TV in the wider media advertising context
In the last five years, advertising markets have been characterized by the rise of online and mobile, deterioration of print and stability of TV. Between 2010-2015, newspapers and magazines have declined at a compound annual growth rate (an average decline per year) of -6.9% in Europe, -8.5% in the US, -4.3% in the APAC region and -5.8% globally. This is (in part) due to print budgets migrating online and has contributed to the strong growth in interactive advertising, which increased at a CAGR 2010-2015 of 17.4%, globally.
Throughout this time, TV advertising has remained stable, driven mainly by economic factors and quadrennial events (elections and sports competitions). Brand advertisers have remained loyal to the medium and perceive television as an effective tool in achieving their marketing goals.
In 2014, TV advertising revenue amounted to €155.2 billion and accounted for 39.8% of the total advertising market, globally. It is the largest advertising medium, more than 10 percentage points ahead of online, the second largest.
Television has maintained its share of advertising revenue between 39.0% and 40.0% in the last five years and this is unlikely to change to in the mid to long-term. IHS forecasts a slight decline in its share in the next five years; however TV advertising will still account for 38.4% by 2019, only 1.5 percentage points lower than in 2014. This demonstrates the resilience of the medium and its entrenchment in the advertising ecosystem.
In 2010-2015, TV advertising markets were mostly immune to cannibalization from new, emerging advertising formats. Traditionally, online has mostly attracted performance-based advertising, leaving the TV brand budgets largely untouched. However with the rise of online video, services like Netflix are beginning to dent broadcaster audience shares in some markets and TV ad dollars are beginning to transfer online.
Structural factors in television determine potential of online advertising
The magnitude of the impact of the rise of online video on TV advertising revenue will largely depend on the incumbent establishment of TV advertising structures. This varies by region. The opportunity for online advertising markets is proportionally larger in countries like China and the US, than in Latin American markets for example, and must be considered when analysing the impact of new advertising formats on traditional TV.
In China, there is stringent regulation on TV advertising covering both the length and content of the ads. Consequently many brands are already comfortable devoting a large share of their budgets to online advertising. As online video expands, the potential for cannibalization of TV ad budgets is hence higher as the transition from TV to online is not an unfamiliar one for advertisers.
In the US, the TV advertising market is different than in most Western markets as 63.4% of total TV advertising revenue is generated by multichannel rather than national TV channels. Pay TV provides a more niche context for advertisers allowing for better targeting of audiences than free-to-air TV and acts more competitively towards online advertising, a highly targeted medium. Consequently, online video advertising’s share has remained quite small at 2.2% of total advertising revenue. However, the dependence of pay TV networks on niche audiences also means that they are much more flexible and willing to adapt to the shift of audiences online. IHS expects a increased innovation from US pay TV operators in the next two years, accelerating the shift of TV ad budgets to online video.
In Latin American markets, TV advertising is the dominant medium, with over 60.0% share of total media spend. TV ad revenue is generated primarily by free-to-air broadcasters like Globo, Televisa and Grupo Clarín. Advertising budgets are planned around TV with other media acting as complements to TV campaigns. This will not change in the next five or ten years and places a ceiling on how much spend online can divert from other media, as the pot available is smaller to begin with in Latin America than Western Europe. With relatively small print markets to penetrate, the shift to digital will be limited and largely led by the terms set by the Latin American media conglomerates rather than the newcomers like Facebook and Google.
The rise of online video: complementary in the mid-term, a threat in the long term to TV advertising
Online video advertising has so far been complementary rather competitive to TV advertising globally. For example, in the European Big 5 despite the increase in multi-screen consumption it generates incremental revenue to traditional TV ad budgets and is still relatively small. In 2019, video will account for 11.0% of all TV and video advertising.
However, there are other markets in Europe where cannibalization of TV ad budgets has already begun. In the European Nordics (Norway, Sweden, Denmark and Finland), from 2013 TV advertising revenue began to decline and it is forecast to continue falling through 2019. Although the cause for the drop cannot be isolated to one factor, Nordic TV broadcasters are increasingly citing the migration of audiences to online video platforms as a significant threat to their advertising revenues.
Online cannibalization of TV advertising revenue is still limited to few markets. However, it is important to note that global players (such as Google and Facebook and ad agencies such as WPP) are increasingly powerful players in advertising markets. These companies are creating new opportunities for advertisers and content producers to reach consumers and are increasingly targeting TV advertising revenue as their next source of growth. This will stimulate investment in online video content and increase innovation in advertising and technology among traditional TV broadcasters, who will fight to keep their audiences and hold on to their advertising clients.
