Zenith Study: Internet Advertising Will Exceed Half Of Global Adspend In 2021, Yet Growth Rate Is Rapidly Falling

Internet advertising will account for 52 per cent of global advertising expenditure in 2021, exceeding the 50 per cent mark for the first time, according to Zenith’s Advertising Expenditure Forecasts, published today.

That’s up from the 47 per cent of global adspend that internet advertising will account for this year, and 44 per cent in 2018.

However, the growth rate is falling rapidly as the internet ad market matures. Internet adspend grew 17 per cent in 2018, but activity in the first half of 2019 leads us to expect only 12 per cent growth for the year as a whole.

By 2021 we expect internet adspend growth to have fallen to 9 per cent year on year. The growth rate of the internet ad market is starting to converge with the growth rate of the market as a whole.

Zenith forecasts Australian adspend to grow by 3 per cent this year, reaching AU$17,192m. That’s aligned with the March growth forecast, but reflects a heavier uptake of internet and a steeper decline in TV revenues. Growth in 2018 was 6 per cent, up from Zenith’s last estimate of 3.2 per cent , creating a tougher comparative for 2019.

Zenith’s head of investment, Sydney Elizabeth Baker said: “Australia is ahead of curve in relation to digital share of ad spend, achieving the 50 per cent level back in 2017, and will edge closer to the 60 per cent share level over the next few years.

“The original catalyst for digital spend growth was the transition of print classifieds into online. Today, the fastest growing channel is video which now represents 8 per cent of the total ad market. The mobile platform is also a growing category and now accounts for a quarter of all advertising spend. We anticipate that this will only increase with the launch of 5G in Australia sometime later this year.”

In Australia, internet adspend grew 12 per cent in 2018, but a softening of the ad market against a turbulent economic backdrop leads us to expect around 7 per cent growth for 2019. Zenith expect internet adspend growth to fall to an average of 5 per cent year on year, for the next three years.

Global internet adspend growth is led by the overlapping channels of online video and social media, which are expected to grow at average rates of 18 per cent and 17 per cent a year, respectively, to 2021.

These channels are benefitting from continued technological improvements to smartphone technology, connection speeds, and advertising targeting and delivery, combined with strong growth in investment in content.

5G technology, which launched in South Korea and the US in April and is starting to roll out elsewhere, will further improve brand experiences on these channels by making mobile connections much faster and more responsive.

Other channels are growing much less rapidly. Paid search, which accounted for 37 per cent of internet adspend in 2018, grew by 11 per cent that year, and we forecast its growth rate to fall to 7 per cent in 2021. A lot of innovation in search is taking place in voice, which is currently not monetised.

Online classified advertising (ads sitting alongside other ads rather than content, such as jobs, property and second-hand vehicle listings) is starting to lose out to other digital channels, or free alternatives. Online classified advertising grew 9 per cent globally in 2018, but is already starting to shrink in some markets, and in 2021 we expect spending to decline by 1.6 per cent globally.

Traditional media remains the priority for most big brands

Much of the growth in internet adspend is coming from small, local businesses that spend all their budgets on platforms like Google and Facebook, which offer simple, self-serve tools to manage campaigns, and highly targeted audiences. The fact that large numbers of small advertisers are spending all their budgets online means they are skewing the overall picture.

The global average is made up of very many small advertisers that spend all their budgets online, and large advertisers that – on average – devote considerably less than half their budgets to it. Big brands are investing large sums in internet advertising, but the majority are still spending most of their budget in traditional media.

“The categories that have advanced the furthest in using modern digital channels are technology, media, finance and professional services,” said Matt James, Zenith’s global brand president.

“And even within these, brands still rely on traditional media to create broad mass awareness and reinforce brand values.”

Some traditional media face tough competition

Within the traditional media, print has long been in decline as online alternatives have taken their readers and advertisers. The ad revenues of printed newspapers and magazines peaked at US$164bn in 2007 and will total just US$70bn this year. Broadcast television is now beginning to shrink, though not nearly on the same scale: Zenith forecasts traditional television ad revenues to shrink every year from now to 2021, falling from US$184bn in 2018 to US$180bn in 2021.

Other traditional media are more healthy. Radio is increasing its ad revenue by 1 per cent annually. Out-of-home contractors continue to expand their digital display networks, contributing to 4 per cent annual growth in their revenues. Cinema, though accounting for a tiny 0.8 per cent of total adspend, is growing at 12 per cent a year, thanks mainly to a boom in the popularity of cinema in China.

Global adspend to grow 4.6 per cent in 2019, led by the US

Zenith forecasts global adspend to grow by 4.6 per cent this year, to reach US$639bn. That’s marginally down from the 4.7 per cent growth forecast in March, but is a strong result given the increased estimates of how much was spent in 2018. Zenith now estimates growth in 2018 at 6.4 per cent , up from its previous estimate of 5.9 per cent , creating a tougher comparative for 2019.

Global adspend is now forecast to increase by US$28bn this year. Almost half this growth (US$13bn) will come from the US, which is benefiting from very rapid growth in internet advertising – at 15.4 per cent , ahead of the global average of 11.7 per cent . China will be the next biggest contributor to growth, adding US$4bn in extra adspend, followed by the UK and India at US$1bn each.

“The point at which internet advertising exceeds 50 per cent of global adspend has been approaching for some time, but this is the first time it has appeared in our forecasts,” said Jonathan Barnard, Head of Forecasting at Zenith. “However, 2021 will be the first year of single-digit internet adspend growth since 2001, the year the dotcom bubble burst.”