How Big an Impact Could Covid-19 Have on Ad Spend in 2020?

In December 2019 Standard Media Index SMI released its latest ad spend forecasts for 2020 excluding economic shocks or impacts from changing consumer trends The total US ad market was projected to grow 8 percent Major marketers conceptually the thousands of advertisers each spending millions annually were anticipated to grow just over 3 percent Small and mediumsize businesses or SMBs conceptually the millions of advertisers each spending thousands annually were projected to grow 13 percentHowever market expectations are changing on a dime as public behaviors react to external forces Additionally determining this impact is difficult since the media ecosystem has seen digital media grow and mature over the past decade Driven for the most part by SMBs new entrants to the ad marketplace have limited spending resources and pivoted to spending thousands annually through selfserve digital platforms In 2019 SMBs overtook major marketers in advertising spend 502 percent versus 498 percent and were projected to hit 525 percent in 2020 All of this will change in the short termMajor marketers by definition are large corporations with some capability to deal with shortterm general economic strain SMBs many times simply go out of business While major marketers can return to market rather quickly with debt financing or cash reserves SMBs do not have the same resourcesSMI found that 40 percent of 201939s major marketer ad spending was in categories with direct or shortterm impacts from coronavirus This includes travel and tourism and events eg movies as a direct impact It also includes bigticket item categories such as automotive as consumers delay purchase decisions during economic turmoilSMI also estimates that those same categories are made up of at least 65 percent of SMB ad spending This will be of significant concern to companies such as Facebook and Google as their exposure is quite high now that their US ad revenue has mostly maturedSMI39s analysis of 2019 ad spend data notes the continued popularity of search and social media especially with SMBs Conversely major advertisers with deeper pockets rely more on linear television for their ad strategySMI is not currently forecasting impact to the ad market in terms of yearoveryear YoY change If the Great Recession and dotcom recession are averaged the initial shock quarter will see a 10 percent decline YoY Q2 2020 in this case with reduced declines for the next three Q3 2020 amp8211 Q1 2021 Somewhere in late Q1 2021 the normal rebound will return amp8212 only if the few historical norms can be usedWe are skeptical as we feel Q2 2020 will be more heavily impacted as media events eg sports broadcasts are being canceled removing high ad spend media events from the marketplace The trough will be artificially worse than recent norms but the rebound will also be artificially greaterAd Budgets Decide Media StrategyIn 2019 SMI tracked a sizable difference with major marketers39 and SMBs39 media spend strategy Last year major marketers benefitting from larger ad budgets continued to allocate 60 percent of their ad dollars with traditional media companies that provide topoffunnel attributes such as reach and brand awareness On the other hand SMB advertisers with limited ad budgets spent 72 percent of their dollars with digital media noted for mid and lowfunnel attributes including product consideration and purchase intentAs a result SMB marketers were far more likely to allocate ad dollars on selfserve digital platforms such as search and social media In 2019 SMI found that 74 percent of ad dollars for both search and social media came from SMB marketers By comparison major marketers accounted for 97 percent of ad spend on national television which has higher ad rates and requires greater production costs Moreover when YouTube is excluded major marketers garnered over 60 percent of total digital video ad dollarsTop Media Companies in Ad SpendIn 2019 Google had the highest share of ad dollars 104 percent within major advertisers Google was closely followed by a new yet familiar quotBig Threequot of traditional media companies Disney the recently reunited ViacomCBS and Comcast Collectively these four media companies accounted for about 40 percent of the year39s ad marketGoogle39s continued strength with advertisers has also forced traditional media companies to launch new digital products and acquire other media companies For example Disney after acquiring 20th Century Fox39s assets launched streaming service Disney which can be bundled with Hulu and ESPN Comcast plans to launch Peacock its own adsupported streaming service in Q2 2020 ViacomCBS while working on its realignment may also enter the streaming wars with a new serviceTraditional media companies plan to invest billions of dollars in content and marketing to stay competitive with Google and YouTube As a result an increase in digital ad dollars for Comcast Disney and ViacomCBS can be expected in the years aheadAccording to SMI Facebook ranked fifth in ad spend Rounding out the top 10 were Fox ATampampT39s WarnerMedia which plans to launch the adsupported HBO Max in Q2 2020 Discovery Communications iHeartMedia and Microsoft These 10 traditional and digital media companies accounted for 62 percent of total ad spend among major marketers in 2019Linear TV AdvertisingIn looking at national linear television SMI39s AccuTV service found that Disney ViacomCBS and Comcast accounted for over half of linear TV ad dollars in 2019 Among the reasons for the sustained strength of traditional video providers include brand safety and no issues of viewability fraud bots and walled gardens Furthermore major marketers with their agency partners have been negotiating with traditional media companies for decades building longterm relationships And when Discovery Communications Fox and WarnerMedia are added to the quotBig Threequot the combined share of national linear TV ad dollars is 84 percent This is comparable to the ad market share Google has in search and Facebook has with socialSMI reports that in 2019 traditional video ad dollars were flat when compared to the previous year Conversely digital video reported YoY growth of 20 percent Disney reported a YoY increase in ad spend of 27 percent with digital video benefitting from adding Hulu to its portfolio This is in line with Google and Facebook39s doubledigit percent gains in 2019 by contrast Disney39s ad dollars for traditional media have dropped during this time periodLooking forward in 2020 we can expect continued media disruption Along with the launch of several adsupported video streaming services there will be continued cordcutting and additional mergers and acquisitions Despite the continued popularity of linear TV there will be pressure put on traditional media companies to become more scalable as they continue to compete with Google and other digital properties for ad dollarsClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNet

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How Big an Impact Could Covid-19 Have on Ad Spend in 2020?

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James Fennessy

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