Digital ad market set to eclipse old media for first time

Digital advertising on platforms such as Google, Facebook and Alibaba is set this year to overtake spending on traditional media for the first time, a historic shift in market share that has been accelerated by the coronavirus pandemic.

Excluding online ads sold by old media outlets such as news publishers or broadcasters, digital marketing is predicted to account for more than half the $530bn global advertising industry in 2020, according to GroupM, the media buying agency owned by WPP.

Separate forecasts released last week by Magna, part of IPG Mediabrands, also expect 2020 to be the year traditional media is upstaged.

The digital revolution in marketing under way since the millennium, when the internet accounted for under 2 per cent of spending, has transformed the ad market at a pace and scale that far outstrips the advent of television in the 20th century.

That trend has only gathered momentum during the economic shock of the pandemic. Overall ad spending is predicted to fall by about 11.8 per cent worldwide according to GroupM’s estimates, but the pain will be unevenly spread across old and new forms of advertising.

While pure digital advertising spending is expected to dip by only 2.4 per cent this year — bolstered by the shift to ecommerce — that on traditional media such as television, newspapers and outdoor advertising will fall by 20.7 per cent, even after including revenue from their own digital advertising products.

“In the last three months we have seen three years’ worth of digital acceleration take place,” said Johnny Hornby, founder of The&Partnership, a WPP-backed agency. “That has manifested itself in massive increases in people being online [and] massive increases in online shopping, most of which will not reverse.”

Spending by small businesses is an increasingly important part of the ad market and is “primarily responsible for driving digital advertising above the 50 per cent [spending] threshold”, said Brian Wieser, head of business intelligence at GroupM.

Since the lockdowns began, companies have tried to slash costs and move to cheaper marketing online that is more targeted towards purchases rather than promoting brands.

This disproportionately hit broadcasters and publishers, even though audiences rose sharply in April and May. Television advertising is expected to fall 17.6 per cent in 2020 and rise 6 per cent in 2021 according to GroupM, while newspapers will endure annual declines of 26 per cent and 2.5 per cent.

One senior executive at a big advertising holding company said there were “fundamental shifts” in the market, particularly for television. “This shock may do for free-to-air broadcast television what the financial crisis did for newspaper advertising,” they said. “It never recovered for newspapers. The question is how can broadcasters stop that from happening to them.”

Although there are signs of stabilisation, a recent survey of chief marketing offers by the World Federation of Advertisers suggests that a recovery may still take some time. Almost 40 per cent of the multinationals said this month that they planned to further delay campaigns by about six months.

Stephan Loerke, chief executive of the WFA, said the “uncertainty is likely to continue far longer than with previous downturns”.

“With demand down and supply increasing this is likely to remain a buyers’ market for much of the remainder of 2020,” he added, noting it may force some old media such as broadcasters to offer more flexible, short-term buying.

Some analysts initially thought the disruption of lockdowns might put a brake to the rise of digital marketing.

“Actually we saw the opposite happen,” said Vincent Letang, who runs global forecasting for Magna. He noted that more than two-thirds of Facebook and Google advertising was local. “Small local businesses embraced digital marketing and advertising for the first time during the lockdown just to keep the business alive.”

Christine Removille, an expert partner at Bain and former global president of Carat agency, said coronavirus differed from previous shocks because it would change not just purchasing power but consumer behaviour.

“Digital commerce is huge and many industries that previously had low penetration, like consumer product companies, will see that as an opportunity to not only sell directly but to capture consumer data,” she said.