Ad Spending Will Slow Down Next Year But Will Continue To Grow

Several ad agencies and companies have recently released their annual ad spending forecasts for 2022 along with future prognostications. Despite concerns about the economy and the thousands of recent layoffs from media and tech companies, ad spending is expected to increase in 2023 in the U.S. and globally, although not to the extent of the recent post-pandemic years of 2021 and 2022.

Also impacting next year’s ad spending forecasts will be the lack of cyclical events such as The Olympics, FIFA Men’s World Cup and U.S. midterm elections. Among the advertising channels expected to have robust growth are retail media and ad supported streaming video. Ad spending growth for social media will be modest with Apple’sAAPL
new privacy features making it more difficult to track behavior. The ad spending for traditional media, with the exception of out-of-home, will be flat at best.

Magna Global, notes the U.S. ad economy was sluggish for most of 2022 which should continue into 2023. For 2022 Magna estimates U.S ad market to total $318 billion, surpassing $300 billion for the first time, a year-over-year increase of 8%. Ad spending was stronger in the first half of the year (+11%) compared to the second half (+6%).

Helping to drive the overall increase in ad dollars were such cyclical events as the Beijing Winter Olympics, Men’s World Cup from Qatar and record high ad spending for the midterm election with a whopping +66% compared to 2018 midterms. When these events are excluded ad spending grew by 6.2%.

For 2023, Magna anticipates U.S. total ad spend to grow by 3.7%, lower than the +4.8% from its September forecast. When cyclical ad dollars are eliminated for both years, ad growth for 2023 is forecast to be +5.8%, comparable to the non-cyclical growth of 2022. Magna expects the U.S. economy to remain sluggish early in 2023 before picking up as inflation drops and unemployment remains low.

The ad agency projects in 2023, an off-year politically, long form video advertising will drop year-over-year by -8% although ad dollars for AVOD will remain strong at +32% along with short-form video +10%. Out-of-home media will be at +7% in 2023 while audio will be flat. For digital media search will continue to be robust at +11% while social media growth will be a more modest +5%, post Apple’s iOS-14.

The ad spending for product categories in 2023 will vary. Magna forecasts ad spend growth for media/entertainment, travel and betting will be the strongest. The ad spending for automotive should also increase as supply chain issues improve. On the other hand, ad spending of CPG and finance will be flat or down.

Globally, in 2023 Magna projects ad spending revenue for media owners to total $833 billion, a year-over-year increase of 5% from $795 billion. The revised forecast is 1.5% lower than Magna’s June projection. Magna cites a deteriorating macroeconomic outlook for lowering its projection. The 5% year-over-year increase in 2023 is lower than +7% registered in 2022 and +23% from 2021.

Looking at regions, Magna forecasts in 2023 ad revenue growth in North America and Western Europe to be in the 3%-4% range. Asian Pacific nations (APAC) will see an increase of 6% with Latin America a more robust +9%. Of the top 15 global economies, Magna projects strong ad spending in India and South Korea at +14% and +7% respectively. Conversely, ad spending growth will be below the global average in Germany, Italy, Japan, and Spain at no higher than +3%. In addition, these markets will also see a decline in ad spending of traditional media.

Calling the U.S. economy resilient in 2022, GroupM, estimates the U.S. ad market totaled $305 billion for the year, a year-over-year increase of 7.1%.

In the U.S., GroupM expects continued ad spending growth for retail media calling it the fastest segment in digital media and totaling $33 billion in ad spend this year.

Another medium poised for a sizable increase in ad spend is connected TV. In the U.S. the Pay-TV household penetration has dropped from 91% in 2010 to 67% in 2022. Looking ahead, GroupM forecasts a continuing downward spiral dropping of “linear-TV” to 60% penetration next year and 50% in 2025. As a result, in the U.S. GroupM sees ad spending for “traditional TV” to decline by 3.8% to $64.4 billion in 2023. The drop-off will be offset by a 19% increase in ad spending on connected TV to $13.3 billion.

Looking further ahead, GroupM expects double-digit gains in ad spending for connected TV over the upcoming four years. The agency projects CTV to account for one-third to grow double-digits over the next four years and account for nearly a third of all U.S. TV advertising revenue by 2027.

With continued strong growth, GroupM projects ad revenue for out-of-home media in 2022 will surpass the pre-pandemic year of 2019. With more growth anticipated as the medium digitizes both its inventory and operations, aligning their offerings with marketers that are increasingly oriented nationally rather than locally.

On the other hand, ad spending for audio, newspapers and magazines combined will account for just 11.2% of total ad dollars in 2022. The ad spending decreases in over-the-air audio will be offset by increases with digital audio, which could account for about one-third of total audio ad spending. Newspapers and magazines will see overall declines in ad spending despite small increases in digital print.

Globally, GroupM forecasts ad spending growth to increase by 5.9% in 2023, a slight drop-off from their June prognosis of +6.4%. With an uncertain economic climate, GroupM calls the forecast “conservative optimism”. The uncertainty of China was a primary reason for the revised downward projection. In 2022 GroupM projects global ad spending to total $808.1 billion (excluding U.S. political) and forecasts an increase to $855.9 trillion in 2023. Global ad spending is expected to surpass $1 trillion in 2026.

Also, globally GroupM projects strong ad spending growth for retail media and connected TV. The agency revised its global ad spending for retail media from $101 billion to $110.7 billion. GroupM cites retail media as a growing component of digital media as consumers continue to migrate to online shopping.

The agency estimates in 2022 two-thirds of all ad spending was allocated to digital media and expects by 2027 digital media will account for 73% of total ad spending. In 2022 GroupM lowered its mid-year forecast for digital ad spending from +11.5% to +9.3%. Excluding China, the digital duopoly of Alphabet and Meta will generate 47.2% of all ad revenue (including non-digital) this year.

Zenith expects the global ad market to remain strong, the agency forecasts in 2022 a year-over-year increase of 7.3%, slightly below its June forecast of +8%. Despite the economic uncertainty, in 2023 Zenith expects global ad spending to grow by 4.5%. Looking ahead to 2024 Zenith expects ad spending growth of 7.2%, fueled by the U.S. Presidential election and the Paris Summer Olympics.

Zenith expects online media, led by search and social to be the fastest-growing channels accounting for 55% of total ad spending in 2022 and increasing to 57% in 2025 with an annual growth of 7.0%. Total video ad spend will account for 30% of the ad dollars increase with an average annual rate of +4.8% through 2025. Growth includes such channels as FAST, YouTube and TikTok. Also driving ad spending increase next year will be retail media and more opportunities to advertise on SVOD services.

Zenith projects significant increase in ad spending for retail media as e-commerce grows as consumer buying habits are changing. Excluding China, in which the advertising channel is well established, ad spending for retail media will grow from $39.2 billion this year to $64.2 billion in 2025, a CAGR increase of 17.8%.

Zenith forecasts advertising platforms on SVOD services such as NetflixNFLX
and Disney+ to have significant growth. From 2022 to 2025 Zenith expects the average annual growth rate for ad spending of 27.9% reaching an estimated total of $13.1 billion. Besides Netflix and Disney+, which launched ad supported tiers in fourth quarter, Zenith believes other SVOD platforms will also be launching an ad supported tier in the near future.

Looking at geographic regions, Zenith forecasts strong ad spending increases over the next few years across all regions. The fastest growing regions from 2022 to 2025 are expected to be The Americas, Central and Eastern Europe (excluding Ukraine and Russia) with a CAGR growth rate of 6.4%. The APAC region is expected to grow 5.4% and Western Europe at +4.1%.

From 2022 to 2025 Zenith expects the U.S. ad spending to increase by $66 billion accounting for the largest growth. Over that time span the U.S. market will account for 44% of the global ad spending increase. Following the U.S. additional ad spending increases will come from China at nearly $20 billion. Other countries expected to grow in the $5-6 billion are expected to be the U.K., Brazil, Japan and India.

Forrester projects the U.S. ad market will total $325.1 billion in 2022, a year-over-year increase of 10.2%, driven in part by the Winter Olympics, midterm elections and World Cup. In 2023, Forrester projects slower growth of 4.6% citing a lack of cyclical events and such macroeconomic concerns as inflation, GDP and consumer sentiment. Also impacting spending next year will be the limitations on data-driven targets used for digital ads (i.e., Apple blocking third-party cookies).

Forrester estimates in the U.S. digital media accounts for nearly two-thirds of ad spending. Forrester however has lowered their growth projections for digital from 16.2% to 13.0% in 2022. Nonetheless, investments in digital advertising will still see an increase of $24.5 billion from 2021.

Looking at digital segments, search will continue to grow driven by e-commerce. Forrester estimates ecommerce will account for 22.6% of sales, compared to pre-pandemic figure of 17.4%. Digital video will grow, led by ad supported streaming video, there will be greater advertising opportunities (Netflix, Disney+) combined with the continued upsurge in online video usage. As a result, Forrester projects in the U.S. ad spending growth for streaming video will increase at a greater clip than overall digital spending for 2022 and 2023.

The growth in ad spend for social media will not be as robust because of Apple’s privacy changes. With advertisers being limited to attribute consumer purchasing to social media, Forrester forecasts an annual increase in ad spend of only 7.5%, its lowest annual growth to date, as advertisers migrate to other digital platforms. Forrester projects social media ad spend to total $58.5 billion. On the other hand, Forrester projects strong growth with retail media, forecasting a year-over-year increase of 39% and totaling $40 billion for the year, accounting for over 12.3% of total U.S. advertising.

The ad spend for such traditional media channels as linear TV, out-of-home, radio and print is forecast to grow 5.2% to $111.5 billion in 2022 led by the Winter Olympics, midterm elections and World Cup. In 2023 ad spending for traditional media is forecast to drop by 1.6%. Forrester expects, in the U.S., linear TV and out-of-home will be the two strongest performers in traditional media due to a variety of factors.

Looking at U.S. local ad dollars, BIA Advisory Services projects overall ad dollars total $165.7 billion in 2023, down 0.5% from 2022. When political ads are omitted total U.S. ad spend will rise by 4.8% to $165.2 billion. Absent the midterm elections, local TV ad dollars will decline by 15% to $18.5 billion from $21.8 billion in 2022. Local digital TV revenue however is forecast to grow by 17.3% and over-the-top by +12.3%. At $81 billion digital media will account for 49% of total dollars with traditional media capturing the remaining 51% ($84 billion).

The top three paid media channels for 2023 will be direct mail ($37.2 billion), mobile ($33.5 billion) and PC/Laptop ($29.0 billion). Looking at product categories, education, retail and restaurants are expected to increase their ad spending next year. The fastest growing advertising channels will be TV digital (+17.3%), over-the-top (+12.3%), and mobile (+8.1%).