Ad industry expected to make a major COVID comeback
The advertising industry, plagued last year by pandemic-driven budget cuts, is poised to return stronger than ever in 2021 and beyond, according to several new forecasts.
Be smart: The quick turnaround means that the ad market is recovering faster than it did following the 2008 recession.
- "In 2021, the American advertising industry is poised to regain all that it lost in 2020 and more," wrote GroupM's Brian Wieser in an analyst note last week.
Why it matters: In a recession, marketing budgets are typically the first expense cut from a company's budget. But because the government injected so much stimulus into the economy, initial fears of a prolonged consumer spending slump have subsided.
- "Unlike the economic slowdowns of years past, the ratio of ad spending to U.S. GDP did not sharply inflect down, rather it moved up higher," media analyst Michael Nathanson wrote in a note to clients. Nathanson adds that his firm MoffettNathanson is "incredibly bullish about the years that follow. "
By the numbers:
- In the U.S., GroupM forecasts that the the industry will grow by 15% this year, better than its prior 12% forecast. Wieser predicts that the U.S. "should end the year with 6% more activity than we saw in the last 'normal' year of 2019."
- Globally, Magna — another advertising agency — also increased its forecasts, predicting the global ad market will increase by 6.4% to $240 billion this year — up from the 4.1% that was originally forecasted in December.
Between the lines: Beyond the general economic recovery, analysts are also optimistic that in-person activities, like sporting events, live entertainment and travel, will return faster-than-expected, driving marketing opportunities.
- The summer Olympics, for example, is expected to drive $800m of incremental revenue this year, per Magna.
- Magna expects that the strongest ad spend growth rates will come from the travel, automotive, beverages, and movies categories.
The big picture: The pandemic has expedited the migration from analog media to digital, and the same effect can be seen in the advertising market.
- Digital advertising was resilient during the pandemic, thanks in large part to small businesses leaning into e-commerce, and favoring the likes of tech giants like Google, Amazon and Facebook.
- Traditional publishers on the other hand, "barely stabilized digital ad sales," per Magna.
Yes, but: For certain industries — like the automotive sector — Wieser notes that recovery could be a bit slower, thanks to the reliance on foreign supply chains that are linked to countries that may not recover as quickly as the U.S.