Global trends in the advertising industry Part I: Follow the money

Every once in a while, we here at 1plusX like to take a step back and look at the bigger trends that are shaping our industry. In this three-part instalment, we are taking a closer look at three topics that we feel are going to have a huge impact, in 2018 and beyond.

• Part I: Follow the money — global advertising spends and what they could mean
• Part II: Data as competitive advantage — new revenue streams from data and data through alliances
• Part III: The banner is dead — changing user behaviour towards digital advertisements

Globally, advertisers keep on spending more. From 2017 to 2019, 40 billion USD are expected to be added to the global ad spend, bringing the total spend to 231 billion USD in 2019. To bring this into perspective, 40 billion USD is roughly the expected Brexit divorce bill.

While overall ad spend is growing, the distribution to different channels is changing significantly. It should come as no surprise that offline channels are not adding to the growth. The share of ad spend on offline channels is certainly declining, however even in absolute terms offline ad spend is dropping fast.

Digital channels are definitely having a run and are projected to grow by 12.7% annually between 2015 and 2019, with digital advertising predicted to be on par with TV ad spend by 2019.

Taking a closer look at the digital ad spend it becomes clear that mobile is the driving force behind the growth in digital ad spend. In 2019, a staggering 70% of digital ad spend will come from mobile, which represents an annual growth of almost 29% between 2015 and 2019 (or +274.6% in total). In contrast, non-mobile ad spend is projected to contract by 5.7% per year in the same period (or -21.6% in total).

While the growth in digital ad spend is definitely good for the industry as a whole, the benefits have largely gone to a select few companies. In 2016, 50% of digital ad spend was captured by Google and Facebook.

Looking forward, the dominant position of Google and Facebook is only going to strengthen given the growth around mobile, a channel where next-generation media companies (Google, Facebook, Instagram, Snapchat etc.) have been winning over traditional media companies.

TV is however an area where traditional media companies are still winning, and it is a very large part of the global ad spend. While digital (non-TV) advertising has become highly personalised and measurable, TV advertisement has not materially changed in the last decade.

With most households on digital TV systems (e.g. Western Europe had a 68% share of digital TV in 2017), we see a huge opportunity for broadcasters to “invent” the next generation TV advertisement products by deploying data driven strategies.

Summary

• Global ad spend is growing in absolute terms
• The growth comes mostly from digital and to a smaller extend from TV; offline is declining in absolute terms
• TV and digital are on par in terms of ad spend
• Growth within digital coming from mobile; non-mobile declining in absolute terms
• Digital ad spend concentrated around Google and Facebook, also due to dominance in mobile where no traditional media company is winning so far
• While most TVs on digital platform, TV ads still run like a decade ago
• “Next gen” TV ads huge opportunity for broadcasters

Our take on it

Following the money means having a mobile strategy. Mobile is where the growth in ad spend is happening. Google and even more so Facebook have a very strong mobile strategy. That is why they can capture a large part of the mobile ad spend growth, while the traditional publishing companies are missing out. To us, it looks like traditional publishing companies need to aggressively invest in their mobile offering to earn their share of the mobile ad spend. Leaving mobile to the next-generation media companies is not an option given the decline of the non-mobile segment.

At the same time, broadcasters need to protect their market shares from Google, Netflix et al. While traditional media companies have already lost in digital and are now fighting to reclaim what was once theirs, TV is still dominated by broadcasters. However, they need to fight to protect the status quo. The delivery of TV content and TV ads has not materially changed in the last decade. Broadcasters need to innovate to keep users from switching to next-generation video content offerings. This revolves a lot around becoming much more data driven, e.g. data driven content creation à la Netflix or data driven content recommendations and ad delivery à la YouTube.

Sources
McKinsey & Company, Global Media Report (2015), link
eMarketer, Mobile Internet Ad Spending Worldwide (2015), link
Digital TV Research, Digital TV Western Europe (2015)