Falling TV Ad Spending Gets Boost from Non-Linear Viewing

Spending on non-linear TV, including Hulu, over-the-top and network full-episode players, are growing fast, and are expected to partly offset declines in traditional linear TV, according to a new forecast by media agency Magna.

National TV revenue is expected to drop by 3% to $41 billion according to Magna, which makes TV healthier than other traditional linear media.

While ratings continue to drop due to cord cutting, advertisers in categories such as consumer packaged goods, pharmaceuticals, restaurants and movies continue to find national TV effective even as prices on a cost-per-thousand viewers continue to rise, according to Vincent Letang, executive VP, global market intelligence at Magna.

Letang notes that CPMs for TV rose about 10% last year and TV are higher in the U.S. than anywhere else in the world. TV is performing better than most other linear advertising formats, which were down 5% overall.

“National TV is still in demand and therefor is in a strong pricing position,” he said, adding that advertisers in categories including restaurants have grown cautious about digital alternatives and are increasing their use of TV at the expense of digital.

Hulu increased its subscriber base by 45% last year and is expected to post a 20% gain in ad revenue in 2018, while OTT and full-episode players will post double digit gains of 10% to 20%, albeit on a smaller base.

Local TV ad sales are expected to decrease by 18% to $18.2 billion in a non-election year. On top of the political pull back, key local ad categories including autos and restaurants are cutting back on local TV ad spending.

Digital ad sales are expected to grow at double-digit rates again, with a 12% gain to $124 billion forecast by Magna. in 2019. That growth is slower than in 2018, when digital ad spending increased by $18 billion.

Digital media accounts for more than 50% of ad spending, including 30% for national consumer brands.

The fastest-growing digital formats will be social, up 23%; video, up 19% and search, up 13%.

Magna also estimates that Amazon more than doubled its advertising revenue in 2018 to $6 billion. The online retailer, which controls 45% of U.S. eCommerce business, is emerging as a competitor to Google on the advertising front.

Overall, Magna predicts that 2018 will be the tenth consecutive year of growth for advertising revenues.

The 2019 gain follows what Letang called surprisingly strong fourth quarter with 12% ad growth.

Out of home had its best quarter in a decade in the fourth quarter, growing by 8.5%.

In all of 2018, Magna says that advertising sales grew by 9.6% to $212 billion, powered in part by cyclical events, such as the Winter Olympics, the World Cup and the mid-term elections.

Driving spending are technology companies like Apple, Facebook, Amazon and Google. On top of that, old-school technology companies like IBM are stepping up to compete in categories like cloud computing. Other digital companies increasing ad spending are streaming music services such as Spotify and Pandora.

“One of the drivers of the historically long and historically strong era of growth the US market is experiencing, lies in the technology sector introducing mass consumer products and services," Letang said. "While doing so, internet giants ironically discover what CPG marketers knew all along: the power of traditional editorial media (television, out-of-home in particular) to build mass brand awareness.”

There is also growth coming from a generation of direct-to-consumer companies. While they don’t sell technology--they sell shoes, and clothing and meal kits, they have a digital business model and rely on eCommerce, Letang said.

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.