Study: Aussie Ad Revenue Growth Set To Slow In 2018

Study: Aussie Ad Revenue Growth Set To Slow In 2018
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Australian advertising revenues are expected to grow by 2.9 per cent to $16 billion in 2018, according to the latest forecast from IPG Mediabrands’ media intelligence and investment division.

Magna’s most recent forecast, issued this week, sees 2018 growth lower than 2017’s expected full-year performance of 3.2 per cent, and also below Magna’s prior forecast for 2018 of 4.3 per cent.

Taking a longer view on industry growth, Magna expects total ad spend to see a 3.8 per cent, five-year compound annual growth rate (CAGR) – about half the pace seen in previous years.

Magna Australia managing director Victor Corones said: “The International Monetary Fund has reduced Australian growth expectations to 4.2 per cent on a nominal GDP basis – down from prior expectations of 5.3 per cent growth.

“This is a combination of both lower real GDP and lower inflation, both of which result in a headwind to advertising spending.

“Whilst forecasts appear initially dampened, The Commonwealth Games and several state elections are potential growth levers across the year for several media sectors. A federal election currently pegged for 2019 also has the potential to move earlier and fall into 2018.”

Magna’s study found that sectors such as travel, automotive and retail (in particular, as the Australian market awaits the impact of Amazon’s launch) are expected to grow in 2018.

One ad-spend sector Magna expects to contract in 2018 is real estate, as activity cools from pace seen in 2017.

Magna’s assessment of macroeconomics affecting future media ad spend include rising household debt, inflation outstripping wage growth, under-employment (those that are unemployed and/or seeking more employment) and flat consumer retail spending in the third quarter of 2017.

It is no surprise that digital remains the driver of ad revenue growth in Australia, and is expected to increase by 10 per cent in 2018 to reach $9 billion.

Australia remains one of the most advanced digital advertising economies globally, with the fourth-highest digital share of media spend expected in 2018, at 57 per cent of total budgets.

Search is predicted to increase 7.7 per cent in 2018, fuelled by an increase of new features and innovation such as location-based search, shopping feeds and integration of search features in more devices, giving advertisers more opportunity to connect with customers, according to Magna.

However, diversification of social media through players like Facebook, Snapchat and Pinterest are expected to place pressure on the growth of search.

Social media is expected to see continued growth in ad spend of 18.1 per cent.  The rise of news feeds, diversification of social platforms and increased mobile usage are seen as key drivers in 2018.

Total digital display investment is expected to remain close to flat.

Across the total digital ecosystem, mobile will attract close to 54 per cent of spend.  By 2022 Magna predicts mobile will account for as much as 72 per cent of all digital ad spend in Australia.

Screen video advertising, which includes linear, catch-up and video streaming services, is expected to see 2 per cent growth in 2018 and a 1.9 per cent five-year CAGR.

Video is by far the standout performer, expected to see 21.7 per cent growth in 2018 and a 17.8 per cent five-year CAGR.

Linear TV is expected to see a 4 per cent decline in 2018 and 6 per cent contracted CAGR. This is partly a reflection of how TV networks are shifting their business model into newer revenue streams, such as streaming, that are currently classified under digital, Magna noted.

The study says linear TV’s greatest challenge is how best to diversify revenues while continuing to protect the dominant revenues of their broadcast services.

“The clock is ticking on this scenario,” Corones said. “As consumers continue to seek out content across multiple devices and platforms, linear TV channels face audience declines, which in turn is driving inflation for this medium.

Victor Corones

Magna’s Victor Corones

“The concept of clients paying more for less is always challenging, even for such a powerful and dominant medium such as linear TV.

“All three major commercial TV networks spoke about their digital streaming capabilities in their upfronts going into 2018, particularly as connected TV apps start to deliver audiences at scale.

“This lays an important foundation for new revenues, so getting the consumer and experience right are critical.”

Magna’s report says out-of-home (OOH) ad spend is expected to see growth of 6.6 per cent in ad spend in 2018, with digital OOH expected to increase by 15 per cent and account for close to half of ad spend within this sector. Traditional OOH is forecast to remain flat.

Radio growth is pegged to 1 per cent year-on-year growth, while print continues to see precipitous declines, and expectations for 2018 are for contraction rates worse than 20 per cent for both magazines and newspapers.

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