MAGNA’s latest update forecasts global advertising market to increase 5.4% in 2016

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Screen Shot 2016-06-17 at 7.45.41 am.jpgMAGNA has released its latest Advertising Revenue Forecast (Spring Update) which predicts the global advertising marketing will grow +5.4% in 2016.

  • Full-year forecast increased following strong 1Q in most markets
  • Ad market experiences strongest growth in six years
  • US market to grow by +6.2%
  • TV ad sales driven by stronger pricing and major events
  • Digital media will surpass TV globally by 2017

Top Stories / Key Findings

Globally, media owner advertising revenues will grow by +5.4% in 2016, to $480 billion, and by +3.1% in 2017. That compares with +4.8% in our previous forecast (Dec. 2015).

  1. The biggest contributors to the higher 2016 growth forecast are the US (revised from +5.7% to +6.2%) and China (from +5.5% to +8.4%). The biggest downward revision comes from Brazil (from +5.0% to +1.9%).
  2. 2016’s major events (US elections, UEFA Euro 2016, Olympic Games, Copa America) will boost ad spending. Neutralizing the impact of those cyclical events, media owners ad sales would still grow by +4%.
  3. Of the 72 markets analyzed by MAGNA, 67 are expected to experience advertising revenue growth this year and only five will decrease, compared to 15 last year.
  4. US advertising sales will grow by +6.2% in 2016 to $179 billion, the strongest growth rate since 2010.
  5. Neutralizing the incremental spending generated by political and Olympic Games (a record $3.5 billion),
  6. 2016 advertising growth would be +4.1% (similar to last year) and will slow down to +3.4% in 2017.
  7. US digital advertising sales will equal TV sales for the first time in 2016 (both $68 billion, a market share of 38.5%).
  8. Digital media advertising sales will grow +15% this year while traditional media will be flat (+1%).
  9. Digital media will become the number one media category globally by the end of 2017, as digital advertising sales will reach $192 billion (a 39% market share), surpassing TV at $178 billion (a 36% market share).
  10. Global TV advertising sales will grow by +4.4% to $179 billion and out-of-home (OOH) media by +3.8% to $31 billion). Radio advertising revenues will be flat (-0.2% at $32 billion) and print will continue to decline (-8% to $70 billion).
  11. Digital advertising sales are driven by mobile advertising (+44%), video formats (+35%) and social formats (+43%) and search (+14%) while banner sales will decline (-6%).
  12. Mobile advertising will account for 42% of total digital ads by the end of 2016 and near 50% by the end of 2017.
  13. Linear television advertising sales (+4.4%) will record their strongest growth since 2012, boosted by cyclical events and strong pricing offsetting the continued erosion of viewing.
  14. Western Europe advertising revenues will grow by +3.8% to $100 billion, driven by the UEFA Eurol event and assuming “Brexit” does not happen; Eastern Europe advertising sales will increase by +5.3% to $16 billion.
  15. Asia-Pacific media sales will reach $139 billion (+6%) while recession-stricken LatAm will grow by only +3.3% (previous forecast +5%) despite hosting the 2016 Summer Olympics.

Screen Shot 2016-06-17 at 7.45.50 am.jpgGlobal Overview

Globally, media owner advertising revenues will grow by +5.4% in 2016, to $480 billion, and by 3.1% in 2017. That compares with +4.8% and +3.2% in the December 2015 forecast.

This year’s events (US elections, UEFA Euro 2016 , Summer Olympics in Brazil, and Screen Shot 2016-06-17 at 7.46.23 am.jpgCopa America in the US) will generate incremental advertising spending and thus boost media owner advertising revenues compared to 2015 (when no such events took place.) Neutralizing the impact of those cyclical events in 2015, 2016 and 2017, the global advertising market would grow by approximately +4% in both 2015 and 2016, which suggests no significant acceleration in the underlying ad demand beyond the cyclical drivers, as the economic environment remains uncertain.

MAGNA’s +5.4% prediction for global growth in 2016 is the result of digital media advertising sales growing +15% while traditional media advertising sales will be flat (+1%). The only traditional media categories to see increasing advertising sales will be television (+4.4% at $179 billion) and out-of-home media (OOH) (+3.8% at $31 billion). Radio will be flat (-0.2% at $32 billion) and print media advertising revenues will continue their long-term decline (-8% to $70 billion) caused by audience erosion.

Digital media advertising sales will increase by +15% to $170 billion globally this year, driven by mobile advertising (+44%), video formats (+35%) and social formats (+43%) while search remains robust (+14%) and banner format sales in decline (-6%) due to ad blocking and the competition of other formats. Digital media advertising sales will reach $192 billion (a 39% market share) by the end of 2017, surpassing TV at $178 billion (a 36% market share) to become the number one media category globally. Mobile advertising will account for 42% of total digital advertising by the end of 2016 and will approach 50% by the end of 2017, reflecting further shifts in digital media usage by consumers and related strategies by marketers.

Television advertising sales are predicted to increase by +4.4% this year (to $179 billion), of which approximately 2% is due to the cyclical events of 2016. Above and before the direct impact of those events, television sales have been strong in many large markets in the first quarter of 2016 (US, U.K., France, Italy, Germany, etc.) as an increasing CPM inflation offsets ratings erosion.

Globally, inflation on Free TV channels was +6% in 2015 on a CPM basis (an average +4% in North America and Europe and +7% in APAC). MAGNA predicts television cost inflation to increase to +7% in 2016-2017 and +8% in North America. In most mature markets inflation is driven by declining linear audiences and ratings, leading to shortages of supply. This is particularly clear in the US where this scarcity is creating a very competitive scatter market, with “premiums” in the double-digits for the first time in over two years.

Another driver for television globally is more dynamic spending exhibited by some traditional large TV- centric categories (automotive, personal care, food and beverages) since 2015. Growth in those sectors was caused by a healthier market (car sales finally recovering in Europe) and in some cases by marketers slowing down the diversification to digital media and re-allocating budgets to linear television. The premiere sporting events in 2016 are sure to draw additional spending in male-oriented categories such as auto and beverage in particular.

Of the 72 markets analyzed by MAGNA in this update, 67 are forecasted to experience advertising revenue growth this year and only five (Singapore, Finland, Ecuador, Kazakhstan, Hong Kong) will experience a decrease, compared to 15 in 2015. The biggest contributors to the higher 2016 forecast are the US (from +5.7% to +6.2%, including cyclical events) and China (from +5.5% to +8.4%). The biggest negative revision comes from Brazil where a deep economic recession is aggravated by political uncertainty (from +5.0% to +1.9%).

In the US, media owner advertising sales will grow by an estimated +6.2% in 2016 to $178 billion, and will grow again by +1.2% in 2017. This will be the strongest annual growth since 2010 (+6.6%). Digital media will equal TV advertising sales for the first time ever (both $68 billion, a market share of 38.5%).

Even-year events (Elections and Olympics) are expected to bring a record incremental advertising spend o
f $3.5 billion, mostly directed towards television. Neutralizing the estimated impact of these events on US media owners advertising revenues, year-over-year growth would still be +4.1% this year, instead of +6.2%.

Western Europe advertising revenues will grow by +3.8% in 2016 to reach nearly $100 billion, as France and Italy finally join the U.K. and Spain to show relatively positive growth. Regional growth will then slow down to +2.2% in 2017. In Central and Eastern Europe, advertising revenues are predicted to increase by +5.3% in 2016 (to $16 billion) and then by +4.8% in 2017.

In Asia-Pacific, media owner advertising sales are forecasted to increase by an estimated +6.0% this year (to $139 billion) and by +4.9% next year.

The weakest region this year will be Latin America, as the slowdown in advertising sales, which started last year, proves longer and deeper than expected. This is mostly caused by an economic environment that gradually worsened since the second half of 2015, and was aggravated by the political crisis in Brazil this year. The 2016 Summer Olympics, hosted by Brazil,, won’t be enough to offset the advertising slowdown in the region. Advertising sales will grow by +3.3% to $22.6 billion (previous forecast: +5.4%) which means a decline in real terms, as economic inflation is typically much higher in most LatAm markets.

Says Vincent Letang, EVP, director of global forecasting at MAGNA and author of the report: “Advertising sales were dynamic in the first quarter of 2016, for both television and digital media, in many large markets (including US, U.K., Germany, Italy and France). The mixed economic outlook and political uncertainty (Brazil, “Brexit”) is likely to gradually reduce the level of growth in the remainder of the year and in 2017, but full-year 2016 global growth (forecast at +5.4%) should remain the strongest in six years (since +8.5% in 2010) thanks to cyclical events and stronger television pricing.”

Digital Media Will Account for Half of the World’s Ad Sales by 2020

Globally, digital advertising increased by +18.3% in 2015 to $149 billion. It is expected to increase by double-digits again this: +14.8% to $170 billion. This is higher than previous expectations, following a strong first quarter in many large markets.

Because of the critical mass reached by digital media spend in most markets, growth rates will gradually slowdown in the following years (+12.5% in 2017), although digital will remain by far the fastest-growing media category. In 2016, digital will grow to represent 36% of total advertising budgets, nearly matching TV’s format-leading 37% share. As previously forecasted by MAGNA, digital will then surpass TV and become the largest advertising category in 2017.

Digital advertising will grow by a CAGR of +12% through 2020, at which point it will represent $263 billion, or nearly half of global advertising spend.

Mobile is now the main driver of digital advertising, as usage quickly transitions towards mobile devices. Mobile advertising sales grew by +61% last year to reach $51 billion, representing just over one-third of total digital spend. Mobile advertising revenues will further increase by +42% in 2016 to reach 42% of total digital advertising sales, and with 2017’s +30% growth, mobile will approach half of total digital advertising budgets. All digital growth in 2016 will come from mobile spend, with desktop actually shrinking by -0.3%. By 2020, mobile will represent two-thirds of total digital spend, and will grow by an average +28% CAGR through 2020.

Much of the growth in digital media spending comes from the growth of programmatic spend. Within banner display and video formats, programmatic spend will grow from $14.2 billion in 2015 to $19.5 billion in 2016, and ultimately to $36.8 billion by 2019. In 2015, programmatic transactions represented 31% of total banner display and video advertising sales, but by 2019 the growth of programmatic in video especially will push total penetration to 50%. This doesn’t even consider the fact that search and social are already essentially 100% programmatic. When looking across all digital formats, the portion of digital budgets that are transacted programmatic through a technology platform is already approaching three quarters of total digital spend. The opportunity for advertisers and agencies to leverage consumer data and behavioral data in branding campaigns to achieve improved targeting and efficiency, is making display and video formats more attractive to some mainstream categories such as automotive, finance and CPG/FMCG, and thus contribute to the overall growth of digital media spend.

Paid Search remains the largest portion of digital advertising budgets, representing nearly half of total digital spend. In addition, 2016’s expected growth rate of +14% (+2% desktop growth, +38% mobile growth) means that search will again provide the largest total dollar increase year-over-year across all digital formats (nearly $10 billion globally). This is after a strong first quarter, in which search grew by +17%. Search advertising alone will grow to $83 billion in 2016, larger than total print advertising spend (newspapers and magazines combined) which represents $70 billion. Search remains attractive and relevant in part thanks to the new functionalities that Google has introduced in the last 15 months, including the ability to bid for tablet and mobile impressions, as well as the introduction of “Remarketing Lists for Search Ads” and incorporating “Similar Audiences” targeting properties. This makes search more attractive for brand advertising, in addition to its core user base of “long tail” direct response marketers and local businesses. From the perspective of large, brand-oriented advertisers, these functions make it easier to incorporate unified audience targeting across search, display and video. Even in markets where Google is not dominant, such as in China, Baidu and other competitors are experiencing equally impressive growth.

Behind search advertising, social is the next largest driver of incremental dollars in digital advertising. Social media advertising sales will grow by +38% in 2016 to $31 billion, following 2015’s +50% growth.

This is partially the result of a very strong first quarter, in which social media advertising sales grew by over +50% globally. Growth in 2017 will remain strong at just over +20%, and by the end of 2017 social will represent 20% of total digital advertising budgets. Search and social combined represent 85% of total incremental dollars in digital advertising in 2016. More than any digital format, social is driven by mobile usage. Not only will mobile advertising represent more than 80% of total social spend in 2016, but essentially all of social growth comes from mobile.

Desktop is expected to be barely positive in 2016, however, up from previous expectations that desktop spend would shrink. This is because the launch of Facebook video is lifting all ships as more valuable inventory is introduced. Having reached well over a billion users, social networks fueled advertising sales growth by increased time spent and increased revenue per user, driven by the roll-out of video in the last 18 months. In the US, we believe that video formats represented already 12% of total social media advertising sales in 2015 and is growing rapidly.

(Note: for the time being, and to avoid double-counting, social video advertising sales are included in MAGNA’s “Social” totals, and not in the “Video” totals in the MAGNA US main breakdown). While online video advertising is still
smaller than search and social, it is growing rapidly, with +35% growth expected in 2016 following a dynamic quarter (+42%). Online video is also driven by mobile advertising (as mobile bandwidth and mobile experiences both improve), desktop growth remains robust at +23% expected growth in 2016.

Display advertising brings up the tail-end of digital budgets, with slowing mobile display growth cancelling out negative desktop display growth in 2016. Over the long-term, display growth will shrink as advertisers favor more impactful search, social and video advertising inventory and display formats are impacted by growth in ad blocker usage.

The next Global Advertising Revenue Forecasts by MAGNA will be published in December 2016.