Will the advertising market recover after the pandemic? [REPORT]

• E-commerce advertising space spending will grow from $77bn this year to $143bn in 2024
• Social media will lead the market with 15% annual growth through 2024
• Online video will grow by an average of 14% a year, thanks to increased reach and lower costs of building brand awareness on a mass scale

The global advertising market will recover after the slowdown in 2020, reaching growth of 9.1% in 2022, following growth of 15.6% in 2021, according to the Zenith Advertising Expenditure Forecasts report published today. Global advertising spending will rise by 5.7% in 2023 and 7.4% in 2024, primarily because brands will continue to use advertising to stimulate further growth in e-commerce.

Zenith estimates that global advertising spending will reach $705bn in 2021, up from $634bn in 2019, and will then rise to $873bn by 2024.

The forecasts were prepared before the emergence of the Omicron mutation of the COVID-19 virus. However, it is too early to assess how this variant will affect the global advertising industry. The tourism, hospitality and traditional retail sectors appear particularly at risk. There is, however, potential growth in e-commerce and the related digital advertising.

POLAND

Looking at our domestic market, in the first half of 2021 the advertising market in Poland increased in value by 20.5% compared with the previous year and by 1.7% compared with 2019. This means advertising budgets have returned to pre-pandemic levels. Almost all sectors increased their advertising spending, except pharmaceuticals (-1.6%) and media (-1.6%). From the perspective of communication channels, double-digit growth was recorded by the internet, television, radio and out-of-home. Online advertising spending grew fastest – by nearly 24%. Advertising spending fell in the press and cinemas. Cinemas were only able to reopen at the end of May, but most multiplex chains held off opening their auditoriums until June. As a result, the decline in cinema revenue was -70.7%.

As a consequence of the differing dynamics of change in individual media classes, their market shares are changing. In the first half of the year, the shares of television and the internet are similar, with a slight lead for the internet. In the second quarter alone, however, internet spending was lower than television spending. On a half-year basis, the internet's share rose from 42.2% to 43.4%, while television's rose from 42.7% to 43.0%. Both of these media increased their share of the media mix at the expense of the press and cinemas. Radio advertising spending maintained last year's level of 7.3%, while out-of-home fell by just 0.1 pp from 3.5% in 2020 to 3.4% currently.

WORLD

COVID-19 difficulties have extended the period of accelerated digital transformation.

The pandemic has thoroughly disrupted shopping habits. Many consumers who until now chose traditional shopping are now forced to buy online. Marketers responded by investing far more in new technologies, infrastructure, organisational change and advertising than they would have done had consumer behaviour not changed. This includes advertising activity aimed at promoting e-commerce platforms, performance advertising driving traffic to websites and advertising within those platforms ("e-commerce advertising space") to promote specific products, all of which has accelerated sharply.

Progress in curbing COVID-19 transmission has proved slower than expected, and consumers have been less willing to resume in-person shopping. Businesses continued increased investment in digital transformation during a period when the situation was expected to ease and consumers to return to shops. As a result, digital advertising in the second half of this year proved stronger than previously expected. Zenith now estimates that digital advertising will grow by 25% in 2021 vs 2020, compared with growth of 19% estimated in the previous forecast, published in July.

Media agency Zenith expects the digital transformation process to gradually slow, but not stop growing as the pandemic weakens in 2022 and beyond. The health crisis accelerated trends that were already fundamentally transforming the economy, and this will continue. Zenith forecasts 14% growth in the value of global digital advertising spending in 2022, up from the previous forecast of 10%, while in 2023 Zenith predicts 9% spending growth and 10% in 2024.

Advertising with an even greater contribution to the global economy

This structural change in the economy means that advertising plays a greater role in driving e-commerce sales growth. In particular, it has caused a sharp rise in advertising on e-commerce advertising space: display or search ads that appear on e-commerce platforms.

The use of e-commerce advertising space can be very effective because it allows reaching active shoppers at the point of purchase. Zenith estimates that there was a sharp jump in e-commerce advertising from 24% in 2019 to 53% in 2020, and then 47% in 2021, when its total value will reach $77bn. This is equivalent to the amounts spent on advertising in newspapers, magazines, radio and cinemas combined, and represents 20% of all digital display and paid search advertising spending. By 2024, spending on advertising in e-commerce advertising space is expected to reach $143bn, of which 27% is to be display and search advertising. A significant portion of this spending will be new relative to existing advertising spending, as it will come from trade budgets previously used to negotiate shelf space in physical stores.

Will the advertising market recover after the pandemic? Forecasts for Poland

The development of the digital economy is also stimulating growth in other forms of advertising, including brand campaigns on television and in out-of-home advertising, where brands present in digital now occupy a significant place. Advertising's share of global GDP steadily increased before the pandemic, rising from 0.72% in 2014 to 0.75% in 2019. After the leap in digital media consumption and e-commerce last year, this share is forecast to reach 0.77% in 2021 and 0.80% in 2024. This will be the largest increase in advertising's share of GDP since the late 1990s.

The fastest growth will be in Central and Eastern Europe and the Middle East and North Africa, but in value terms the largest increase will be recorded by the USA

Advertising spending in all regions is now well above pre-pandemic levels, and all these regions are expected to record solid growth over the next few years. Zenith forecasts that in 2021-2024 the fastest growth will occur in Central and Eastern Europe and in the Middle East and North Africa, where average annual growth rates will be 12.2% and 10.0% respectively. Advertising in Central and Eastern Europe is driven by growth in productivity and household incomes, which as economies mature encourages more brands and product categories to enter the market. In turn, countries in the MENA region benefit from high oil prices, as demand for energy exceeds production. The slowest growth is expected in the mature markets of Western Europe, where growth is forecast at 5.3% per year.

Zenith predicts, however, that the largest contribution to advertising spending growth will come from the USA, where growth is forecast at $80bn in 2021-2024. This accounts for 48% of all global advertising spending growth in that period. The next largest increase in value will occur in China ($15.8bn, or 9% of the total), the United Kingdom ($6.0bn, or 4%) and Japan ($5.4bn, or 3%). These are the four largest advertising markets in the world, which thanks to their high scale of spending compensate for what they may lack in speed.

Social media leads advertising growth and next year will overtake television

Zenith forecasts that social media will be the fastest-growing communication channel in 2021-2024, with an average annual growth rate of 14.8%, followed closely by online video at 14.0%. Paid search will grow by 9.8% a year, driven mainly by investment in e-commerce advertising space, and out-of-home advertising will enjoy solid growth of 7.4% a year as normal pedestrian and vehicle traffic returns. Radio and television will see slight growth, of 2.2% and 1.4% respectively, while print will fall by 4.7%.

Social media is becoming increasingly competitive. According to eMarketer, adult social media users in the USA spent 60.4% of their time on Facebook and Instagram this year, down from 74.8% in 2017. This is the result of the growing popularity of TikTok, which over that period rose from zero to a 15.1% share of time spent on social media. Platforms are also using commerce opportunities and developing new advanced interactions between brands and consumers. Marketers can use "self-service" tools to create augmented reality experiences and then distribute them through targeted advertising, which can effectively raise awareness and purchase intent.

Zenith forecasts that social media advertising spending will reach $177bn in 2022, overtaking television at $174bn. By 2024, social media advertising spending will rise to $225bn and account for 26.5% of all advertising, followed by paid search at 22.5% and television at 21.0%.

Digital advertising as a whole will exceed 60% of global advertising spending for the first time in 2022, reaching 61.5% of all spending, and by 2024 its share will rise to 65.1%.

Brands must use online video wisely to improve the cost efficiency of reach

Television advertising remains the easiest route to building brand awareness among a mass audience, despite the ongoing loss of viewers to digital media. Brands' reliance on television is driving rapid media inflation, which will continue even after there are no longer comparisons with 2020. Zenith forecasts that the cost of television advertising will rise by 11% in 2022, compared with 4% for out-of-home advertising, 3% for digital display advertising, 2% for radio and 0% for print media. Brands will have to confront their reliance on television, which offers an ever-smaller audience at higher prices.

Online video is fragmented, and managing campaigns is complicated. Many platforms deliver content via different devices and multiple screens, and before it reaches audiences it passes through various technology platforms and systems and media-buying processes at successive suppliers. However, by investing in data and planning technology, as well as building partnerships with suppliers, marketers can use online video to increase reach and lower costs. Zenith forecasts that online video advertising spending will rise from $62bn in 2021 to $91bn in 2024, when it will for the first time exceed 50% of television's value. Over the same period, television advertising spending will increase from $171bn to $178bn.

"Consumers are increasingly relying on digital media and technologies that allow them to communicate and provide entertainment, as well as inspire and enable them to do all their shopping. Advertising in this environment plays an increasingly large role in driving sales and brand development," said Jonathan Barnard, Head of Forecasting at Zenith. "Over the next three years, we expect the advertising market to achieve its highest rate of balanced growth since 2000."

About Zenith:

Zenith is an ROI agency, combining data, technology and the best specialists to discover new opportunities, solve complex challenges and grow Clients' businesses. Zenith is part of Publicis Media, one of four competence centres within Publicis Groupe. The agency operates in 95 countries and employs more than 5,000 specialists in communications and media planning, content and performance marketing, optimisation, and data and analytics. The Zenith team in Poland consists of 170 specialists working for several dozen leading global and Polish brands.