The political earthquake in advertising
In 2010, a landmark US Supreme Court decision declared that no limits could be placed on political contributions for corporations and other organizations. As a result, a virtual tsunami of political dollars have swamped US media markets to the point that spending on US elections accounts for 1.5 percent of all global advertising in even numbered years.
Why even numbered years? That’s when the US holds elections for the presidency and Congress. As a result, US advertising numbers exhibit a strange yo-yo effect unseen elsewhere in the world. In even numbered years, growth rates accelerate, while in odd numbered ones, they decline. In 2015, for example, the growth rate was only 2.6 percent, and then it ballooned to 7.9 percent in 2016, before dropping back to 4.2 percent in 2017.
The seesawing is even more pronounced in so-called “battleground” states and districts, where neither major political party has an advantage. In such areas, political media buyers generally crowd out all players in local inventory, resulting in a viewing and listening experience best described as “all politics; all the time.”
In its annual This Year Next Year survey, GroupM had traditionally left out political advertising, but this year it has instituted big changes in what it counts and why. The main reason is brand advertisers compete with political ones and need to invest their dollars effectively. And, frankly, the phenomenon is just too big to ignore.
Another major shaping force in US advertising spending is inventory. Marketers typically look at media spending from the perspective of an individual brand. Each brand allocates a certain amount of investment to different media: so much for print, so much for digital, and so on. When taken to its extreme, we often hear talk of “dollars shifting from traditional media to digital.”
But advertising is not a zero-sum game in which one side necessarily wins and the other side loses. For example, while TV’s share of advertising spend globally has been decreasing, its actual numbers are relatively flat or rising on an inflation-adjusted basis. While print and magazine revenue is certainly declining, their pain does not account for the outsized increase in spending on digital. For example, in 2020, all print media revenue in the US is expected to decline by around $2.3 billion. Digital, on the other hand, is expected to rise by $17.6 billion.
A lot of digital’s gain, in fact, comes from its limitless inventory and changes in who can advertise and to whom. The market is adding new players and dollars far more than it is taking budget from existing ones. For example, local companies can now easily expand their reach through platforms like Etsy or Amazon Fulfillment, giving them much more incentive to advertise to a broader audience. We also have digital-native companies, like Booking.com, which accounts for nearly $5 billion in advertising spending per year—much of it based on performance marketing that drives more predictable business results.
When looking at where marketers are making investments, TV advertising has largely been stable and even slightly growing in the US. This is not necessarily a sign of its popularity with brands, but rather with politicians and the various organization supporting them. On the brand side, traditional TV advertisers—and especially FMCG brands—are under pressure for a variety of reasons. As a result, if you leave out politics, TV ad revenue is expected to decline a modest 2.3 percent in 2020.
Digital, meanwhile, continues its torrid pace of growth in the country. In 2020, it is expected to grow a massive 16.2 percent. This reflects not merely a shift to where people are increasingly spending their time, but also a growing confidence in performance marketing, as well as the new opportunities and business models it affords. If spending produces predictable ROI for a brand, you can always expect more spending to follow.
We are also seeing the emergence of digitally native brands as massive advertisers in their own rights. Google, Facebook, Netflix, Amazon, Expedia, Uber, and Booking.com all spent more than a billion dollars each globally, with likely somewhere near half of that in the US. Each invests heavily (and in some cases almost exclusively) in performance-driven advertising.
Meanwhile print media continues to decline both in absolute terms and relative to the industry as a whole. Even though publishers’ numbers include both offline and online revenue, newspaper ad revenue is expected to fall 8.6 percent in 2020. Magazines likewise will decline 10.5 percent, with each now accounting for less than 5 percent of total advertising spending.
Radio and out-of-home, meanwhile, have remained largely insulated from the broader changes in the industry. People still turn on the car radio as they drive to work, listening either over the airwaves or via services like Spotify and Pandora. Because of this radio’s share of advertising is thus expected to remain essentially flat in 2020.
When it comes to the world of out-of-home, America is an odd case globally. While people overseas may get the wrong impression from images of Times Square or the faded and much photographed billboards along Route 66, US advertisers spend roughly half what their peers do globally on out-of-home. But thanks to a growing number of outdoor screens, this sector is expected to expand 8.1 percent in 2020 and make up 3.5 percent of total spending.
Overall, the advertising market in the United States is healthy and growing much faster than inflation, with an expected jump of 8.2 percent to $241 billion in 2020.
Source for all of the below: This Year Next Year, 2019, GroupM
Ad spend by medium – the last five years
WAYS TO WIN
In the past few years, advertisers have increasingly talked about choosing between brand and performance strategies. The idea is that they face a Sophie’s choice between following their emotions and building wonderful brands or relying on rational science to drive results. Increasingly, however, many in the performance business are calling for a renewed interest in brand investment. The reason? They think, quite correctly, that performance only works if a brand has the salience needed to dominate an ever more crowded shelf. Just as an increase in digital advertising dollars does not necessarily come at the expense of other media, so to performance—which has predictable ROI—does not have to come at the expense of brand. As a result, a new set of balanced strategies are emerging, in which marketers are using advanced targeting and technology to drive results, while keeping their minds open for the kinds of emotional connections that drive up share of mind and brand contribution.
THEORY IN ACTION
Booking.com, perhaps more than any other company, shows how you can use the new media landscape to drive business. Last year, the Norwalk, CT company spent nearly $5 billion in advertising, primarily on Google.com. While technically, it is doing performance marketing not brand building, sometimes quantity has a quality all its own. So ubiquitous are ads from Booking.com and its local properties (in the US, that primarily means Kayak and Priceline) that they have become incredibly salient in consumers’ minds. But Booking.com may soon become a poster child for another major issue facing marketers today. Because the brand relies so heavily on Google for placing its ads (by some estimates, it accounts for 3.6 percent of Google’s revenue), it is at risk not that its host has launched its own travel offerings. Will Google succeed in supplanting its Booking.com cash cow with its own higher value service—or will Booking.com use its superior offering to turn back its partner and competitor? No one can be sure, but the situation will certainly make for interesting viewing.