11 October 2012 - In its latest study of US Advertising Revenues released today, MAGNA GLOBAL reports that this year will break records in terms of political advertising spend. Total local television political advertising was $273.9 million in 2Q2012 with a growth rate of 29.8%, compared with the previous cycle (2010). The Presidential race between President Barack Obama and Governor Mitt Romney has been tight from the beginning, with both candidates focusing on nine key battleground states: Colorado, Florida, Iowa, North Carolina, New Hampshire, Ohio, Nevada, Virginia, and Wisconsin. In addition, House, Senate, Gubernatorial races and local ballots will contribute to the political advertising windfall in other markets. The 2012 election cycle will generate more than $2.7 billion of political advertising, up 30.4% from $2.1 billion in 2010, boosting media owners’ revenues, mainly in local television stations, with spillover in other media.
Vincent Letang, EVP, Director of Global Forecasting, said: “Without political ad spend, MAGNA believes that local television ad revenues would have been up 2% this year; with political effect, it will grow by an average 14%. The bonanza will be much bigger in Swing States”. Despite the rise of digital media, local TV remains essential in political marketing because only a “lean-back” medium can effectively reach the low-interest, undecided voters who, by definition, are less likely to seek information from “lean-forward” digital media or engage with digital campaigns. And of course local TV can surgically target swing States or counties.
The report also estimates that media owners advertising revenue growth (excluding Political & Olympics – P&O) was flat in the second quarter and grew 0.7% in the third quarter, following a relatively strong first quarter (+1.9%), reflecting a slow-down in the pace of economic recovery. MAGNA GLOBAL expects ad revenue growth to remain modest in 4Q12 (+1.2%), leading to full-year growth of 0.9% in 2012.
Excluding struggling direct marketing categories, core media owners advertising revenues (TV, internet, radio, newspapers, magazines and out-of-home) show a stronger growth of 2.6% to $149.8 billion. “Quadrennial” incremental ad revenues derived from political spending and the Olympics (“P&O”) have been up and above expectation, generating $3.4 billion of revenue for media owners. Including P&O, nominal growth will be +4.6% this year. This is a modest achievement in an election year. Eight years ago, in 2004, Olympics and Political drove the market to +7.1%. Four years ago, in 2008, P&O was not enough to rescue growth during the worst of the recession (-5.2%). Two years ago, mid-term elections contributed to ad revenue recovery (+6.2%).
The other “quadrennial” driver of 2012 lived up to expectations and beyond. The London Olympics was one of the most-watched event in US television history with 219.4 million viewers in total and an average of 29 million viewers per night. By comparison the two biggest sports nights year-to-date before the Games, NCAA Basketball and game 5 of the NBA Finals, had scored 21 and 18.6 million viewers, respectively. Viewing levels surpassed the Beijing ones in spite of tape delays (most Beijing events, by contrast, were live), partly due to cultural connection between the US and UK, as well as the strong performance of the American team. The Olympics not only lifted ratings and viewership for NBC local stations, but also impacted advertising revenues for other television networks and local stations. MAGNA believes the event generated $640 million dollars in incremental television advertising revenues, mainly impacting 3Q12.
In terms of media categories, television is expected to be a winner this year (+9.0% in revenues). It benefitted from incremental spend by Olympic advertisers and sponsors during the summer, and record political demand, crowding the market and generating cost inflation. Television also benefitted from its exposure to some well-oriented categories (automotive, restaurants, finance) in the first part of the year.
Print is suffering this year with newspaper revenues forecasted to drop -8.6% and magazines revenues by -7.5%. In both cases ad pages were down approximately 10% in the first half of the year. As expected, radio is having another flat year (-0.2%) with automotive ad spend growth offsetting losses in most other categories, while out-of-home revenues show a robust growth (+4.2%). But the biggest growth is once again coming from digital media: total internet revenues (search, display, mobile, video) are forecast to grow 12.8% this year.
2013 Slowing Down
Looking at 2013, US economic expectations have slightly deteriorated since our last update, but the US economy is still expected to grow in 2013, unlike Europe. The August update of Philadelphia Fed’s Survey of Professional Forecast reduced its 2013 forecast for real GDP growth by 0.6 pts from 2.7% to 2.1%. However the revision was much smaller in terms of nominal GDP, nominal personal consumption and industrial production, which, according to the MAGNA GLOBAL statistical model, are better predictors of advertising spending trends. On October 9, the IMF’s new prediction for 2013 real GDP growth was still in line with that 2.1% (down by a marginal 0.1 point), in contrast with the expectation for global output (a deterioration of 0.3 points), and for the euro area (a deterioration of 0.5 points).
In its July update, MAGNA GLOBAL was already betting on modest economic growth and an even smaller advertising growth for 2013 (+1.5% for total media, ex-P&O); we now marginally reduce the underlying growth expectation to +1.3% for total advertising revenues (including direct marketing). Reflecting the continuing difficulties of the direct marketing sector, we expect core media suppliers to get a larger slice of the pie and therefore to grow revenues by 2.8%, ex-P&O. Finally, factoring in the absence of Political and Olympic spending in 2013, the growth rate for core media advertising revenues is now set at 0.8% (previously 0.9%) to $154.4 billion.
Because P&O revenues in 2012 were particularly strong, and the non-political demand remains static, the odd-year “hangover” will be stronger than usual for television: we expect revenues to be down 1.4% to $63 billion. In the last odd year (2011), television revenues managed to grow by a modest 1.3%.
We are upgrading the expectation for digital media, to 11.7%. Driven by video (up 23% at $2.9 billion) and mobile advertising (+40% at $3.6 billion), total digital advertising will reach a market share of 26% (out of total core media) that remains at some distance from television leadership (41%) but nearly equivalent to the combined market shares of print and radio. Within digital revenues, the entire growth now comes from mobile, video or social segments. "Social" advertising already represents approximately 30% of online PC-based display advertising and that share is growing. Facebook recently opened up the FBX ad exchange, making it easier for agencies to buy on the platform. Taking into account all ad exchanges, MAGNA GLOBAL estimates that 17% of total online display was bought through programmatic trading this year and predicts that proportion to grow to 43% by 2017.
Commenting on display trends, Letang said: “Overall, online display advertising has been growing by only 1.8% this year, while the “social” revenues component has been growing 25% to reach two billion dollars, which means that revenues from other ‘traditional’ display subcategories (banners, rich media) are actually flat or shrinking, gradually losing out to new formats and losing pricing power”.
Newspapers and magazines will continue to lose market share to TV and digital media. Revenues from their core print assets will decrease by -7.4% and -7.1% respectively. Publishers now derive 15% of their total ad revenues from their digital activities – online, mobile - but those gains remain insufficient to offset the decrease in core ad sales. Magazine advertising is increasingly coming from a handful of “endemic” spending categories (personal care and beauty, over-the-counter drugs, fashion) that are not only maintaining but increasing their share of spend in the medium, while all other categories are diverting heavily to television and digital. This is maintaining the medium afloat in the short-term, especially as these categories have been well oriented recently, but this is also increasing the vulnerability of the publishing industry in the mid-term, particularly for some segments such as news.
Radio’s on-air advertising revenues will decline by -0.6% in 2013, although off-air and digital revenues may yet again provide some growth for publishers. Because radio relies so much on the automotive category, there is also a significant downward risk in the future. Finally we forecast out-of-home to grow by 3.9% to $7 billion. Driven by the digital conversion/upgrade in premium environments (malls, airports), OOH is gradually increasing a market share that is still low by international standards (4.5%).
About MAGNA GLOBAL
Magna Global is the strategic global media unit of IPG Mediabrands, comprised of two key divisions. Magna Global Intelligence has set the industry standard for more than 50 years by predicting the future of media value. Magna Global Intelligence produces more than 40 annual reports on audience trends, media spend and market demand, and ad effectiveness. Magna Global Investment harnesses the aggregate power of IPG media investments to create power and leverage in the market, drive savings and efficiencies, and ultimately make smarter, more effective media investments on behalf of our clients. For more information please follow @MAGNAGLOBAL.