U.K. advertising will grow +7.8% in 2019, to £22 billion. Despite all the uncertainty facing the United Kingdom in 2019, the media industry has held strong. Our estimate that advertising will grow by +7.8% this year marks the sixth consecutive year of midto- high-single-digit growth. Since 2013, the U.K.’s advertising sector has expanded by more than half, up +55% over that year’s levels, and, with that growth, the U.K. is unambiguously the fourth largest market on Earth. If recent growth trends were to persist, within five years the U.K. would possibly match Japan’s size and become the third largest. But, of course, the key word “if” is difficult to bank on without much certainty around the relationship the U.K. will have with the rest of Europe, or the health of its own economy over that time horizon.
2020 still looks strong, and GroupM forecasts +6.7% next year, to £24 billion. While recognising the aforementioned risks, we maintain an optimistic outlook on industry-level growth; after all, U.K. advertising has been so resilient in the face of so many challenges. To point, key economic variables related to advertising (personal consumption expenditures and industrial production) exhibit a very high degree of correlation to advertising over the past two decades (with a 0.8 R2). The model would have predicted advertising very well up until last year, but then would have woefully underestimated growth this year given the weakness in those variables during 2019. Such weakness is expected to persist at an economy-wide level in 2020, and while one could argue a reversion to mean is in store, current signs suggest growth will continue to hold up, leading us to raise our forecast for 2020 to +6.7% versus our June 2019 expectation for +4.6% during 2020.
Digital-first marketers are likely driving much of the industry’s recent growth. Why such strong numbers? It is noteworthy that the U.K. and US are relatively unique among large, mature advertising economies in posting the growth that each have in recent years. The commonalities include spending by more small businesses on digital media, but we think the more substantial factors are the emergence of massively scaled digital brand owners whose businesses are endemic to the internet. A review of securities filings from Facebook, Amazon, Netflix, Alphabet, eBay, IAC, Uber and Booking.com indicate these eight companies spent more than £20 billion on advertising globally during 2018, and to the extent that their ad spend grows in line with revenues they will spend more than £25 billion in 2019. This equates to ~5% of the world’s total spending and a full percentage point of growth from eight companies alone. If we add in the next tier of digital endemics that may not have existed even a decade ago, it’s not hard to imagine additional percentage points of growth emerging from these types of marketers. With much of the revenue generated by these companies occurring in the U.K., it’s hard not to imagine the flow-through effects on the growth rates described here.
Such rapid growth from this group of marketers is unlikely to persist over the long run, as growth rates should ultimately normalise to more closely match economic growth. This would contribute to industry-wide ad spend deceleration. On the other hand, economic conditions in the U.K. should improve as we look past 2021—all things being equal—with more stable conditions likely in place. To the extent that longer-term economic forecasts compiled by Refinitiv hold up (with ~+3.0% personal consumption expenditure growth and ~+1.0% industrial production growth), our model would indicate better than +5.0% growth in advertising in subsequent years, which we incorporate into our forecasts.
Digital advertising will continue to grow by double digits this year and next. Looking at specific media, we forecast digital pure-play media (i.e., excluding digital revenue associated with traditional media owners) will end 2019 +15% higher than 2018 levels, with the second half of 2019 growing at a faster pace than the first half. Growth is still expected to be resilient next year, rising by +11% in our forecast. In 2020, digital advertising will account for two-thirds of all media we track here. At such scale, further growth will necessarily converge toward the industry’s overall growth figures by 2024; this is the law of big numbers. We believe digital pure-play media owners will account for 73% of all advertising in the U.K. by 2024. Search should generally grow faster than the overall average, both because of the appeal of its performance-based characteristics to marketers of all kinds, and because voice search and commerce-based search are likely to become increasingly important as time progresses.
Digital-first brands still rely on digital media. As we imply above, much of the growth in spending on digital advertising in recent years has been driven by digitalfirst brands, whose own business growth rates should necessarily slow as they mature and see their growth rates converge with the rest of the economy. However, most large brands will continue to rely on digital media to supplement brand building activities that are often centered around TV or other offline activities, focusing on the use of digital media to drive deeper engagement with consumers who may already have a view on what a brand stands for.
Of course, digital media has the capacity to build brands, subject to an appropriate creative strategy. Then again, ongoing challenges remain around digital media for brands, including the increasingly “toxic” environments of platforms that do not curate content or other advertisers, with the widespread availability of inauthentic content (including fake ads) and other polarising or extreme content. Measurement remains another problematic issue, as fragmented, incomplete and often low-quality sources of data make it difficult to assess the metrics that brand-focused marketers want to rely upon in order to manage their budgets well in digital environments. The big question is whether or not brand building is the focus of brand owners into the future. It may not be.
Business transformation efforts from traditional brands will orient those companies’ media plans towards digital media. As traditional offline-oriented brands increasingly invest in digital business strategies—business transformation, for lack of a better term—including direct-to-consumer concepts, sales via thirdparty e-commerce channels, and focus on driving consumers to digital experiences (including marketers’ websites or branded content), more growth in spending on digital media will occur. As of this point in time, most brands generate only a small percentage of their revenues from e-commerce, but there are some brands pushing toward half or more of their revenues or consumer relationship activities from nontraditional environments, demonstrating possibilities yet to emerge. Of course, some categories will never be meaningfully digital (gasoline for automobiles is one example), and growth trends will not be evenly distributed around the world, as some countries will widely adopt new business models sooner than others.
Traditional TV advertising will be flat in 2020 as the medium sustains tremendous value for marketers even as “TV” evolves during an uncertain economic period. We estimate television will be down by -2.3% this year but rebound closer to flat next year and in subsequent periods. Few advertisers blame Brexit expressly, but it was a convenient explanation for 2019’s slow start and a useful alibi for continuing caution. As Brexit was delayed we saw money come back to the ad market, and we expect that to continue into 2020 as uncertainty means corporations will want to protect cash reserves. Pressure on budgets shows up most in big brand partnerships in TV and other media. Sponsorships still sell but are less contested, and the supporting activation—merchandising, content, talent—less elaborate. But we are seeing new-to- TV clients willing to exchange equity in the company for airtime value exchange.
Secular factors are impacting the TV market as well. Voluntary reform in live-odds advertising took effect towards the end of 2019. Excepting horse racing, this brought an end to such advertising during sporting event transmissions. Demand for such airtime far exceeds supply, so it trades at a big premium.
Pre-watershed HFSS is the other current focus for regulation. Brexit distractions have pushed this back to 2020, and ITV has the most to lose here. Broadcasters may revise schedules and move minutage from pre- to post-watershed to protect revenue. Grey areas seem likely, for instance when HFSS is incidental or subsidiary in a commercial message.
Data and new forms of trading should also help reinforce the value of the medium, even if they don’t directly lead to spending growth in the future. Data now allows for narrower targeting of audiences across both linear ad insertion (Sky’s AdSmart) and online platforms when compared with historic broadcast TV trading audiences. Further advances are likely as Sky’s owner, Comcast NBCUniversal, hopes to bring CFlight (a unified measurement that captures all advertising exposures across all screens; initially developed for the U.S.) to the U.K. in 2020.
Outdoor should be the fastest growing “traditional” medium. Outdoor remains a standout for its capacity to sustain growth, supported by ongoing innovation, especially in digital out-of-home, and its relatively unique capacity to generate, capture and sustain attention. These advantages are more apparent to many marketers, especially as traditional television continues to weaken. Digital formats are increasingly important, now accounting for half of spending on OOH, with further share gains still to come especially as more automation takes root, including the emergence of performance-based targeting and data-driven trading. After growing by close to +8.0% this year, we expect +4.0 to +5.0% levels over each of the next five years.
Radio also appears set to hold on to its r evenue base this year. This will be followed by +2.0% growth next year and closer to +1.0% in subsequent years. Audio streaming services are proving helpful in supporting these outcomes, as is audio’s longer-term audience durability. This makes the medium more appealing to existing advertisers and also helps make it interesting for newer digital-oriented marketers.
Cinema will end 2019 with robust growth. Cinema should end the year with +9.0%, growth, but we don’t believe this growth level is sustainable. We forecast +4.5% growth in 2020 and low-single-digit growth in subsequent periods.
Print will continue to be challenging, although it retains value as a niche medium. Unsurprisingly and despite improvements in measurement and its capacity to engage deeply with consumers, the medium is still set to decline on an ongoing basis, although declines for newsbrands are not as bad as they are in some countries. We believe national titles will have fallen by around -7.0% this year and will decline by another -6.0% next year, with similar levels of decline in subsequent periods. Regional titles should fare somewhat worse, at least for this year and next, with a -11% decline expected in 2019 and a -9.0% decline expected for 2020. Magazines are likely to be similarly weak this year and next, with worse declines relative to newsbrands through 2024. Digital extensions offered by newspaper and magazine publishers help ensure that trends will not be worse, although newspapers and magazines account for less than 10% of media investment on a combined basis in 2019 and beyond, down from more than 50% as recently as 2004.
Media is a means to an end: The goal should be to optimise resources to drive business growth. Putting all of this into some context, we are mindful that marketers can look at the data included here to gain a sense of the health of their media partners now and over the next several years. However, even a media owner in decline may still be investing in new and better ways to connect with audiences. At the same time, other media owners may be healthy in terms of revenue growth but may not be investing in everything they can to make their ad inventory more effective. More broadly, we encourage marketers to continue to view media as a means to an end. It should be considered along with investments in internal marketing infrastructure, marketing technology software and other external services that support marketing excellence. Increasingly, the way all of these things work together is what will help some marketers succeed more than others. Ensuring that processes are in place to optimise the balance among these elements will be more impactful than the choice to invest—or stay away from—any one type of media as it grows or declines in the years ahead.