The U.S. advertising market reached an all-time high of $212 billion in 2018, up 9.6 percent over 2017. In reporting its findings, media forecast and strategy agency MAGNA attributed the market’s growth to the robust economic environment and cyclical ad spend for the Winter Olympics, the FIFA World Cup and the Midterm Elections. It was the ninth consecutive year of growth and the strongest growth of the 21st century, exceeding 2016’s nine percent growth performance.
The final quarter of 2018 showed the strongest quarterly growth in 18 years of almost 12 percent, the strongest since the third quarter of 2000. Local TV had its best quarter in years with total ad sales up 33 percent year-over-year, thanks to record levels of political spending in October. And while excluding political and digital sales—ad revenues were down 2.6 percent year-over-year—this was still the best quarterly performance of the year, which averaged -3.7 percent. National TV sales were down 1.3 percent in line with the three previous quarters—between zero and negative one percent, excluding cyclical sales.
Total audio media ad sales were up two percent—the category’s best performance in five years—digital audio sales slowed to five percent, but linear radio ad sales grew by one percent, the first positive quarter in five years. Out-of-home advertising had its best quarter in more than a decade, as ad sales grew by 8.5 percent, excluding cinema. Digital ad sales were up 20 percent, in line with previous quarters, with the strongest growth coming from social media (28 percent, excluding cyclical), digital video (32 percent) and search engines (22 percent).
Paid search was among the best performers in 2018, with ad sales up 23 percent to $54 billion, while out-of-home advertising was up 4.5 percent to $8 billion. Among companies on both the supply and demand sides of the ad market, Amazon showed record growth and more than doubled its advertising revenue in 2018, reaching an estimated $6 billion, based on financial reports, to emerge as a real competitor to Google. Amazon also increased its ad spending by 50 percent last year, joining the club of the 10 largest advertisers, at No. 6 behind P&G, ATT, Geico, Comcast and GM.
The out-of-home segment had a very strong year. Along with its 4.5 percent annual growth, it posted 8.5 percent growth in fourth quarter 2018. This was partly due to the major increase in ad spend from the technology sector. The segment is the only linear media type to experience consistent organic revenue growth. Ad sales have grown by an average of four percent per year over the past nine years, compared to a one percent loss for non-digital media sales as a whole—linear TV, print, radio and out-of-home—over the same period.
Looking ahead to 2019, MAGNA predicts ad revenues to grow for the 10th consecutive year to reach $217 billion. The rate of growth will slow down, however, to just 1.9 percent—or 4.1 percent, excluding cyclical events—as the economic environment starts to cool. Real GDP will grow by 2.4 percent, according to the Philadelphia Fed; a decent performance, but a slowdown compared to the 2.9 percent growth in 2018.
Finance, insurance, pharmaceutical and technology are the main drivers in terms of spending verticals. MAGNA expects more growth from the technology sector in 2019: cloud services, smart home devices, the launch of 5G by wireless operators and the introduction of new subscription VOD services from Disney and Apple are all expected to drive competition and ad spending. Many direct-to-consumer brands reached scale and started running branding campaigns in traditional media in 2018, in addition to digital media and ecommerce environments. They, too, will collectively contribute to ad spend growth in 2019. Pharma will remain a growth industry, but television budgets could suffer from an upcoming regulation mandating the listed prices of drugs to be mentioned in TV commercials.
MAGNA expects digital ad sales to grow by double-digits again in 2019—up 12 percent to $124 billion— while linear ad sales will decrease by five percent to $92 billion. As digital media now accounts for more than 50 percent of advertising spending—30 percent for national consumer brands—growth rates are expected to slightly slow. Digital advertising sales will grow by $13 billion to reach $124 billion in 2019, compared to an increase of $18 billion in 2018. The fastest-growing digital formats will be social (23 percent), video (19 percent) and search (13 percent).
National TV ad revenues are forecast to decrease by three percent to $41 billion as the growth of digital sales—up 20 percent for Hulu, full episode layers and over-the-top (OTT) media—partly offsets the erosion of linear ad sales—down 3.6 percent or two percent, excluding cyclical events. MAGNA attributes linear TV ratings’ continued decline to cord cutting and the long-term shift toward subscription-based video-on-demand, triggering growing cost-per-thousand inflation, as demand from CPG verticals remains robust. Local TV ad sales are expected to decrease by 18 percent to $18.2 billion, as key verticals such as auto and restaurants are cutting ad spend or redirecting budgets toward national TV and digital media. Adjusted for the lack of elections in 2019, the normalized growth rate will be negative five percent.
Elsewhere, Audio NAR will decrease by three percent to $15.6 billion—linear radio down five percent, while digital audio will be up four percent. MAGNA notes that broadcast radio suffers from stagnating pricing, music streaming shifts toward ad-free premium business models and podcasts, but is exploding in terms of usage and sponsorship opportunities, which remain hard to monetize for publishers. Magazine and newspaper publishers will also face declining ad revenues—down 10 percent at $20.3 billion—as digital/mobile sales up seven percent to $8 billion, do not offset the erosion of national and local ad sales, which are down 18 percent at $12 billion. Finally, out-of-home ads will grow by 2.8 percent as new digital screens—Outfront Liveboard in New York, Pearl Media in the new Salesforces Transit Center in San Francisco, etc.—will again attract brands from sectors like technology, luxury and travel.
The media landscape is set to change in 2019 as OTT and video-on-demand reach mass market and become more competitive with the launch of new services. MAGNA suggests this may prompt subscription video-on-demand providers like Netflix and Amazon to explore hybrid, ad-supported business models and thus provide new opportunities for advertisers to reach consumers. Based on the ad revenues of Roku and other specialized OTT players, plus the share of Youtube and Hulu consumption that takes place on TV screens, MAGNA estimates that OTT-based advertising revenues reached $2.7 billion in 2018, growing 54 percent year-over-year. MAGNA expects OTT-based ad sales to grow again sharply in the next two years: up 39 percent to $3.8 billion in 2019 and up 31 percent in 2020 to reach $5 billion.
“One of the drivers of the historically long and historically strong era of growth the U.S. market is experiencing lies in the technology sector introducing mass consumer products and services,” says Vincent Letang, executive vice president, global market intelligence at MAGNA, and author of the report. “While doing so, internet giants ironically discover what CPG marketers knew all along: the power of traditional editorial media (television, out-of-home in particular) to build mass brand awareness.”