‘Digital Deflation’ Slows Ad Growth in U.S.

Advertising spending in the U.S. will lag a relatively healthy economy next year because of what media agency Magna Global is calling "digital deflation.”

Magna forecasts ad sales to increase by 5% in 2016, including the effects of the political and Olympic spending. National TV ad sales are expected to grow 1.4% in 2016 (but would shrink 0.3% excluding the Olympics and politics). But during 2016, Magna expects digital spending to read $68 billion, for the first time topping TV spending, which it pegs at $66 billion.

Those spending figures are weak considering growth of person consumption spending rising from 3.8% in 2015 to 4.8% in 2016.

“We believe the main reason is ‘digital deflation’ linked to the transition from analogue to digital media,” the agency says in its report. “As media usage and ad dollars gradually migrate from traditional media to digital media and since digital media now represent on average a third of ad budgets, the overall budgets are stagnating and, in some spending categories, shrinking.”

Magna says that “‘digital deflation’ refers to digital media being on average cheaper than traditional media on a CPM basis; equally important is the deflationary pressure that the shift is exerting on traditional media inventory vendors, some of whom are struggling to maintain prices in the face of shifting demand.”

The agency notes that the scatter market has been stronger than expected in the second half of 2015. It chalks that up to a stronger-than-expected decline in C3 ratings and the heavy spending by daily fantasy sports sites.

“Beyond the inflation created by DFS spending spike this year and possibly next year and the cyclical influx of political spending, we believe that TV vendors, in the long term, won’t be able to obtain the CPM inflation rates they would need to offset the double-digit declines in ratings,” Magna says. “As a result our 2015-2020 CAGR [compounded annual growth rate] for U.S. television (encompassing even and odd-number years) is now set at -0.7%."

Local TV will benefit from $2.8 billion of incremental revenues generated by political spending around congressional, gubernatorial and presidential elections. This should boost 2016 ad sales by 10.7% to $23.4 billion, against an underlying (ex-political) trend of -1.4%

On a global basis, Magna sees ad revenue growing 4.6% to $526 billion.

(Photo via Got Credit's FlickrImage taken on Dec. 7, 2015 and used per Creative Commons 2.0 license. The photo was cropped to fit 3x4 aspect ratio.)

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.