The Decade with No Name Held Some Surprises
The last year of the 2000’s was not one for optimism for the media industry in much of the world, at least outside of China. The advertising economy was in freefall in the aftermath of several years of irrational exuberance from the financial services industry. Looking into the future with any sense of optimism at that point in time required further irrationality; such was the state of affairs.
And yet, economies did recover, albeit unevenly and often unequally. Advertising expanded massively, growing by +57% in constant currency U.S. dollar terms between 2009 and 2019, or +5.0% annually. Notably, a weaker U.S. dollar contributed to this growth. In dynamic currency terms, accounting for actual changes in foreign exchange, growth was only +42% over the decade, or +4.0% annually.
At the same time the global economy and the advertising economy were facing steep challenges, technology was disrupting consumer behavior in certain spheres. Unsurprisingly to us, at least, TV did not “die” as many expected. Instead, it grew globally by +20% over the decade, or +2.0% per year, and actually grew by more in the medium’s biggest market, the United States.
On the other hand, we were somewhat surprised by the degree to which internet-related advertising expanded, with an annual average growth rate of +19% and an aggregated expansion of 5.6x over the decade. Much of the gap between our expectations and what became reality can be explained by the degree to which print media declined: newspapers and magazine-related advertising fell in half around the world, a remarkable collapse if there ever was one.
Relatedly, perhaps the biggest specific surprise of the past decade was the scale of the impact of Apple’s iPhone, launched in 2007, and smart phones more generally. The notion that any given year might be the “year of mobile” had been a running joke for much of the prior decade, but arguably, the iPhone made the 2010s the “decade of mobile,” so much so that the distinction between mobile devices and any other internet connected devices was rendered mostly meaningless. Advertisers wanting to reach consumers in digital environments by now presume that most of their messages will reach consumers’ mobile devices. Moreover, business strategies evolved to take advantage of the always- “handy” nature of these now-ubiquitous mobile devices and increasingly presumed that functions ranging from customer service to sales and ongoing interactions would occur with them.
Streaming video services also proved to be a surprise. While the notion that streaming video services would emerge was not surprising (the concept was proven out in the mid-2000s), the introduction of premium programming in 2012 on Netflix was unexpected. This was the start of an era featuring the development of high-end (and high cost) original series by Netflix and, eventually, their competitors. This would drive subscriptions and so much more viewing via these services.
None of this could have happened without massive amounts of capital. Between originals and library content, Netflix will have deployed nearly $60 billion in cash to develop and acquire its streaming programming since 2012. To fund these expenditures, the company has had to raise $16 billion in new capital, including more than $12 billion in the last three years alone. Amazon more or less followed suit, albeit at a smaller scale, and mostly with a self-funded model supporting its Prime service. The two companies sparked Disney, AT&T, Apple and others to invest heavily into the opportunity, if only out of fear of the consequences of not doing so.
A third standout surprise is the degree to which digital advertising around much of the world concentrated around two companies, Facebook and Google. The internet was always supposed to be an open environment, and one which allowed for new entrants to compete aggressively. And, indeed, neither Facebook nor Google were early entrants. However, through clever strategies and acquisitions, the two companies solidified their commercial positions in almost every country on Earth. They did this by meaningfully offering value to consumers in exchange for the opportunity to expose them to ads and by offering advertising products that appealed to a wide range of marketers. Similarly, the degree to which they impacted the world – for better and worse – was also surprising, as the two became deeply entrenched across virtually every segment of every society in the countries in which they operate.
With the past behind us, what’s likely to play out in the decade ahead?
We think that key trends to monitor relate to how the trends of the past decade will play out. We see growing points of intersection between marketing technology and media as consumer experiences with brands and products, data and media become more deeply intertwined. Content will only get better for consumers and their expectations will rise; profit margins for media owners will worsen as they invest more aggressively to meet those expectations. This may also lead to fewer advertising opportunities in some instances as consumers have now been trained to expect great content without advertising, or with less. Even if traditional advertising inventory falls in a meaningful way, new and different commercial environments should expand, such as branded or brand-owned entertainment, content integrations or new kinds of commercial pods.
Lastly, heightened levels of regulation look likely for digital media, which could have the effect of entrenching today’s giants, but may prove to be a necessary tradeoff for societies and their governments. Of course, all of this may play out differently in different countries, with each of China, Russia, Europe and the United States establishing their own approaches; they are likely to be mirrored by other countries depending on the degree to which they are aligned politically and commercially.
Undoubtedly there will be other trends to play out that can’t be anticipated. Fortunately, forecasting is never finished. The best approach is to forecast early and forecast often, which we expect to do as frequently as we can throughout the decade to come.
As originally written for Campaign.