WARC downgrades ad forecasts, but video streaming will outperform sector

Global advertising spend is on course to rise by 8.3%, or $67.3 billion, to $880.9 billion this year, according to advertising research organisation WARC – numbers that represent a significant downgrade on previous predictions.

The outfit found that advertising spend is being lifted by a positive first half for holding companies and a boost from cyclical events in the second, most notably the US midterm elections and the men’s FIFA World Cup in Qatar this November.

Market growth is then set to ease significantly – to 2.6% – in 2023, as investment is inhibited by cooling economic conditions and third-party cookie blocking online, said WARC.

While still predicting growth, the projections based on data from 100 markets worldwide amount to a downgrade of 4.3 percentage points for this year growth, with a downgrade of 5.7 percentage points in line for 2023, compared to WARC’s previous global forecast in December 2021.

Taken together, the new forecasts represent a reduction of almost US$90 billion in growth potential for the global advertising market this year and next.

WARC expects social media ad spend to rise 11.5% this year, compared to 47.1% in 2021, then ease to just 5.2% in 2023, the slowest rate yet for the sector.

Apple’s move to block third party cookies across its two billion devices – which are used by 12% of the global population – has already had an adverse impact on the social media companies which rely on third party data, most notably Facebook-parent company Meta, said WARC.

Meta recorded its first annual decline in advertising income during Q2 2022 and WARC believes its full year growth will be flat over the forecast period, with Instagram offsetting declines at Facebook.

TikTok, Snap and Twitter are all expected to record growth next year, but at a far slower rate than previously.

Advertising spend in the video streaming sector is set to grow faster than the total ad market this year, up 8.4%, and is set to grow by 7% next year.

Within this, the advertising-funded video on demand (AVOD) sector – which includes the likes of Hulu, Amazon Prime Video and YouTube – is expected to rise 8% this year and then a further 7.6% in 2023 to reach a value of almost US$65 billion.

However, YouTube’s fortunes have also proven vulnerable to privacy changes on Apple devices; WARC believes that YouTube’s advertising revenue will rise 7.3% this year, compared to a 45.9% in 2021, but that its growth will then ease to 5.6% in 2023. This would give the company 39.4% of the global AVOD market, a declining share as competition heats up with the introduction of advertising to Disney+ and Netflix later this year.

Streaming services owned by broadcasters (BVOD) are set to grow their advertising income this year by 9.7%, falling next year to 5.2%, but from a lower base, reaching US$18.5 billion in 2023. Linear TV is set to benefit from cyclic sporting and political events this year, raising advertising investment by 3.6% to US$180 billion or 20.4% of all advertising spend, but the market is then on course to record a 4.5% loss in the absence of these events next year, according to WARC.

James McDonald, director of data, intelligence and forecasting, WARC, and author of the research, said: “With the growth rate of global output now set to halve and acute supply-side pressures fanning inflation, the economic slowdown has removed close to $90bn from global ad market growth prospects this year and next. Yet brands are still spending as the Covid recovery continues, and global ad trade remains on course to top $1trn in value by 2025. Platforms with rich sources of first-party data – most notably Amazon, Google and Apple – are well placed to weather future headwinds by offering measured performance in a climate where return on investment becomes paramount.”

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