Happy New Year – 2016 Media Advertising Spending Outlook
“Goodbye 2015” – and many in the U.S. advertising industry might add “Good riddance!” 2015 saw the slowest growth in U.S. advertising since the recovery from the 2008-09 Great Recession. Although only preliminary estimates are available, advertising expenditures are forecast to have grown by less than 2% in 2015, the only year since the 16% contraction in 2009 that ad spending failed to increase more than 2% annually. By comparison, the average annual growth has been 3.8% in those six other post-recession years.
History teaches us that ad business growth is mostly dependent upon the strength of the economy. When the economy grows, so does advertising; when it contracts, well, you know the answer. Most economic forecasters are predicting that this year’s economy will grow at about the same rate as 2015’s anemic pace – between 2.4% and 2.8%. However, another major factor impacting ad growth, especially in recent years, is the nice jolt the industry receives every two years with increased spend tied to the Olympics and political elections. In 2016, the industry is poised to get a huge politically-based stimulus with Americans also electing a new president. A record amount of money is expected to be spent on political advertising this year, from the early Iowa caucus and New Hampshire primary through the November 8th general election. And the spending is no longer coming from just candidates and parties, but from well-funded super-PACs and issue-based advocacy groups.
So what can we expect in total for 2016? The consensus of economists who publish media spending forecasts is that U.S. advertising media spending will grow 5.2% this year compared to an estimated 1.9% growth in 2015.
Looking deeper into individual media channels, we see a wide range of anticipated performance. Not surprisingly, digital is forecast to have 2016’s largest growth rate of any medium, about 12.5-20% by most accounts. Digital’s substantial growth rate (nearly double the 2015 figure) will also be fueled by an upsurge in TV advertising. Compared with a 3.5% decline in 2015, total TV spending is forecast to grow at a 5-7% rate in 2016. The increase in TV spend will mostly come from local spot broadcast and spot cable advertising, the biggest media beneficiaries of the 2016 election windfall.
Radio advertising spending is forecast to be flat in 2016 despite all the anticipated election money. Out-of-home is expected to increase 3-4.5%.
Both newspaper and magazine ad spending are predicted to decline in 2016 by 10-11.5% and 9–10% respectively, but these estimates include just ‘legacy’ print – i.e. advertising printed on actual paper. When the digital components of newspaper and magazine are added, the declines are only 3-3.5% for each. Interestingly, the digital spend portions are now expected to account for 32.5% of newspaper advertising and 25% of magazine advertising in 2016, up 18.5% and 26.3% respectively year-to-year.
Digital advertising is expected to increase by double-digit figures in 2016. Depending on what the forecasters include in this medium (definitions vary widely for each analyst), the anticipated increases range from 12.5% to over 20% in 2016. Of further note, online display advertising is expected to decrease by 6% in 2016 while mobile advertising increases over 40%.
Media ad spending is a function of two things: media units sold and the cost of the individual media units. While total media spending is forecast to increase by 5.2% in 2016, the real question is whether that increase is due to increased inventory sold, or increased unit costs. Will the actual cost to most advertisers be more, less, or unchanged in order to reach the same amount of people? To understand that we need to examine another statistic, media CPMs.
National broadcast TV and national cable TV are expected to be more expensive in 2016 with broadcast CPMs increasing 4-5% and cable increasing 5-6% as broadcast ratings continue to erode. Broadcast TV’s CPMs are forecast to increase at a slower rate than last year, while cable TV CPMs at a faster rate. Sports and primetime premium content programming (shows with the largest Adult 18-49 demos) will show further increases in both media. With the 2016 presidential race, local TV will likely see a sharp increase (10-15%) in overall CPMs, with even steeper increases in highly contested, political swing state DMAs. This is quite a turnaround from 2015’s 2% decrease in local TV CPMs. Local stations will be singing ‘Hail to the Chief’ after this election.
Both magazines and newspapers will see modest CPM increases in 2016 – roughly 2-3% for each. This is pretty much in line with 2015’s CPM increases. There are some advertising categories, such as travel and fashion, that still depend upon magazines and this demand will push costs up in 2016. The automotive, retail (especially home repair), real estate, and financial categories still drive the demand for newspaper advertising.
Radio CPMs are expected to increase about 2.5-3.5% in 2016 compared with being flat in 2015, with demand from the elections spurring that rise. Automotive, professional services, and healthcare also continue to be strong category spenders in the medium.
Out-of-home’s CPMs have been rising steadily for years, due to demand for (and supply of) the newer, more innovative OOH products, and the large reach potential of the medium. This trend is expected to continue in 2016 with a 3-4% CPM increase.
Online CPMs will vary with the type of digital medium. Search CPMs are expected to increase 3-4%, about the same as 2015. The bidding mechanics of search drive up the costs when demand is heavy. While digital ad spending is forecast to increase by double digits in 2016, mobile, Online Display, and Online Video CPMs are expected to remain relatively flat due to a seemingly endless supply of inventory, combined with efficient programmatic buying, and both factors will work to keep CPM growth in check.
The advertising industry is expecting an increase in spending in 2016. The spending varies by medium – some with slight increases, some with large increases, and some with decreases. But the advertiser can expect to pay a little more to a lot more (never less) in every medium to reach the same audience levels in 2016 as were reached in 2015.
To sum it all up, despite a weak economy, the advertising industry is expecting to grow nicely at 5.2% in 2016, double its growth rate this past year. The increase comes from the upcoming summer Olympics and the 2016 elections. CPMs will rise, especially among media with limited inventory supply like local TV, and high demand accentuated by the advertising demands of electing a new president.