U.S. adspend to grow to 3.6% in 2012

Given the current economic conditions and expected ad market, ZenithOptimedia is projecting a 3.6% increase in ad spending for 2012. As we move further past the recession, they expect increases of 3.8% in 2013 and 4.7% in 2014, largely on account of increases in internet spending, primarily mobile and social networking.

ZO continues to see TV dollars moving from network to cable, and this trend will likely continue as cable networks continue to add quality programming to their line-ups.

ZO estimates the largest increases in spend for 2012 are in internet (17.9%) and cable TV (10.0%). ZO expects to see ad expenditure decreases in 2012 for newspapers (-8.0%), magazines (-3.0%), network TV (-1.0%) and syndication (-12.0%). Marketing services are expected to grow 2.9% in 2012.

Radio

Looking ahead, they expect to see slight increases in network radio of 3.0%, 2.0% and 1.0% in 2012, 2013 and 2014, respectively, with a resurgence in the retail field.

Radio continues to be the choice medium of retailers, seasonal products and automotive, providing heavy frequency and drive to retail messages. Spring and summer bring key sporting events, which generate strong listener interest in baseball, college football and NFL.

Network TV

While video viewing on the internet and mobile devices is up, Americans are still spending the majority of time watching traditional television. According to the Nielsen Q4 2011 Cross Platform Report, the average American watches nearly five hours of video each day, 98.0% of which is watched via a traditional TV set. Watching live or time-shifted viewing accounts for 33 hours per week of activity on the TV set, down 0.5% from a year ago. The increase in time-shifted viewing (+12.3% year-on-year in time spent) has offset declines seen in live viewing.

Network TV spend is expected to decrease 1.0% in 2012, while spend in 2013 and 2014 is expected to decline by 2.5% and 3.0% respectively. With the Olympics taking place in London, the time difference will mean fewer events airing live than there were for the Vancouver Olympics. NBC Sports Chief Mark Lazarus has already promised that more events will be aired live rather than saving the best for tape-delayed coverage in primetime, which is what NBC has done in the past. Therefore, more viewers are expected to tune in online to watch their favorite events rather than wait to watch prerecorded versions. Also, with Comcast-owned sports networks now under the NBCU umbrella, more Olympics coverage will be airing on the rebranded NBC Sports Network, said ZO.

Another factor continuing to affect network TV spend, is the shift of BCS college football bowl games and NCAA men’s basketball programming from broadcast to cable, which took place in 2011. As a result of this shift, which is contracted through 2014, a reallocation of ad dollars took place within the pharmaceutical, financial and CPG industries, and those dollars do not look to be coming back to network TV.

Buyers expect the upfront to be less robust this year. Part of this is on account of there being no fear of an NFL lockout, as there was last year. Also, the European economic crisis has created macro uncertainty. Negotiations are not expected to close as quickly as they did last year.

NBC has confirmed renewals of current series; Monday night’s Smash will be back for a second season, while anchor, The Voice, will return in the fall, in hopes of bringing more stability to the network in the first half of the season. Grimm has also been picked up for a second season. For the 2012-2013 season NBC will be introducing six new dramas and six new comedies. NBC confirmed that the seventh season of 30 Rock will be its last.

ABC has several key themes the network is looking to capture in the upcoming slate. Continuing to define the ABC brand with content that is upscale and “smart with heart,” the network’s new focus is to reach Gen-Xers and Millennials, while also representing more multi-cultural storylines. ABC believes that viewers, and specifically families, are looking for cinematic experiences with entertainment. ABC’s picked-up series consist of four comedies and six dramas.

With the continued success of CBS in primetime during the 2011/2012 season, there are very few holes to fill on its schedule in the upcoming year. The Eye network rolled out five new series this past season with only one, How to Be a Gentleman, receiving the axe. The rest of the schedule remained strong, despite the presence of numerous aging series.

FOX’s comedy agenda is a big initiative for the network next year. With the success of New Girl, FOX plans to premiere three new comedies, pairing them with current programs (Glee, Raising Hope and New Girl). A focus on young ensemble casts and family relationships has spearheaded much of comedy development. FOX also picked up two new dramas.

The largest spenders in network TV continue to be automotive, QSRs, pharmaceutical and telecoms, according to a recent Nielsen report. Based on the year-to-date double-digit increases in light vehicle sales, auto advertising will likely be a key driver in this year’s upfront.

Cable TV

Cable networks will continue to build momentum—especially those seen as alternatives to broadcast prime (USA, TBS, TNT, FX). Zenith anticipates strong cable spending going forward, with increases of 10.0% in 2012, 10.5% in 2013 and 11.0% in 2014. Cable now draws a larger percentage of ad dollars than network TV, accounting for 12.6% of total advertising spend and 33.0% of total TV spend. ZO forecasts that cable will account for 14.2% of total ad spend and 37.5% of TV spend by 2014.

New and rebranded cable networks are on the rise in 2012. Sean “Diddy” Combs plans to launch an urban music-themed cable network, Revolt, in December 2012. The Disney Junior Network, which replaced Soapnet on most cable providers, began airing on March 23, 2012. In an effort to revive a network, NBCU recently rebranded Versus as the NBC Sports Network, which will have a focus on professional hockey and soccer. It can be expected that NBC Sports Network will air a significant portion of the 2012 Olympic Games, which will take place this summer.

In March, NBCUniversal exercised an option to sell a substantial portion of its stake in A&E Television Networks to joint-venture partners. The transaction, which Comcast expects to close in the second half of the year, is worth about $2 billion. Comcast owns 15.8% of A&E, while Disney owns 42.1%, and Hearst Corp. owns 42.2%. A&E consists of several channels including A&E, The History Channel, The Biography Channel and Lifetime.

Discovery Communication’s OWN (Oprah Winfrey Network) has underperformed expectations, and projections of losses for the company are in the range of $330 million. OWN has already reduced its staff by at least 30 and it cancelled The Rosie Show, aiming to save as much as $50 million in 2012. A new contract with Comcast should allow OWN to start recording profits in 2013. While OWN still has time to recover, the prospects are looking murkier for the cable network.

Cable networks are taking the lead in terms of using social media and other digital media to reinforce programming. Viewers seem to respond particularly well to network events. USA recently partnered with Viggie, a social TV service that rewards viewers for watching programs, for a live event that took place during USA’s broadcast of To Kill a Mockingbird. During the program, Viggie check-ins doubled and half of Viggie users took polls. As advertisers seek more ways to engage their fragmented, multitasking audience, they expect to see more social TV events taking place in the future.

Cable networks are also experimenting with using multiplatform content to create engagement. During Bravo’s latest season of Top Chef, the cable network launched an original internet series Top Chef: Last Chance Kitchen, as well as a fan favorite contest and an active social media campaign. Over a quarter of the television Top Chef audience watched the internet series, resulting in 8 million live streams.

Gamification for adult shows has gained traction as more viewers are multitasking with internet-enabled devices while watching television. AMC’s The Walking Dead Social Game, which allows fans into the world of the show, is an example of a tie-in game that was well-received by viewers.

Spot TV

The 2012 marketplace recognized increases in several key categories, which we expect to be carried on annually with increases of 8.0%, 3.0% and 4.0% for 2012, 2013 and 2014, respectively.

The 2012 spot TV market place is extremely volatile with the Presidential election at hand. Primaries will be pivotal for candidates and the introduction of the Super Pac has brought political spending to new heights. This category is not classified as “political” on a stations rate card and pays top dollar to be on air. To add to the frenzy will be the Olympics in August, which will bring new and returning business to the local markets. Even when the economy was at soft points in 2010, political dollars drove market pricing.

The automotive category is coming back very strong on both the foreign and domestic front, with tier I, tier II and now tier III local dealer advertisers spending heavily. There is a strong appetite among consumers for new vehicles, with many holding off coming out of the recession, and automakers are offering deals and incentives to entice these consumers. Local dealer advertising was the number one spender in 2007 for many markets; this category coming back is making a strong impact on local inventory in markets.

Syndicated TV

Syndicated spending in 2012 is expected to decrease 12.0%, followed by decreases of 10.5% in 2013 and 11.0% in 2014.

Comedies continue to dominate the syndication landscape, claiming the majority of top-rated programs in syndication so far this season. Newcomer, The Big Bang Theory, continues to thrive in syndication, improving viewership by at least 24.0% with every measured target from its performance in Q4 2011, and ranking as the top rated syndicated series with the majority of monitored demographics, including A18-49 and W25-54. However, long time staple, Wheel of Fortune, delivered the largest overall audience across all syndicated properties so far this season.

Following Oprah Winfrey’s departure from the syndication arena, the majority of talk shows experienced ratings growth or remained steady from last year, with Dr. Phil, Dr. Oz, Live! With Kelly and The Nate Berkus Show all posting increases with nearly all monitored demographics.

Katie Couric’s highly anticipated nationally syndicated talk show, Katie, has already been cleared in 93% of the country. Katie will premiere on leading stations across the country in September 2012. Disney hopes Katie will become the new Oprah when it debuts in the fall of 2012. Queen Latifah will also be the host of her own syndicated talk show. The yet-to-be-titled show is being developed for fall 2013. This will not be the star’s first foray into hosting a talk show; The Queen Latifah Show ran in syndication from 1999 to 2001.

Internet

The internet will continue to drive total ad growth in the US. Zenith predicts total internet ad spending to grow at a rate of 17.9% in 2012, 18.3% in 2013 and 18.3% in 2014. Internet’s share of total advertising will increase from 19.2% in 2012 to 24.7% in 2014.

Online video (OLV) is expected to draw an increasing percentage of internet ad dollars through 2014. In 2012 OLV will account for 13.2% of internet spending. In 2014 this is expected to increase to 15.3%. OLV continues to gain traction with viewers, with online video viewers now accounting for 83.5% of the total internet population (P2+), according to comScore. Per comScore, in March 2012 the average active viewer (P2+) spent 41 minutes a day with OLV. This is an enormous increase from only a year ago, when the average active viewer spent 29 minutes a day with OLV. In addition to watching more online video, users are watching more ads than ever. Per comScore, ads accounted for 12.7% of online videos in March 2011; in March 2012 they accounted for 18.5%. Key OLV video demos consist of younger viewers. Per comScore, OLV penetration is highest for A18-24, with 89.8% of internet users in this demo viewing OLV in the past month. Major services such as YouTube, Hulu and VEVO have built brands around specific types of content; respectively, user-generated clips, full-length TV shows/movies and music videos. These sites will continue to attract sizeable audiences, and such premium content will entice advertisers; however, there continue to be challenges, including a lack of standardization in ad types and cost structures, fragmentation of content, potential consumer dissatisfaction over the cost of video services, and the ever-present threat of digital piracy. Zenith expects OLV spend to increase 29.0% in 2012, 28.0% in 2013 and 27.0% in 2014.

Online display advertising will continue to grow as software makers invest more spend in innovating display ads to compete with the likes of Google and Facebook. Although banner ads have become the old-fashioned form of internet advertising, they still drive a lot of revenue and account for 16.9% of all advertising spending, second only to search in terms of internet share. This will change by 2014. Although display advertising will continue to grow, it will be at a lesser pace than social media and online video, both of which are expected to surpass display by 2014. We forecast display increases of 11.0%, 10.0% and 10.0% for 2012, 2013 and 2014.

The social media space continues to grow, and advertisers see these communities as a way to build brand awareness and purchase consideration. Total social media advertising is expected to increase 37.0% in 2012, 35.0% in 2013 and 35.0% in 2014. The big three social networks (Facebook, Twitter and YouTube) are all building platforms that are attractive to small businesses as well as Fortune 500 companies. Facebook continues to be the dominant player in the social media space. According to comScore, Facebook now reaches 70.9% of the US internet population (P2+) and it accounts for 33.1% of total internet visits. It reaches 84.9% of A18-34. Per eMarketer, Facebook is expected to take in approximately three-quarters of all social media ad revenues, mostly in the form of display ads. Other social networks, such as Twitter and LinkedIn, will see faster growth in ad revenues over the next few years, but they will still lag far behind Facebook in terms of total revenues. These sites are already seeing faster growth than Facebook, as Facebook’s market is becoming saturated. According to comScore data, while unique visitors (UVs) increased only 0.9% for Facebook from May 2011 to April 2012, UVs increased 50.0% for Twitter, 119.8% for Tumblr and a whopping 4,725.7% for Pinterest.

Facebook’s initial public offering (IPO), which began trading in mid-May, will give Facebook even more resources that could dramatically reshape the social media space. The price per share of Facebook’s IPO has already increased from the initial offering of U$28 to U$35 a share to U$34 to U$38 a share. To keep investors happy, Facebook will rely, at least in the near future, on advertising. Per eMarketer, both CPMs and CPCs increased for Facebook from the first quarter of 2011 through the fourth quarter. In 2011, 85.0% of Facebook’s revenues came from advertising. Facebook hopes to retain advertisers and entice new ones by introducing new apps to compete with Google. Facebook is already pushing non-standard advertising formats, such as its Sponsored Stories. Twitter has followed Facebook’s lead with Promoted Tweets. Social media ads are expected to increase in price based on current patterns, the influx of new advertisers, new creative formats and improved targeting.

2012 should expect an even bigger bump in social media spending with the Presidential Election. Since 2008, most politicians have embraced social media and expect to use it heavily during the campaign process. A significant increase is expected in overall campaign ad spending. Political media spending for the midterm 2010 election broke a number of records, according to eMarketer. The final tally hit an all-time high of $4.55 billion, surpassing the 2008 presidential election by 8.0%. Younger consumers are using social media to aid in making political decisions. Per eMarketer, almost two-thirds of social networking users aged 18-34 expect to use social media to learn more about Presidential candidates for the 2012 election.

Zenith predicts that paid search spend will grow 15.0% in 2012, 15.0% in 2013, and 13.0% in 2014. ZO expects this paid search growth to be driven by three factors: (1) the engines providing advertisers with new opportunities to create richer, customized experiences for searchers, which will encourage advertisers to invest more brand marketing dollars in search; (2) the continuing growth of mobile; and (3) the continued growth of integrated four screen strategies, where content and media experiences are fluidly shared across desktop, television, smartphones and tablets. Impressions and clicks continue to grow quarter-over-quarter, while cost-per-clicks (CPCs) have dropped slightly over the past two quarters. The CPC drop is driven by the search engines providing advertisers with better optimization tools, which enable more relevant ads. More relevant ads have higher quality scores, and higher quality scores contribute to lower CPCs. Furthermore, mobile search (which has lower CPCs than computers) continues to take a larger piece of the overall search pie, thus causing lower overall CPCs.

Mobile paid search spend is now 15.0% of all paid search spend (versus only 5.0% in April 2011). Mobile paid search clicks are now a quarter of all paid search clicks. Smartphone and tablet CPCs continue to trend lower than desktop due to better targeting opportunities on mobile – especially for local searches – which increases relevancy. They believe that mobile paid search is currently an efficient buying opportunity for advertisers. However, they expect mobile CPCs to rise due to more competition as major shopping periods approach – starting with back-to-school and moving into holiday 2012.

Mobile devices are now so ubiquitous that the number of mobile device connections is larger than the population of the US. This includes mobile phones, mobile Wi-Fi hotspots, wireless enabled tablets, e-readers, netbooks and portable navigation devices. Mobile marketing will continue to grow, fuelled specifically by a vast market of apps, user-friendly browsers and 3G/4G speeds. Smartphone ownership comprises 36.6% of the total US population and 47.7% of all mobile phone users, according to eMarketer. With the increased adoption of smartphones, mobile internet users now total half of all US internet users. By 2016, this will grow to 75%. A25-34 have the highest smartphone penetration, according to eMarketer -63.8% in 2012, closely followed by A18-24, who have 60.9% penetration. Retailers realize that the mobile market will become increasingly important for their businesses. Shoppers use their mobile devices to look up facts, compare prices and even to purchase products, often while in the store. Apple’s App store has over 500,000 total apps, and Android’s Google Play has been catching up and now also has over 500,000 apps. Mobile advertisers are using these apps and becoming noticed. According to eMarketer, 89.0% of all smartphone users say they notice banner ads in apps. Mobile advertising is expected to have the highest growth of any medium; growth is expected to be 49.0% in 2012, 51.0% in 2013 and 51.0% in 2014.