishing (-3%). Without cyclical ad dollars, traditional media revenues would grow by +2.3% instead of +3.6% this year. Traditional media companies are deriving a growing percentage of their advertising revenues from digital formats: in some markets AVOD streaming and podcasting are already contributing to 10% of ad revenues in television, 20% in audio media, 50% in publishing.

Television continues to suffer from erosion of linear reach and viewing: -5% to -10% per year among adults under 50, -2% to -3%. This is however offset by three drivers: (1) growing AVOD revenues (+10% to +15% this year), (2) double-digit inflation in cost-per-thousand pricing so far this year, and (3) incremental ad spend around cyclical events (mid-terms and Winter Olympics in the US, FIFA World Cup). Without cyclical dollars, television ad sales would grow by +1.6% this year, instead of +3.9%.

OOH is expected to grow by double-digits for the second year (2021: +12%, 2022: +10%, following a -25% decline in 2020) which brings it close to the pre-COVID market levels. MAGNA anticipates OOH to complete the “COVID recovery” as early as this year in the U.S., although it will take one or two more years at a global level. The OOH medium benefits from the recovery of consumer spending, and a positive industry exposure (Entertainment, Betting, Travel). The OOH industry is also reaping the benefits of its investment in technology and innovation over the last ten years; as digital OOH units reach critical mass (25% of total OOH ad sales) and omnichannel programmatic platforms can now include connected OOH screens in cross-media campaigns, OOH can tap into new and more vertical opportunities (CPG, Pharma, Retail).

Revenues from digital advertising formats (search, social, video, banners, digital audio) will reach $534 billion this year (+13%). Digital formats now represent 65% of total advertising sales worldwide. Search will remain the largest advertising format ($265 billion), ahead of Social (+11% to $158 billion), while Digital Video formats will be the most dynamic (+16% to $68 billion). All the same long-term drivers of digital advertising spending growth are in place, with consumers streaming more, spending online via ecommerce channels, and engaging with more digital media while working from home. However, there are also new headwinds, including broader economic and inflationary pressure, as well as the impact of Apple’s iOS privacy changes and impending future data collection changes that are offsetting some of that organic strength. As a result, the mix of digital spending will shift slightly in 2022 and beyond, away from social media and towards keyword formats and other campaign strategies that can directly attribute advertising spending to sales.

Digital video will be the most dynamic format in 2022 (+16% to $68 billion), reflecting the continued shift of viewing away from linear TV and towards on-demand, addressable platforms (mobile devices and, increasingly, connected TV). Long-form VOD has been mostly subscription-centric for the first ten years, but as SVOD subscription are approaching saturation, big SVOD players like Disney+ and Netflix are considering introducing cheaper, ad-supported tiers, which would bring more ad budget into digital video looking forward. Search will remain robust (+15% to $265 billion) as consumers continue to spend online, and because keyword formats are insulated from data privacy headwinds. Social media advertising sales will strongly decelerate this year to the slowest pace on record: +11% to $158 billion. This abrupt slowdown reflects difficulties attributing social platform spending to consumer purchases outside the social network walled gardens. Social’s mild slowdown will persist until in-app social commerce products are rolled out to again provide social campaigns with perfect visibility on consumer purchases.

Programmatic technologies, and audience targeting in general, remains the growth engine of many digital formats; programmatic advertising will continue to evolve as the privacy landscape matures. Changes in the data landscape moves budget from one digital format to another rather than away from digital campaigns entirely. Despite digital advertising’s slowdown in 2022, digital (and digital OOH) is still growing faster than every other format, as data and targeting help brands provide a more impactful advertising experience for consumers.

WHY SOCIAL ADVERTISING IS SUDDENLY STRUGGLING

MAGNA was always expecting social media advertising to decelerate in 2022 following explosive growth in 2021 (+36%). In the December 2021 update, MAGNA was predicting +18% in 2022 (half the growth of 2021). In this update we downgrade the 2020 growth forecast by seven percentage points to +11% – i.e. more than any other ad format. This is because social ad formats are hit by a combination of headwinds, with the last two in the list below being endemic/specific to the social ad format.

Client saturation. In advanced mature markets, the social media budgets of consumer brands have reached a scale where any further growth comes under more financial scrutiny and becomes more vulnerable to current or anticipated business outlook. In 2020-21, millions of small businesses kick-started social media marketing during and after COVID. This is still happening in 2022, but at a slower pace.

Audience saturation. Reach and time spent with social apps are nearly saturated in all advanced markets (Western World, China), and advertising growth in 2021 was almost entirely driven by pricing rather than volume. The plateauing in usage and ad impressions is increasingly clear this year, and incumbent players have reported declines in some mature markets.

Targeting Restrictions: Since Mid-2021 the new Apple policy allowed millions of social media app users to opt out from sharing their device IDs and therefore prevented them from being targeted based on their data. Furthermore, it was difficult to tell what products users exposed to social media campaigns were purchasing because of that advertising spending. The impact was gradual: it started to visibly affect attractiveness and ad sales around the end of 2021, particularly for Meta and Snap.

As a result, in a social media market that is growing by only +10% or less for the time being, the rise of Tiktok (already 10% market share in the U.S.) is an additional headwind for incumbent social platforms. Past a difficult 2022, when ad sales must compare with a 2021 year that was still mostly without targeting limitations, the market should stabilize or recover some strength. Additional privacy measures may come from Apple and Google in 2023 (nothing as detrimental as iOS14) but social media players will introduce other ways to become attractive again e.g. in-app social commerce, partnership with retail media networks etc.

APAC FORECAST: +8%

The Asia Pacific advertising economy will grow by +8% this year, following the 2021 rebound (+18%). In 2023, the Asia Pacific ad market will expand by +7%, slightly higher than the global average of +6% and in line with the pre-COVID long-term regional growth. Growth is powered by large markets such as China (+8% in 2022, +9% expected in 2023) and India (+15% in 2022, +16% expected in 2023). In 2023, APAC advertising revenues will increase by +7% to $273bn, 35% above the pre-COVID spending level, driven by digital advertising growth (+12%).

The experience of Asia Pacific with COVID throughout 2021 has been mixed. Many countries in Southeast Asia suffered their worst outbreaks in the last few months of 2021 into early 2022 (Thailand, Philippines, Vietnam, Indonesia), which have caused pullbacks on advertising activity. Vaccine rollouts are also mixed. China and Japan have vaccinated three quarters or more of their population, whereas India’s vaccination rate is lagging and only increasingly slowly. On the other hand the experience of COVID and a home-centric lifestyle have changed the consumer behavior towards more streaming, more Ecommerce, and more integration of digital platforms into day-to-day lives, driving digital advertising spending, much as it has in the US and Western Europe.

Asia Pacific advertising markets are also struggling with supply chain issues and inflation, much as many other parts of the world are. China has seen multiple lockdowns of major cities to date in 2022 as part of their zero-COVID policy, and as a result many goods that are exported from China as part of the production chain in APAC markets are lacking. Prices are up, squeezing consumer budgets, and this will have a negative impact on consumer activity in the second half of the year.

Linear advertising spending (Linear TV, Print, Radio, OOH) will grow by +2% in APAC this year. In 2023, media owners’ linear advertising revenues will begin its decay at a -2% decline to represent 30% of total advertiser budgets. The growth of linear format spending in 2022 and 2023 will not come close to offsetting the huge declines during the peak of the pandemic in 2020. At the end of this year, linear advertising revenues will still be just 88% of the pre-COVID total. In fact, despite the bounce-back in spend observed in 2021 and expected this year, linear advertising revenues remain on a long-term declining trajectory to reach 23% of the total advertiser budgets (compared to 46% in 2019) by 2026. For that reason, linear advertising revenues may never again reach the pre-COVID total of $92bn in APAC. By 2026, linear advertising revenues will stand at $74bn.

Digital advertising spending, on the other hand, continues to grow this year and will continue to take shares from linear formats. Digital advertiser revenues are up +12% this year, and will grow by another +12% in 2023, to represent 71% of total advertiser budgets. This is up from just 54% of total budgets pre-COVID in 2019. This is also higher than pre-COVID expectations, as consumer behavior changes are positive for digital advertising spending trajectories. Increased Ecommerce spending, and increased video streaming, will both result in a higher share of attention of ad revenues going to digital formats.

Social media will slow in APAC to +13%, compared to +30% in 2021. This is similar to many other regions, however, it’s less because of Facebook slowdowns, and more because of similar data regulations in China. Many of the largest platforms in China are unsure what new products or services are going to be permitted in a harsher regulatory environment.

The APAC advertising market is concentrated around the two largest markets China and Japan, combining to represent 71% of total regional ad spend and ad revenues. In 2022, the strongest growth in APAC will come from India (+15%), Malaysia (+13%), Pakistan (+12%), Philippines (+12%), and Singapore (+11%). No markets in APAC will decline in 2022.

In APAC (like everywhere else) digital advertising is powering total market growth. Digital advertising revenues are increasing by +12% this year and will increase by another +12% in 2023 to represent 71% of total advertiser budgets. Digital growth is primarily being driven from mobile advertising campaigns (+15% to nearly 82% of total digital budgets). By format, 2022’s growth will come from video (+14%), social (+13%), and search (+13%). In 2023, mobile advertising spending will again grow rapidly (+14% to 84% of total digital budgets), as will video (+15%), social media (+15%), and mobile devices (+14%). Smartphones are not just the dominant way that most consumers access the internet; in many APAC markets they are the only way most consumers access the internet. Because GDP per capita has only increased lately, many consumers skipped the desktop hardware generation and conduct their digital lives solely on their smartphones. Furthermore, in China, smartphones are more integrated into consumer lives than they are in almost every other market. Consumers regularly conduct not just their shopping and communications, but also their banking, insurance, and many work functions on their smartphones. By 2026, mobile advertising spending in APAC will represent 88% of total digital budgets.

In APAC, like in most global regions, lower funnel direct digital ad formats continue to perform better than upper funnel brand advertising-related formats. During COVID this was true because of the need to engage with consumers through Ecommerce. Following the crisis, these trends hold because digital consumption is even further integrated into consumer lives. Compared to pre-COVID totals, spending in 2023 on search (158% of pre-COVID total), and social (180% of pre-COVID total) will both be significantly higher than their pre-crisis counterparts. Banner display advertising, on the other hand (flat vs. pre-COVID total), will be struggling on a relative basis.

Television advertising spending will grow by +2% to reach $53.2bn, and it will start to decay by -3% in 2023 to reach 20% of total advertiser budgets. By the end of the year, television spending will represent just 94% of the 2019 pre-COVID total. Furthermore, linear television budgets will continue to shrink, and by 2026, they will represent just 23% of total advertising budgets in APAC. TV spending may get a small boost this year because of the Winter Olympics in Beijing. However, this is only stabilizing budgets for the year; television spending will resume its long-term decline starting in 2023, as consumer attention shifts away from linear television to digital media formats.

Print ad sales continue to shrink this year (-3%), and will shrink by -4% in 2023, representing just 5% of total advertiser budgets. Furthermore, spending on print will represent just 70% of the pre-COVID total in 2019 by the end of this year (2022). Print represents such a small portion of total spending, however (just 5% in APAC) that these declines do not have a huge impact on total regional growth. Many verticals or brands that might consider deeper print cuts have already cut print formats entirely from their media plans.

Radio ad sales will increase by +1% in 2023 to reach $4.9 billion, following 2022’s -3% decline. COVID has eroded the importance of radio in media plans because of fewer hours spent driving. As a result, radio will continue to decline slightly through 2026, shrinking to just under 2% of total budgets.

Out of home advertising will grow by +4% this year, and will grow by +3% in 2023 to represent 5% of total budgets. This will bring OOH spending back to 90% of the pre-COVID total. Cinema, however, fell significantly during COVID, bounced back by +24% in 2021, and is further expanding by +31% by the end of this year (2022). Growth will be +15% in 2023, but that still does not recover the losses from COVID.

One industry vertical that has been particularly hard-hit recently is the automotive vertical. COVID issues, combined with supply chain challenges particularly the shortage of semiconductor chips, has resulted in both decreased demand and lately significantly lower than usual production. APAC has one of the largest exposures to the auto vertical (9% of total ad spend pre-COVID). This is particularly strong in digital advertising, where automotive represents 13% of total ad spending. As a result, this will be a headwind to growth until automotive supply chain issues eases towards the end of the year.

Leigh Terry, CEO Mediabrands APAC commented:

“While some markets continued to bear the effect of mixed Covid impacts through-out 2021, the APAC region advertising revenues have continued to rise to +35% above pre-COVID spending levels. Not surprisingly this has been largely driven by digital advertising, as digital consumption is even further integrated into consumer day-to-day lives. APAC consumption is already more significantly skewed towards Ecommerce than it is in western markets. Giants like Alibaba, JD.com, Rakuten, and Pinduoduo, have grown to the point where shopping online is just as large as shopping in person, vs. ecommerce sales at an average market share of 20% of total retail sales in the West.”

Gurpreet Singh, Managing Director MAGNA APAC commented:

“Advertising spends in Asia Pacific are getting back on track after hitting negative growth in 2020 due to covid. Most of the APAC markets recovered the loss with double digit growth in 2021 over reduced 2020 base. This gap has largely been filled by massive growth in digital spends while spends on linear media have still not recovered back to pre-covid levels in most of the APAC markets. This year digital media is expected to hit the highest share of spends across the majority of APAC markets, including some of those markets which had been TV dominant until a couple of years back. Digital spends have grown much faster than all pre-covid predictions.”

CHINA

KEY FINDINGS

Chinese media owners advertising revenues are growing by +8% this year, following the strongest performance the year prior (+16%). This will bring the total ad market size to CNY 810 billion ($126 billion), as China remains the second largest market globally behind the United States.

Chinese GDP will increase this year by +4.4% on a real basis, down from 2021’s +8.1% performance.

Digital ad formats are seeing an increase in spending by +11% to reach CNY 652 billion ($101 billion) in 2022. This represents a huge 81% of total advertising budgets.

Linear advertising formats are shrinking by -3% this year, following 2021’s +5% growth. As linear advertising formats lose some of the spending gained in 2021, linear advertising revenues remain 18% smaller than the pre-COVID total.

Chinese media owners advertising revenues are growing by +8% this year, following 2021’s strong growth (+16%). This will bring the total ad market size to CNY 810 billion ($126 billion), as China remains the second largest market globally behind the United States. This is extremely impressive considering that China was also one of the most resilient markets during the COVID crisis, but it is below global growth (+9%) for the second consecutive year. This is mostly because Chinese digital media owners have been struggling to grow revenues at the same rate as their global counterparts in 2021 due to new government regulations.

Chinese economic output is struggling so far this year due to COVID. China has had more than 1 million COVID cases, and both Shanghai and Beijing have been locked down for significant portions of the year. Shenzhen and Guangzhou have also experienced cuts, and advertisers have been hesitant to spend due to lower output as well as uncertainty as a result. The reductions have impacted digital, broadcast, and outdoor media formats.

Chinese GDP will increase this year by +4.4% on a real basis, down from 2021’s +8.1% performance. In this environment, digital ad formats are seeing an increase in spending by +11% to reach CNY 652 billion ($101 billion) in 2022. This represents 81% of total advertising budgets, the second highest globally behind only the UK. Most of the growth is driven by advertising spending on video ad formats, which will increase by +13% to reach CNY 118 billion and represents 18% of total digital ad spending.

By format, Mobile is, by far, the largest segment, and represents 88% of total digital budgets in China. Search advertising spending will increase by +12% this year, driven by both core search engines and Ecommerce platforms. Because in China, the five digital media giants (Alibaba, Tencent, Baidu, Sina, and Sohu) together control more than 75% of total digital advertising revenues, digital growth trends in line with their performance. Digital advertising has slowed of late, however, because government regulations have cracked down on many aspects of the digital advertising ecosystem. Data collection regulations, new product regulations, as well as antitrust fines, have crimped the flexibility that big digital giants have. Furthermore, there is intense competition between different platforms, with the incumbent giants Baidu, Alibaba, and Tencent, increasingly competing with JD.com, Pinduoduo, and Bytedance.

Looking forward, MAGNA expects digital advertising to expand in 2023 (+12%) then spike downward at a gradual decline starting 2024 and beyond, as there is more uncertainty and incremental headwinds for Chinese digital advertising growth. Digital growth will be led by social media (+17% to reach 29% of digital budgets) and video (+15% to reach 19% of total digital budgets). Static banners will continue to decline by -4%, following this year’s -3% decline as they continue to lose share and favor with brands.

Linear advertising formats are shrinking by -3% this year, following 2021’s +5% growth. As linear advertising formats lose some of the spending gained in 2021, linear advertising revenues remain 18% smaller than the pre-COVID total. The television market is shrinking this year (-2%) compared to last year’s +3% growth, as it now represents 14% of total advertiser budgets. There was a boost in television spending from the Beijing Winter Olympics, which were held in February. However, the increased viewing for the Olympics was milder than expected, and isn’t sufficient to offset viewing trend declines in 2022. Looking forward to 2023, there will be a further decrease in TV spending by -3%, as consumption trends once again result in headwinds for TV spending. Print formats continue to decline (-11%) and now represent less than 1% of total budgets. Like most markets, budgets in China are concentrating around TV and digital spending. Radio advertising is shrinking by -10% this year. Finally, while cinema grew by a tremendous +253% in 2021, it is declining by -20% and will continue its negative growth until 2026.

In 2023, the Chinese market will grow by +9% to reach CNY 883bn ($137bn). Digital will drive the growth through the end of our forecast period. By 2026, digital advertising revenues will represent 88% of total brand budgets in China.