Where will UK advertisers spend their ad dollars in 2016?
Following this week's Videoscape 2016 conference, Bloomberg Intelligence's Tal Smoller adds context to the recent advertising trends by looking at the prospects, changing consumer habits and the consequential shift towards digital advertising.
Advertising spend in Western Europe is expected to increase by an average 2.5%, based on Magna Global estimates, trailing the global growth of 4.6%.
Variations in growth rates across Europe largely reflect disparate economic growth projections. France, for instance, is expected to increase by a mere 0.3% as it really claws its way back to growth. On the opposite end of the spectrum, ad spend in Spain is expected to outpace most major European economies with a 6.4% growth rate, albeit off a battered base. The UK follows with 4.2%, underpinned by a buoyant economy.
But what's driving this 4.2% growth rate in the UK?
I'm sure it comes as no surprise that digital advertising is by far the fastest growing ad medium both in the UK, not to mention globally. Interestingly, while digital advertising is expected to grow at around a 7% compound annual growth rate out to 2020, according to Magna Global, TV advertising also continues to grow - albeit at a much more tepid rate of 1.6% over the same forecast period.
An interesting discrepancy to highlight between the US and Europe is that there has been a lot of hype about the fact that digital may exceed TV ad spend in the US for the very first time. It's been the case in Europe for many years already, dating as far back as 2013. In the UK, we saw this inflection point even further back in 2010.
There is a significant milestone we can cite for the UK in digital, however: this year, Magna Global expects digital advertising to make up more than half of total advertising spend for the first time. That puts digital at 51% of spending.
Your first assumption might be that digital's rise comes at the expense of TV. But in spite of this surge in digital advertising, TV's share of the market is largely consistent.
In 2016, as in 2015, TV advertising makes up 27% of advertising spend, and we don't see any major disruptions in its share into 2017. Essentially, this suggests that digital advertising is still mainly gaining share at the expense of other mediums, but TV is protecting its patch.
What's behind digital's surge?
Online video is skyrocketing. It's by far the fastest growing digital advertising medium (31%), followed by social (15%). Search advertising is certainly growing at a more muted 5% rate as its reaches maturity, yet its still the largest digital medium by value, while display advertising continues to decline.
Across all digital forms, mobile is by far the main driver of digital ad spend. Even in display advertising, while desktop spend is down 15%, mobile is expected to gain 15%.
Digital advertising is still gaining share at the expense of other mediums, but TV is protecting its patch."
How do these trends compare with where consumers are spending their time? At nearly every analyst presentation, WPP CEO Sir Martin Sorrell refers to a slide that compares the amount of time spent with media and the percentage of ad spend in the US in 2014.
The slide shows that 37% of people spend time on TV, while 41% of advertising goes to that medium. This suggests that TV advertising may still be at risk of further declines as advertisers shift towards where consumers spent their time.
Based on our analysis at Bloomberg Intelligence using data from eMarketer and Magna Global, the same does not hold true in the UK where TV use is ahead of ad spend - 25% in spending versus 32% of time spent, in a market where TV viewing remains deeply entrenched in the UK population's viewing habits.
The same holds true for France and Germany, and Italy, though to a lesser extent. Spain is the exception.
Though Sir Martin has consistently referenced that same chart, his recent narrative has changed slightly with the inclusion of a further chart in his presentations, that now highlights that the amount of time spent with media may not be the only relevant measure, as more time spent does not necessarily mean greater engagement. This measure tends to favour traditional media forms such newspapers and TV.
Tal Smoller is Bloomberg Intelligence's analyst for European telecoms and media, based at Bloomberg's European headquarters. This analysis first appeared on the Bloomberg Terminal and was lightly edited from a presentation at Mediatel's Videoscape 2016 conference.
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