• The currently estimated decline in advertising spend in 2020 will be 7.5%, less than the July forecast of a 9.1% drop
  • The situation in the Polish market is slightly worse – the latest estimates assume a 9.3% decline in advertising spend compared to the previous year
  • The shift of global advertising spend toward e-commerce advertising will contribute to a 1.4% global growth in digital advertising
  • Smart TV devices are driving global growth in video advertising spend
  • Global spending on purchasing advertising space on e-commerce sites will increase by 46% year-over-year

The global advertising market, after a severe collapse in the second quarter of 2020 caused by the coronavirus pandemic, will recover faster than expected. According to the forecast by media agency Zenith, global advertising expenditure will decrease by 7.5%, to $587 billion over the whole of 2020. This is a clear improvement compared to the July forecast, which predicted a 9.1% decline. The situation in the Polish market is slightly worse – the latest estimates assume a 9.3% decline in advertising spend compared to the previous year.

Furthermore, Zenith forecasts that global advertising spend will grow by 5.6% to $620 billion in 2021, driven by the Summer Olympics and the UEFA European Football Championship, postponed from 2020. Unfortunately, despite such a significant change, it will not be possible to match the 2019 result, when global advertising spend amounted to $634 billion. According to estimates by media agency Zenith, this will only be possible in 2022, when advertising expenditure will grow by 5.2% and reach $652 billion, exceeding the 2019 result by $18 billion. However, this means that the pandemic situation will cost the global advertising market about $70 billion, as Zenith's current forecast for 2022 is that much lower than the estimated result for that period before the pandemic.

The above estimates were made assuming that the global economy will begin a lasting recovery after the introduction of COVID-19 vaccines in 2021, but these forecasts are subject to great uncertainty regarding the pace of these changes.

Digital transformation involves rapidly shifting advertising budgets to the digital channel

Digital transformation accelerates

Zenith predicts that global digital advertising spend will grow by 1.4% in 2020, thereby increasing its share of total advertising spend to 52%, compared with 48% in 2019. The pandemic forced brands to accelerate digital transformation. E-commerce proved to be an important tool for maintaining relationships with existing customers, offsetting losses in in-store sales, and even acquiring entirely new customers. Euromonitor International predicts that the online shopping category will grow by 25% this year, while in-store sales will decline by 5%. Brands increased their spending on digital media to promote and drive traffic to their own e-commerce sites and retail partners. Search activities and social media investments proved particularly useful for these purposes, growing by 8% and 14% globally, respectively.

It seems that the trend of e-commerce's growing importance should continue even as the world begins to emerge from the coronavirus pandemic. Now that, under pressure, brands have appreciated the value of digital transformation, they will likely continue it with enthusiasm, allocating an even larger portion of their budget to digital advertising. Zenith predicts that by 2023, digital advertising will account for 58% of global advertising spend.

Advertising on Smart TV devices compensates for the growth in VOD channel subscriptions

Smart TV drives video advertising

We have been observing a steady trend of changes in TV viewership for several years, but in 2020 a true revolution occurred. Online video platforms benefited from the long-term growth in awareness and demand. Forced to spend much more time at home, consumers began using existing and already familiar SVOD platforms, such as Netflix, which gained 25 million new subscribers in the first half of the year. Consumers also did not shy away from new market entrants, such as Disney+, which thereby achieved its five-year growth goal in just nine months.

Importantly, for advertisers who do not have access to SVOD platforms, demand for video-on-demand advertising (AVOD – services with TV programs watched for free in exchange for viewing ads) is even greater, especially on television sets with Smart TV functionality. From January to April 2020, the reach of SVOD services in the US increased by 5%, while AVOD increased by 9% to 58.5 million households, or 48% of the total.

AVOD combines premium television with the data targeting capabilities of digital advertising. It offers high ad viewership and large reach among young viewers, who are unlikely to be traditional television audiences. If this growth continues over the next few years, AVOD will be a reason for SVOD to lose viewers and will thereby help drive average annual growth in online video advertising spend by as much as 8.4% between 2020 and 2023.

"Now is the right time for brands to invest in internet-connected television, which offers mass reach in key markets. Marketers should use it both for brand building and for increasing reach, thanks to its high ad recognition and broad targeting and tracking capabilities, to increase brand awareness and, at the same time, sales conversion." – said Christian Lee, Global Director at Zenith.

Visible growth in demand for advertising space in the e-commerce ecosystem (retailer media)

Retailer media grows stronger

Video advertising and e-commerce drive the global advertising market

How e-commerce and video advertising drive the global advertising market

This year's growth in the importance of e-commerce contributed to a sharp increase in demand for display or search ads that appear on retailer platforms and direct users to products that can be purchased there. This is a well-established channel in China, while in other countries it is relatively new. By promoting products at the point of purchase, it works more like in-store displays than traditional out-of-home advertising, and brands typically pay for it from trade budgets intended for negotiations with retailers rather than from marketing budgets. This channel can therefore develop without cannibalizing existing advertising spend. The main provider of advertising space in the e-commerce ecosystem for advertisers outside China is Amazon, and its revenue in 2020 grew by more than 40% year-over-year in every quarter.

E-commerce advertising space (retailer media) has enormous growth potential on a global scale, given that its market share outside China (3%) was less than one-sixth of its market share in China (19%) last year. Zenith estimates that advertisers spent $35 billion on retail media in 2019, and in 2020 they will spend $51 billion, representing a 46% year-over-year increase.

"Retail platforms are driving their growth by putting pressure on brand margins. Their emphasis on bottom-of-the-funnel price wars and enhanced consumer experiences means consumers benefit, while brands bear the costs," – says Ali Nehme, Global Commerce Director, Publicis Groupe. "In this scenario, brands must flex their own power by choosing retail partners that offer value that can be proven through transparent data and measurement, as well as the ability to reach consumers who will drive much-needed growth in this category."

Asia-Pacific and Central and Eastern Europe on the path to economic recovery

Regional market recovery

Zenith predicts that in 2021 advertising spend will return to 2019 levels in both the Asia-Pacific region and Central and Eastern Europe. The effective containment of the COVID-19 pandemic in many Asia-Pacific markets limited economic damage and prepared the region for rapid recovery in 2021. Central and Eastern European countries generally suffered more, but their advertising markets are less developed – accounting for 0.4% of GDP compared to 0.7% in the Asia-Pacific region – and have a faster underlying growth rate. According to the forecast by media agency Zenith, spending in both regions will shrink by 6% in 2020, while in 2021 it will grow by 7%.

North America performed better this year than any other region, and Zenith forecasts that advertising expenditure there will decline by only 5.3% in 2020, though this is partly due to very high political spending in the period preceding the US presidential election. The absence of politically related spending will make the comparison more difficult in 2021, when growth of only 3.3% is expected. In 2022, when North America returns to pre-pandemic spending levels, advertising expenditure should grow by 4.5%.

Meanwhile, forecasts for Western Europe, Latin America, and the Middle East and North Africa (MENA) predict declines in spending this year of 12.3%, 13.8%, and 20.0%, respectively. Among the above, Zenith expects the fastest economic recovery in Latin America, which is another underdeveloped region in advertising terms but with the fastest long-term growth of the three, and which will exceed 2019 spending levels in 2022. Western Europe will return to 2019 spending levels only in 2023. Meanwhile, the Middle East and North Africa have been reducing their contribution to advertising for years as a result of conflicts, political instability, and changing oil prices, which the pandemic only deepened. Zenith forecasts that advertising spend in 2023 will still be 4.1% lower there than in 2019.

"The global advertising market is rebounding from the level reached in the second quarter of this year. The prospect of effective vaccines gives us confidence that advertising spend growth will continue in 2021, and in 2022 the market will return to 2019 levels," said Jonathan Barnard, head of forecasting at Zenith.

Summary

The global advertising market will recover faster than expected – Zenith's forecast assumes a 7.5% decline in spending in 2020 and 5.6% growth in 2021. It will be driven by, among other things, postponed sporting events and the growing role of e-commerce. The fastest-growing area is advertising spend in the retailer ecosystem, which will increase by 46% year-over-year, to $51 billion.

An interesting fact is that the pandemic accelerated the adoption of streaming platforms – Disney+ achieved its five-year growth goal in just nine months. This in turn drives demand for AVOD advertising, especially on Smart TV devices, which combine the reach of television with the targeting known from digital.