The advertising recovery has continued to surprise on the upside, prompting ZenithOptimedia to upgrade its forecast for global ad growth this year from 3.5% to 4.8%. In fact, they’ve upgraded their forecasts for all regions in 2010. Forecasts for 2011 have increased from 4.5% to 4.6%, but this now represents a mild slowdown from the unexpectedly strong 2010. Advertising has shrunk as a proportion of world GDP from 0.88% in 2007 to 0.75% in 2010. They don’t expect this proportion to rise while debt, unemployment and austerity threaten the recovery. However, 2012 will be the strongest year of the upturn so far, with 5.4% growth, and growth rates of 6%+ are in prospect once advertisers regain confidence in the economy. Television and the internet did well in the downturn and will continue to win market share during the recovery. ZO predicts TV’s share to rise from 39.2% in 2009 to 41.6% in 2012, and the internet’s share to rise from 12.8% to 16.5% over the same period.
The US economy grew at an annualized rate of 1.6% in Q2; this marks the fourth straight quarter of positive growth, although growth has slowed considerably. The consumer confidence index, which had retreated in July, increased slightly in August. It now stands at 53.5, up from 50.4. The fall in consumer confidence was largely fuelled by mounting concerns over jobs and wages that threaten to constrain the economic recovery. Consumers’ short term outlook also deteriorated as well.
Given the current economic conditions, and ZO’s knowledge of advertiser plans for the upcoming season, they are projecting an overall increase for advertising in 2010 of 2.2%, a revision of their July forecast’s 1.1% increase. Although recovery has begun, the economy has still not returned to the level it was at before the recession, and neither has advertising spending. However, most of the large financial, retail and automotive spenders have returned to the marketplace.
ZO’s biggest decreases for 2010 remain in the local sector with declines for newspapers (-10.0%) and spot radio (-3.0%). Business magazine spending is also projected to fall -6.0% in 2010, while marketing services are expected to grow 1.0%. They are forecasting 2011 overall ad spend to grow 2.4% with an additional increase of 2.9% in 2012.
Zenith is keeping predictions for network TV (note we will not report all media sectors in this story from the forecast) at 5.0% growth for 2010 with subsequent annual growth rates of 2.0% and 1.0% in 2011 and 2012, respectively. Scatter prices continue to soar, with the scatter market getting double-digit increases over upfront pricing, which was already up 5.0%-9.0% over last year. Even with networks taking in more money than expected in the upfront, networks are finding that advertisers still have TV dollars left to spend in the new season. Broadcast and cable network commitments were approximately $16 billion during the upfront, up 20.0% from the previous year.
Scatter prices have been up in Q2 and Q3, but with the 2009-10 upfront weakened by the recession, higher prices were expected. Even with this good news, retailers are not expected to up TV spending considerably for November and December, on account of low consumer confidence, high unemployment levels and a once-again imploding housing market. Ad spend is expected to be similar to those levels following the last recession (during the 2002-2003 season) and is not expected to reach the level seen before the recession for some time.
Cable networks will continue to build momentum especially those seen as alternatives to broadcast prime (USA, TBS, TNT, FX), largely thanks to the return of big-spending automotive and financial advertisers. Zenith expects growth in cable to round out at about 8.0% higher than 2009 with additional annual increases of 9.0% and 7.0% in 2011 and 2012, respectively. Several networks are nearly sold out of Q3, including TNT, USA, Discovery and truTV. As Zenith expected, cable had a strong upfront. Most cable networks showed double-digit growth over last year and they are reporting additional double-digit increases in the scatter market from upfront pricing. Sports continue to fare well – a trend which is also expected to continue; Turner Broadcasting and CBS reached a deal to pay $10.8 billion to carry the next 14 N.C.A.A. men’s basketball tournaments nationally across four networks, ending CBS’ regional coverage of early-round games. TBS is also poised to become a major late night player with the introduction of Conan O’Brien’s new late show, Conan at 11pm, which bumps Lopez Tonight to 12am. This pits Conan directly against Comedy Central’s cable light-night hits The Daily Show and The Colbert Report. It looks, however, as if TBS is looking to position Conan not only against these programs but against its broadcast counterparts, including The Tonight Show. Pricing for Conan has been “on parity with broadcast pricing,” according to Time Warner Chairman Jeff Bewkes. If Conan becomes a hit, it could certainly be a game-changer in a daypart in which broadcast still attracts the largest share of dollars.
With spot TV performing well in the marketplace, they have upped their predictions for spot advertising spending in 2010 and 2011. Spend is predicted to increase 10.0% in 2010 and increase 3.0% in both 2011 and 2012. Their July forecasts were 6.0%, 2.0% and 3.0% respectively. TV stations in Florida, Texas and Louisiana are selling at record levels due to political advertising and BP’s PR spending – two categories which are volatile and could not have been forecasted. Across the country, political advertising on local TV has surpassed 2008 local spending by 61.0% in spend YOY.
Zenith continues to predict a small single digit increase of 1.0% in advertising expenditures for syndication in 2010. Spending in 2011 is expected to decrease 2.0% and in 2012 it is expected to decrease an additional 8.0%. Ratings continue to be challenged and very few new programs were introduced this year. The one major acquisition this year was TBS’ purchase of syndication rights for The Big Bang Theory in May, which “set a record price for a cable off-network sitcom purchase,” according to Variety. The off-network TV rights to The Big Bang Theory went for a record $2 million per episode, with TBS paying over $1.5 million an episode and FOX paying $500,000. Episodes on TBS will begin airing as a weekday strip in Fall 2011. Oprah’s last season airs this year, ending what will be the 25-year run of The Oprah Winfrey Show. Oprah plans to focus on her network, OWN (The Oprah Winfrey Network), which she owns with Discovery Communications. OWN will be replacing Discovery Health in January.
Oprah’s departure will further diminish the supply of top-tier, high-rated syndicated offerings, as no other syndicated talk-show host garners the same kind of ratings, or has the same kind of impact that she does. Oprah’s move from syndication to cable is preceded by Martha Stewart’s similar move to Hallmark. Her company, Martha Stewart Living Omnimedia, recently began airing an eight-hour MSLO lifestyle programming block from Monday to Friday. It is seen as a win-win for both brands.
Martha Stewart has been struggling in the syndicated market (which she contributes to the different times TV networks air the shows) while Hallmark has been down in YTY ratings. There is buzz that, rather than pay the license fees, local stations will begin to add more local news, specifically the ABC O&O stations. There will likely be fallout at the local level with local stations going out of business. With the pending merger of Comcast and NBCU, Zenith also believes that there will be some consolidation in the NBC O&O markets. Hence, there will be less need for syndicated programs.
According to Miller Kaplan billings, network radio experienced a robust marketplace in the first half of 2010. The pace slowed down a bit in June and July with billings being softer than anticipated, which is why they’re revising their previous forecast of 2010 finishing at 6.0% to finish at 4.0% instead. Despite a somewhat quiet summer period, the second half of the year is expected to pick up again with automotive and retail categories leading the way. Automotive advertisers will be promoting end of year clearance sales events and retail will be
promoting back to school and holiday sales events.
Other categories expected to have a strong presence in the Q4 marketplace are financial insurance, after-market automotive (Autozone) and grocery. Local radio market will pick up for 4Q due to the political election season. If inventory is tight in local, advertisers will most likely delve into network radio for its cost efficiencies instead of more expensive unwired spot.
Sirius/XM still continues to find a proper measurement source for its small – but growing – listening audience, which now stands at 19.5 million subscribers. An increase in automotive sales has benefited the satellite provider by adding 583,000 more subscribers last quarter; they expect to end 2010 at 20 million in total. The company conversion rate (the percentage that signs up for a paid subscription after a free, promotional trial expire) has improved to 46%.
Although this news is promising, there is still uncertainty about Howard Stern’s future with the company since his contract terminates at the end of the year. If he leaves Sirius/XM, some analysts suspect subscribers may decrease. HD radio still has not reached critical mass and its value proposition still may not be clear to consumers.
ZO continues to see an increasing share of advertising spending going towards the internet, as consumers are spending more and more time online. Overall, Zenith projects internet advertising to increase 13.5% in 2010. Furthermore, they expect to see total Internet revenues increase 14.9% in 2011 and 15.5% in 2012. In the first half of 2009, ZO found strong cost containment strategies employed
by advertisers paired with depressed eCommerce search demand. For the second half of 2009 so far, they have seen recovery in both these areas.
Using internal Performics benchmarking, ZO noted strong YOY search growth of 22.5% in Q1, and 23.2% in Q2. Comparatively, Google posted US Revenue gains of approximately 22.0% in Q1 and 26.0% in Q2. In 2009, the second half of the year performed markedly better than the first half, and ZO expects to see weaker year-over-year growth rates for the remainder of the year due to a comparatively stronger base.
Internal benchmark run-rates seen through August support these expectations with a current July/August growth of 10.0% over prior year. Expecting similar trends through the balance of the year will draw the overall 2010 growth rate to a net 16.0%. Since 2010 will represent a stronger base than seen in 2009, they do not expect a repeat of 20.0% plus growth in the first half of the upcoming
year. Within the marketplace ZO says it has seen shifts in advertiser mentality where some of the cost containment strategies employed during the worst of the economic recession will be carried through any economic recovery and post-recovery periods.
Advertisers have seen value in a stronger emphasis of ROI goals, and demands for cross-channel coordination for cost synergy where paid search ad spend could be diverted to social, display, mobile, video, and SEO. ZO thinks this will contribute to overall growth in digital marketing dollars, but limit paid search in many established verticals. In contrast, they expect stronger paid search adoption from new emerging verticals such as CPG, pharmaceuticals, and small-to-medium businesses. Overall, ZO expects a 2011 growth rate closer to 14.9% over 2010.
Industry insiders say the brightest spot in terms of online ad growth will be online video, with video ads “becoming the main form of brand advertising in the digital space.” Their projected growth of 24.0% for online video in 2010 will be driven in large part by affordable, DIY tools to create streaming video ads; this category will see two out of every five ad dollars spent on streaming video coming from local advertisers. Mobile marketing will continue to grow, fuelled specifically by ubiquitous apps, user-friendly browsers and 3G/4G speeds. As smartphone ownership is now estimated at between 20.0%-25.0% of all cellphone ownership, mobile ad sales have the potential to enjoy growth of more than 20 cents of every on-line ad dollar spent next year.
Google announced that the company’s new rule is “mobile first,” aiming to ensure that every new Google product considers the mobile experience first and foremost. In addition, Apple CEO Steve Jobs spent a decent chunk of his iPhone 4 presentation in June discussing the company’s new ad platform, iAd. Lastly, the key will be taking advantage of unique features that smartphones have over PCs; mobile devices know where a user is located, are highly personalized and are the only screen that stays with its user all day. Those characteristics could lead advertisers to produce much more targeted – and successful – ads than on
television or on a computer.
Facebook is on track to receive half of all social media ad spending in 2010. Meanwhile, Twitter’s newly launched ad service is accounted for in the predictions, but only constitutes a small percentage of ad spend for 2010. That could quickly change in 2011 if Twitter’s bid for resonance catches on.
Contrary to other industry forecasts, this uptick in the forecast will remain conservative as a result of Facebook click-through rates often being lower than 0.05%, which contributes to a lower CPM. Facebook ads average 56 cents for every 1,000 impressions. The industry average is $2.43 online.
Moreover, much of Facebook’s ad growth can be attributed to its self-service ad platform, which is mostly used by small entities looking to reach specific demographics. In the future, as more large brands move their spending into social media, ZO expects that the rates sites like Facebook earn will increase along with their growth at scale.