Political ad spend to mitigate US market decline in 2020 second half: MAGNA report
By M4G Bureau - September 21, 2020
In its recently released US market half-yearly advertising report, MAGNA expects the market to stabilise in the second half; a 4% rebound in 2021 advertising spend
MAGNA Global, a unit of Interpublic Group of Companies has launched its half-yearly advertising report for US market stating the advertising market will begin to stabilise in the second half (-2%) as the economy reopens, consumption resumes and political ad spend piles up, leading to a full-year decline of 4.6%, to $213 billion.
According to the report, advertising sales decreased by 7.2% in the first half of 2020, including the impact of cyclical events, as 5.7% resilience in digital media advertising sales mitigated 23.1% decline in linear media.
MAGNA forecasts a 4% rebound in advertising spending 2021, driven by a recovery in consumption and mobility, and the return of normal event schedules (new shows, domestic sports, Olympics).
In the second quarter of 2020, based on MAGNA’s analysis of media owners’ financials, advertising revenues dropped by 17% to $46 billion. Linear media ad sales were down by a massive 38% in the quarter, due to declines in both national and local media formats, while digital media was flat year-over-year. National television advertising sales saw their worst quarter ever, at 30% decline, compared to the 2008-2009 recession drop of only 8% in the first quarter of 2009, due to the absence of sports and a pullback in advertiser demand. Search posted its first decline ever in the second quarter, at 3%, as Amazon search growth could not offset declines at Google.
For the entire first half, media owners advertising revenues fell by 7.2% vs the first half of 2019 (or 8.1% decline excluding the impact of the presidential election). Linear ad sales declined by 23.1% while digital ad sales grew by 5.7%. Print (33%), radio (33%), out-of-home (22%) and on-screen cinema advertising (63.6%) suffered the heaviest declines, while national and local TV (both 19%) were marginally more resilient.
According to Vincent Letang, EVP, Global Market Intelligence, MAGNA, and author of the report, “The Covid19 crisis has hastened the normal end of the economic cycle and brought on the worst recession ever. In this context, classically, branding budgets and linear media spend are cut disproportionally while lower-funnel market mechanisms and digital ad formats show much greater resilience, boosted further by the acceleration of e-commerce in the Covid and post-Covid world. The sheer size of digital advertising in 2020 (approximately 55% of the US ad market) and its resilience in this economic environment explains the relatively modest decline MAGNA forecasts for the whole year 4.6% despite the severity of the economic recession, compared to the double-digit decline of 12% in 2008-2009 when digital media was still nascent. For linear media, however, 2020 remains brutal, but MAGNA is confident that ad revenues will stabilise and recover in 2021”.
2020: Second Half and Full-Year Prediction
MAGNA report says that the advertising spending trends are strongly correlated to the economic environment and consumer trends. According to the latest macro-economic forecasts, the US economy will drop by 5.2% in 2020 (real GDP) after falling by 10% year-over-year in the second quarter, as per Federal Reserve. Retail sales (excluding cars) were down by 2% in the second quarter, as declines in April and May were partially offset by a 5% growth in June. E-commerce sales surged 44% in the quarter, a huge acceleration above the long-term growth pace of 10% year-over-year. Meanwhile, car sales were down 33% in the quarter, as most dealership remained closed and consumers delayed making big purchases.
Based on the first half actuals and the latest macroeconomic data, MAGNA has updated its full year growth forecast. Media owners net advertising revenues (NAR) (all media, linear + digital) will fall by 4.6% to $213 billion in 2020. Advertising sales will gradually stabilise in the second half: all-media ad spend will decline by 2% vs 2019 (4% in the third quarter, flat year-over-year in the fourth quarter), compared to a 8% decline in the first half.
The new forecast is essentially in line with MAGNA’s previous forecasts (-4.3% in June). Excluding the $5 billion of incremental advertising revenues from political campaigns this year, all-media non-political advertising revenues would actually drop by 6.1% vs 2019, which remains slightly better than MAGNA’s global forecast for 2020 (-7.2%).
MAGNA believes that linear advertising sales (linear TV, radio, print, out-of-home) will bear the worst of the decline, with full-year sales declining by 16% to $81 billion. It would be -19% excluding the impact of political ad spend. The economic slowdown has not only cut down on marketing activity from national brands and local businesses but has also affected audiences and media supply for some media types like radio and out-of-home.
2021: Stabilisation and Rebound
In 2021, MAGNA expects advertising sales to rebound, posting a gain of 4.0% (5.4% excluding cyclical events). However, with a total of $222 billion, the US ad market will still be slightly smaller than it was in 2019 at nearly $224 billion. The ad market will benefit from economic stabilization (GDP expected to grow by 3.2% according to the Philadelphia Fed) and the Tokyo Olympic Games, which will generate approx. $800 million of incremental ad revenues.
As per the report, many industry verticals continue to face significant economic headwinds and have been forced to cut marketing and advertising budgets this year. Despite some stabilisation in the second half, MAGNA predicts that all key industry verticals will reduce linear ad spend this year: relatively mild cuts for personal care (8%) and pharma (6%), much deeper cuts for restaurants (30%), automotive (35%), travel (50%), and entertainment/movies (30%).
Looking at 2021, several industries will see an improvement in sales and business outcomes, and resume quasi-normal advertising spending as a result, as they will need to compete for share of voice and returning consumers. The report expects seven of the top ten verticals to increase linear advertising spending in 2021, including entertainment (12%, as movie theaters reopen and blockbusters start hitting big screens regularly again), and restaurants (8% as indoor dining fully reopens), as well as technology, personal care and pharmaceuticals (all at 5%). But some industries will take years to fully recover from the pandemic and go back to their pre-Covid marketing spending.
Travel advertising spend is expected to decline by a further 15% in 2021 as Americans will remain hesitant about flying and traveling, while retail ad spend will fall 7% as the pandemic has hastened the brick-and-mortar long-term decline. Finally, automotive ad spend may decrease by 5% as low consumer confidence and high unemployment will continue to hurt car sales, the report says.