Magna: TV Ad Spending to Drop 0.9% in 2017

After Olympics, demand remains strong, though viewer patterns cause concern
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Media buyer Magna Global sees national TV ad spending dropping 0.9% in 2017, following healthy growth in 2016 fueled by the Olympics and an election year.

Excluding the Olympics and politics, national TV would be up 0.7%. That compares to a 2.8% increase to $44 billion in 2016 including the Olympics and election year boost and a 1.1% gain excluding it.

Magna says demand for TV is strong, with 8% increases in advertising prices on a cost-per-thousand viewers (CPM) basis offsetting a 5% erosion in ratings.

The demand is coming from consumer packaged goods advertisers looking for the reach and sales impact “that national TV campaigns can measurably offer.”

More concerning is what Magna said was the trend of lower ratings for TV’s tentpole events, including the Olympics, NFL games and major awards ceremonies.

“Not only did audiences veer away from linear viewing on traditional platforms, but they start showing less interest for traditional television formats altogether,” the report from Magna said. “What most people consume on their computers, tablets or phone is often not the event’s simulcast or replay, but only the highlights. Instead of watching the full four hours of the Olympic ceremonies or the Super Bowl, they might watch ten minutes of highlights, reducing the opportunities for ad insertions.”

Local TV ad sales in 2017 are expected to fall 1.7% excluding politics and the Olympics and drop 12.2% if you include them. Local TV rose 11.3% to $23 billion counting political and the Olympics. Without political and the Olympics, local TV slipped 0.2%.

Vincent Letang, executive VP of global market intelligence at Magna, part of IPG’s Mediabrands unit, said it was too early to say what effect the election of Donald Trump as president would have on the ad market.

Letang said his forecasts were based on the outlook for economic growth from the Federal Reserve Bank of Philadelphia, which was put together before the election.

He said local advertising might benefit because a Democratic victory might have led to a change in the Citizens United decision, which basically allowed unlimited political ad spending. In the 2016 election, campaign spending grew but not as much as was expected.

But Letang added that some of Trump’s corporate tax plans include reducing the deductibility of some marketing and advertising expenses, which could affect spending.

Across all media in the U.S., advertising sales growth will decline to 3.6% in 2017 after a 6.9% gain to $180 billion in 2016. The 2016 increase was the biggest in 12 years. Without the $3.5 billion generated by political and the Olympics, 2016 growth would have been 5.1%.

Television, audio and print media are also generating on digital and mobile platforms. Adding digital revenue growth to linear increases TV’s growth in the U.S. to 6% annually through 2021.

Globally, Magna expects overall advertising sales growth in all media to slow to 3.6% in 2017, following a banner year in 2016 when ad sales jumped 5.7% to $493 billion powered by increases in social and search spending.

From 2016 through 2021, Magna projects advertising sales growing at a 4% annual rate.

The 5.7% growth for 2016 is the strongest in six years as periodic events including the U.S. elections, the Olympic Games, and the UEFA and Copa America soccer tournaments generated incremental ad revenue despite lower ratings on TV.

Linear TV advertising sales rose 4% to $185 billion in 2016 as CPMs rose 8%, offsetting lower ratings. In 2017, global linear TV ad spending will dip by 0.1%.

Digital ad sales were up 17% to $178 billion, while traditional, offline media were flat at $315 billion. Without the boost provided by the Olympics and elections, traditional media would have been down 2%.

Digital ad sales will top TV in 2017, capturing a market share of 40% at $202 billion, compared to linear TV, with a 36% share and $185 billion. Digital will continue to grow to $299 billion in 2021, while TV plateaus at $195 billion.

The vast majority of the growth came from search and social and went to two vendors, Google and Facebook, which together control 54% of the digital advertising market, up from 44% last year. Nearly all of the increase in digital ad revenue came from mobile advertising, with desktop ads flat. Mobile is expected to have a 52% share of digital advertising by the end of 2017, up from 35% in 2016.

The markets making the biggest contributions to growth in 2016 in dollar volume were the U.S., up 6.9%, China, up 7.2%, Australia, up 7.4% and the U.K. up 5.2%.

“Advertising sales were strong overall in 2016 and North America was the most dynamic region,” said Letang in the report. “The resurgence of television (+4%) did not come at the expense of digital (+17%). Both grew strongly this year because advertisers are funding social spend (+46%) and search spend (+17%) by reallocating below-the-line offline marketing budgets more than traditional branding mass media. At the same time, they had to face significant cost increases in television to maintain their share of voice and reach.”

(Photo via Pictures of Money's FlickrImage taken on Sept. 9, 2016 and used per Creative Commons 2.0 license. The photo was cropped to fit 3x4 aspect ratio.)

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