MAGNA Predicts a Roaring Recovery for U.S. Ad Market

By IPG Mediabrands InSites Archives
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The U.S. ad marketplace has made a V-shaped recovery that will not only close out 2021 with a predicted $278 billion in ad spend -- compared with $213 billion in 2020 -- but should also reach a record $300 billion in 2022, per the most recent forecast from IPG Mediabrands' MAGNA.

While the ad market should be back to normal by the end of 2022 in almost all verticals, MAGNA Executive Vice President of Global Market Intelligence Vincent Letang says he is astonished by how much of this recovery is driven by digital. "We were expecting stronger digital growth, but it was so much stronger than anyone expected," he says.

Digital ad formats -- search, social and digital video -- now account for 60% of all media spend. At the height of the pandemic, in 2020, digital video spend skyrocketed 41%. It grew by over 68% in the first half of 2021. Social ad spend at the end of 2021 will index at 165% compared with pre-COVID levels.

The growth in 2020 and 2021 has been entirely organic. And it came from a surprising source: small and medium businesses.

"They weren't just resilient under COVID; they thrived," says Letang. "Many of them pre-COVID didn't have a digital budget at all. But a lot of them, we suspect, kick-started those budgets during the pandemic." And, like many consumer behavioral changes that came about during the pandemic, Letang predicts that the digital investment for smaller businesses will be a permanent change.

"We saw digital formats growing out of volume and pricing," he adds. Letang and his colleagues had previously thought the digital marketplace was reaching maturity, if it hadn't already. But 2021 has proven "there's still room for organic growth."

That's not to say that traditional ad formats are dead. Linear TV (national broadcast and cable) will finish 2021 with 7.4% growth over 2020, and they will index at 95% compared with pre-COVID spending by the end of 2021. Local TV will finish out 2021 with nearly 18% growth year-over-year, excluding cyclical spending from events like the Olympics and elections. "The strong recovery for TV and radio shows that there's still an appetite for traditional media and context-based media," Letang says.

Two factors are at play in linear TV's recovery, he explains. The first is brand safety. There's no safer or more controlled environment than TV, in which advertisers know exactly where their content will be placed, as opposed to programmatic digital advertising that can sometimes place brands in toxic environments.

The second factor relates to COVID-19. Plenty of brands essentially went quiet for months during the pandemic and are looking to reconnect with consumers. Letang says traditional media is a very effective way to do that.

Out-of-home (OOH) advertising took one of the bigger hits when the pandemic took Americans off the roads. And while it might be tempting to write OOH off completely because of the large percentage of employers who will continue to allow remote work, Letang notes that America's car culture and renewed desire to be anywhere that isn't the home will make OOH an attractive format once again.

"It was the only traditional media format to show consistent growth in the five to 10 years pre-COVID," Letang says. "It's complicated, but we are optimistic in the meantime."

Political advertising has permanently changed, Letang points out. Money that would normally have gone to in-person campaign events was primarily redirected to digital and local TV in 2020, to great effect. Advertising related to political issues, rather than to specific candidates, is on the rise. This will lead to $6 billion in incremental revenue for local TV station owners for the 2022 midterm elections, Letang predicts.

Advertisers in the entertainment category -- in cinema in particular -- have increased their spend well beyond expectations, as blockbusters return to theaters and as consumers once again feel comfortable going to the movies and to other live events. By the end of 2021, the advertising sector will index at 126% compared with pre-COVID spending levels and, by the end of 2022, is expected to leap further, to 146%.

Supply chain issues will continue to affect the automotive industry and its ad spend. More sectors may be impacted as well in the coming months. Food and beverage, for example, is one vertical that could see disruptions.

However, Letang cautions, it's not clear how much of the current media coverage of supply chain issues is fueled by misinformation or mere perception, versus actual shortages. And verticals like pharmaceuticals, entertainment and restaurants won't have the same issues as sectors that rely more heavily on the global supply chain.

MAGNA has more than 50 years of experience tracking the economic forces that shape the ad marketplace. After 18 months of Sturm und Drang, hearing Letang talk about double-digit growth in 2022 is enough to make any marketer smile.

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