The Future Of TV Advertising: Ad Downturn Is Cyclical, But Bulging ‘Martech Muscle’ Will Continue To Erode Media Budgets

Agency leaders, including GroupM’s Aimee Buchanan, Dentsu’s Danny Bass and former global Initiative CEO Mat Baxter warn that media spend in the channel may not return to previous levels and that local TV broadcasters need to rally together in the face of growing competition from social media platforms and streamers.

Advertising budgets will make a comeback but don’t expect investment in TV to return to previous heights.

Media agency leaders warn that although the current downturn in ad spend is cyclical, marketing budgets that were previously pumped into media are increasingly being siphoned into martech.

Global companies including L’Oreal, Mondelez, Diageo and Ford have recently reported an increase in marketing expenditure of between 11 to 20 per cent in the first half of FY24, but this money is not being invested into broadcast TV.

In Australia, TV ad expenditure dropped 11 per cent partially due to the economic slowdown, but the sector could be facing some structural shifts in how large companies deploy their marketing budgets.

Dentsu Media ANZ chief executive Danny Bass said that although the current downturn is cyclical, he doubts investment in TV advertising will return to previous levels.

“Advertising has always come through cycles of boom and bust, but every time it goes down, clients now more than ever before are looking at where that expenditure is going,” he said. “I think the overall pot will increase – there’s no question about that – but it’s going into areas that are not just advertising, but also in martech as well.”

Baxter, who led IPG Mediabrands media network Initiative for nearly five years before running design and creative consultancy Huge, said brands are investing marketing budgets more aggressively into internal marketing technology systems.

“They’re taking budgets that would historically have gone above line or even called to other departments within their businesses,” he said. “They’re redirecting and re-allocating them to their own efforts in data management, performance management and in-house teams. So you’re seeing the pie get bigger in terms of the expenditure, but the extraction for advertising companies and publishers getting smaller.”

“They’re building their own muscle and as that muscle gets bigger, the requirements to lean on the muscle of external suppliers and partners gets smaller.”

An example that Baxter cites is a large global brand bringing on board Amazon to become a data exchange, insights and management partner, using “spots and dots” budgets for martech.

“We need to be aware that this isn’t just a cyclical thing, it’s a bigger and more seismic recalibration of how brands think about their ecosystem,” Baxter added.

The upshot for Australia’s TV broadcasters is that they “really need to find strength in numbers”.

“The truth is the only way you’re ever going to be able to counterbalance some of the dynamics are really big technology players, who really have the benefit of scale, multiple geographies, billion dollar plus investment capabilities…is to unify at a local level, and try and pull your effort resource and your strategy together…(rather than) if you try to run your own race and allow all of these fractures to occur in the ecosystem.”

‘Not all video content is equal’

GroupM ANZ chief executive Aimee Buchanan struck a more optimistic note, explaining that the drop in TV advertising spend last year is due to several factors, including increased competition from streamers Netflix, Amazon Prime, Kayo and Binge that didn’t sell ad inventory a year ago.

“Going into next year the (TV ad market) should stabilise and be flat, but then move into growth,” she said. 

Buchanan said that growing competition and more sophisticated BVOD offerings from the likes of Nine, Seven and Paramount should open up TV advertising to a larger market of small and medium sized businesses that previously couldn’t afford linear TV inventory.

“The fact is not all videos are created equal and our job moving forward is to stop talking about screens… and delineate the role that high quality TV content is going to play in advertisers’ campaign objectives…and really dissect the market in a more granular way.”

Buchanan disputes Baxter’s claim that L’Oreal is reducing its media spend, arguing that the cosmetics giant – a GroupM client – is actually increasing its media budget because “it’s driving growth” and pumping more money into martech.

‘Two seagulls fighting over a chip’

Later in the session, Dentsu’s Bass said the industry has a problem attracting the attention of marketers, pointing out that only a small proportion of the attendees at the Future of TV Advertising conference were client side. This was disputed by event organisers, who said marketer attendance had in fact increased.

Bass contrasted this to the recent Salesforce World Tour in Sydney, which attracted a far larger audience of marketers and business leaders. He said this indicates a “shift in thinking”  of the priorities of marketing executives.

“What worries me is, have we missed the moment in time?,” Bass said. “You [Mi3 executive editor Paul McIntyre] and I were on this stage in 2019, and if you look at the agenda for that day, we pretty much were talking about the same things. 

“I think it’s really important that we, as an industry, look at who the key constituents and decision makers are in our ecosystem and talk to them. Otherwise, the show will return and (it will be like) two seagulls fighting over a chip.”

Bass said that while the outdoor advertising and radio sectors have bandied together to support their mediums on issues such as measurement and advances in tech, “TV broadcasters seem hell bent on trying to destroy each other. And that’s not good for anyone.

He added: “That TV channel (Newshub) in New Zealand that went under is a bellwether. None of us need that to happen over here.” 

Consolidation headwinds

GroupM’s boss warned that “it’s probably inevitable” there will be consolidation of TV broadcasters in the future because the business model of producing and distributing expensive high quality TV content doesn’t stack up when compared to the likes of YouTube, Meta and TikTok, which distribute and commercialise user generated content.

She wants the industry to “get more scientific” about how it allocates spend towards high quality TV content because it often produces a better return on investment. 

Baxter said one of TV’s biggest problems is that it’s not particularly good at marketing “brand television”.

“If I asked everyone in this room what distinguishes TV from other publishers in the ecosystem, would the [responses] be consistent and uniform? The answer is it would all over the fucking planet. If you stand for nothing or stand for very many things it’s very difficult to build a coherent brand story and differentiate yourself from super brands like YouTube and Facebook.”

Baxter’s critique of TV’s image problem was later acknowledged by Seven’s chief revenue officer Kurt Burnette and, at yesterday’s B&T Best of the Best event, by Nine’s chief marketing Liana Dubois.

Although the message is loud and clear – collaborate and tell a better brand narrative about what distinguishes television from its rivals – it remains to be seen how the fiercely competitive and somewhat fractured TV sector will respond.