Month: June 2020
New estimates as to the impact of the Covid-19 pandemic on advertising revenue in 2020 and 2021 have been issued by Magna Global, a unit of IPG Mediabrands that provides media intelligence, such as on-going estimates of worldwide advertising revenue. Magna predicts that total worldwide ad spending will end 2020 down by 7%. In the U.S., if you remove the once every four year advertising tidal wave driven by Presidential and other political campaigns, then Magna estimates that U.S. advertising revenue will be down 6% for 2020.
Other analysts generally agree with Magna’s estimates, such as Raghu Kodige, Co-Founder and Chief Product Officer of Alphonso, a TV measurement and data company based in Silicon Valley, who said, “This is a reasonable, if modest estimate, given that we’ve already logged 25% of the year in a lower-spend environment with major tentpole marketing events, like March Madness, completely shut down.”
The digital ad spend is projected to be flat year-over-year by end of 2020 worldwide and up a bit in the U.S. for 2020 at a 2% projected increase. Magna says: “The most resilient formats will be digital video, as well as social media ads.” Digital spending had a very good Q. 1 this year and there are already signs of the third and fourth quarter bouncing back.
I wrote about the falling advertising revenues caused by the Covid-19 recession last month here at Forbes.com and the new data from Magna shows clearly that traditional advertising is under a lot of pressure (particularly print and TV) and digital spending is showing some strength into the second half of 2020 and the full year of 2021.
Jonah Bloom, former Editor-in-Chief of AdAge and currently CMO of Kinship, a start-up dedicated to improving people’s friendships and networking, said there is, “a long-term, ongoing shift, that isn’t going to change regardless of market conditions,” as “brands continue to spend more on customer experience, and (related) technology and content.”
In 2021 Magna expects that advertising spend worldwide, and in the U.S., will rebound based on the GDP growth expected in 2021. Vincent Letang, Executive Vice President and Managing Partner, Global Market Intelligence at Magna, said, based on well-respected estimates of likely GDP growth in 2021, that the GDP is forecast to grow in the U.S. by 3.1% to 4.7%, according to macroeconomic forecasts issued by the Federal Reserve Bank of Philadelphia and the International Monetary Fund, respectively. These GDP estimates are likely to translate into a U.S. growth in 2021 advertising by 4% approximately, Letang estimated.
The unknowns, both in the advertising world, and across our economy, are immense as we go through this once in a lifetime event. As Josh Sternberg, editor and writer of the Media Nut, a daily media business newsletter, and a former journalist at Adweek, NBC News, Washington Post, and Digiday, said “We have no idea how bad it’s going to get.” He expressed worries to me that with the end of the stimulus, continued unemployment and a virus that is not under control yet, “it’s hard to see ad spend bouncing back.”
Though there is a lot of data and experience to back the Magna estimates, which are similar to other predictions about the next few years in the advertising industry, you still wonder if the Chinese Poet from the 6th Century BC, Lao Tzu, was wise when he said, “Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.”
Snap, like Facebook FB in its earlier years, is frequently being viewed, in terms of success or failure, from the point of view of monetization. It is relatively easier to acquire a large audience to use a free service like Snapchat, than it is to monetize those consumers and achieve large-scale advertising revenue growth.
In a further step toward enhanced monetization, Snap announced last year a new automated advertising product, Dynamic Product Ads (DPAs) in the U.S. and selected other countries. Snap has just recently extended that product to more countries in Europe, the Middle East, and Australia.
DPAs are appealing to e-commerce advertisers because it allows retailers and brands to more easily sell their services and products to consumers using Snapchat. Google GOOGL and Facebook already offer similar ad products, where an e-commerce catalog is uploaded into a template on a digital platform and then updated in real-time. The benefit to consumers is that they will get up-to-date listings of products and prices. The benefit to advertisers is that they will save time over previous methods of updating e-commerce digital listings.
Rob Seidu, the senior director of media activation in Europe for Adidas said they have seen an increased return on advertising spend during their test of Snap’s DPAs. “The launch of DPAs allows us a route to reach our target Gen Z and Millennial audiences with relevant product creative throughout the consumer journey,” Seidu said.
Long-time digital media observer and experienced revenue executive in the digital world, Michael Hudes, observed, “Snap’s move to launch dynamic ads is a no brainer move for all of the obvious reasons and on the surface, far from innovative. The real question is how does Snap deliver a user experience that performs for a wide swath of brands and not just direct response – D to C – advertisers?”
In the period leading up to Facebook’s IPO many analysts doubted Facebook’s ability to monetize particularly in the mobile environment. But once Facebook demonstrated rising advertising revenue with good margins, the stock took off and has been a darling of Wall Street.
While Snap’s stock price has moved up considerably in the last year, as they increased revenue and demonstrated the value of their many US and European users, they are still trading below their high. Snap has other efforts underway to increase their advertising revenue, including an advertising network across many sites and apps, not limited to Snap properties.
Snap has continued to hire advertising sales people from some of the leading digital companies, like Facebook, Amazon AMZN, and Google. Snap continues to take more and more steps toward demonstrating they can grow their primary revenue stream – digital advertising.