When we last considered the world of media and advertising back in November 2020, the focus was on the collapse in advertising spending and the continual rise of digital. Now, as we pass the half-year mark of 2021, with lockdowns eased and the economy recovering, what is the current state of play and outlook for the sector?
In common with many sectors, advertising took a battering (almost) across the board last year. According to the Advertising Association, the UK advertising market shrank by a chunky 7% (£1.8 billion) to £25.3 billion last year, but when we dig into the detail, it’s clear that the experience was not uniform across sectors.
Local news brands seem to have had the worst of it, with digital-only revenue down 23.3% to £183.3 million with their national news brethren just managing to maintain growth (0.5%), bringing in £319 million last year. Meanwhile, TV advertising revenue shrank 12% to £4.4 billion and radio 13% to £614 million.
The clear winners in this period were online search and display advertising, which grew by 7.1% and 10.4% respectively last year, continuing to be dominated by Google and Facebook. The Competition and Markets Authority estimates that these two companies earned approximately 80% of the £14 billion spent on digital marketing in the UK in 2019, and there is no reason to believe that will have changed in 2020 or will into 2021 and beyond—that is, unless increasing regulatory scrutiny has a real impact, but more on that later.
But the sector is more than two companies, and there is good news for the rest as advertising spend is expected to show significant growth in 2021.
2021 and beyond
Japanese advertising giant Dentsu has predicted that global advertising spend will increase sharply (10.4%) this year to US$634 billion with the UK advertising sector set to outstrip that rate of growth, delivering a 12% increase on last year. This is significantly ahead of its European peers, with France expecting 7% growth and Germany a much weaker 3.3% rise.
Predictably, digital advertising is expected to lead the way, growing 15.6% to $311 billion, 50% of the total global spend.
This confidence is reflected in the latest Bellwether Report from the Institute of Practitioners in Advertising (IPA), which shows confidence is rapidly returning to the sector. In April this year, it found that the net balance of firms expressing optimism for the summer months was up to 26.6%, the most positive measure of sentiment since the close of 2015.
Overall, more than two-fifths (41.2%) of firms were optimistic about industry-wide financial prospects compared to the beginning of the year.
And finally, just to hammer home the optimism that appears to be sweeping across the sector, the Advertising Association’s latest expenditure report forecasts that UK ad spending will grow by 15% in 2021 and a further 7.2% in 2022.
All the signs point towards a strong recovery, but like everything else post-Covid, the media and advertising landscape are likely to be different, permanently so for some.
A changing landscape
It is true to say that Covid has accelerated the ongoing migration in our TV and media consumption, as it has across many industry dynamics, with binge-watching now common practice across a variety of streaming services.
Indeed, the IPA shows that video ad spend grew by 3.3% in Q1 this year compared to a 3.5% decline in Q4 2020.
But that revenue is increasingly likely to land in the pockets of the online streaming companies with established media companies haemorrhaging advertising income to the likes of Netflix with its 208 million subscribers and Prime with its 175 million members.
On the second tier, has signed up around 103 million subscribers to its Disney+ channels, while Warner Media has around 64 million onboard and Discovery some 15 million subscribers.
The outcome of this race for subscribers is still running, with the spend on original content daunting and competition intense. The online realm is however somewhat different.
Profits at Alphabet, owners of Google and YouTube, soared last year after companies switched en masse to digital advertising to reach people working and playing online from home.
This begs the question if society really recognises that an evolved advertising environment has emerged, dominated by that duopoly of Google and Facebook. Arguably this digital market would not have come into being without strong, assertive innovators, but they face mounting scrutiny from governments and regulators committed to curbing their dominance.
The EU recently announced a formal investigation into Google’s advertising business to establish whether it had restricted or excluded its rivals from data and services, shortly after the French competition watchdog fined Google €220 million for abusing its dominant position in the advertising sector.
On June 4th, both Britain’s Competition and Markets Authority and the European Commission launched probes to determine whether Facebook was using the data it collects to give itself an undue advantage in online advertising.
Even as regulators seek to establish a more hostile environment for the leading online enterprises, the likes of , and continue to enjoy a further boost as advertising shifts increasingly towards mobile devices, and consumers resume a sense of normality.
With the regulatory and, to a degree, cultural spotlight on them, this dominance is by no means guaranteed, but for the foreseeable future, it is safe to assume that they will continue to hoover up the majority of digital advertising spend.
Advertising revenue will always follow the economy, and with IHS Markit predicting a 3.7% expansion of UK gross domestic product (GDP) in 2021, and an even sharper increase (5.8%) in 2022, the signs are good for the immediate future of the sector.
Indeed, IHS Markit predicts a 3.5% increase in ad spend in 2021, and as GDP increases in 2022, so will ad spend, by nearly 7%.
But not everyone will enjoy this largesse. Print media (particularly regional titles) will likely continue to see their share of revenue fall if they can’t create compelling digital propositions.
Cinemas, while much missed during lockdowns, may see their ad revenue continue to be eroded by the proliferation of streaming services, and particularly so because we may have formed new viewing habits—habits that see the inconvenience and cost of visiting the cinema as unnecessary and old hat.
We can, however, expect advertising spend by the automotive, airline and leisure sectors to increase markedly as restrictions (hopefully) become a thing of the past, and they all chase the assumed discretionary spend we have all been piling up over the last 18 months.
Much of this will become clear over the remainder of the year but for now, let’s focus on the positives. After nearly two years of reduced budgets from clients and belt-tightening internally, things are finally looking up for the media and advertising sector, whichever way one looks at it.
Written by Chris Ardern, Risk Underwriting Manager - Credit.
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