Morgan Stanley has declared an advertising recession in Australia.
Economists usally call a recession when there have been two quarters of negative growth.
The SMI numbers have dropped 11 months in a row, over filling the recession defintiion.
This month's round of financial result announcements has seen a string of Australian media companies talk of a "challenging", "soft" or "weak" advertising market.
However, caution is needed.
"Widespread panic probably isn’t warranted," says Natasha Pelly, senior investment analyst at Zenith.
Morgan Stanley’s market estimate of just 0.4% growth in 2019 is more pessimistic than Zenith’s latest forecast of 2.8%.
"Our estimate recognises the severity of Metro TV declines in Q4 CY18 and that the likelihood of two years of heavy decline is slim," says Pelly.
"However, the main difference is the expected level of growth in digital media.
"Though we appreciate the pace of growth has slowed, we still maintain 7.4% growth is highly plausible, particularly given the recent arrival and expansion of new social platforms like TikTok and Pinterest.”
According to economists’ definition of a recession, the industry has been in an advertising recession for a while now.
"Yes, we may be experiencing a watershed moment in terms of changing audience consumption habits, but this doesn’t mean traditional broadcasters are destined to fail," she says.
Though we agree that the likelihood of limited, continued revenue loss for SWM (Seven West media), Prime and others in H2 CY19 is high, we would also seek to highlight the positive, growth story that has emerged as a result of forward-facing digital integration and development strategies."
SWM’s digital advertising revenue was up 67%, with 7plus consumption reportedly growing by 72%.
Nine-owned Stan grew 62%, while 9Now revenues were up 51%. In the meantime, Southern Cross advertising revenue from podcasting was up 260%.
"What this demonstrates is that demand will go wherever high-quality content meets consumption-friendly environment," says Pelly.
"And while SMI is a good gauge of market direction, we must consider the fact that outdoor and digital media, both of which are under-represented in the SMI dataset, are witnessing higher levels of growth according to their respective industry bodies."
- The OMA reported 5.9% growth in Q1 and 5.2% in Q2. This compared to SMI’s reported figures of 1.2% growth in Q1 and -2.5% in Q2.
- The IAB reported 4.9% growth in Q1 2019 vs. +2.6% reported by SMI.
In 2018, digital and outdoor media represented 62% of Australian media spend (CEASA data). "Their impact on the overall market cannot therefore be understated," she says.
Kim Portrate, CEO of ThinkTV, says there’s no denying that it’s a tough market.
"But I also see green shoots, areas when there is growth in the market that aren't getting the level of attention they should in the doom-and-gloom news cycle," she says.
The Morgan Stanley research has taken a very traditional approach to market segmentation. Why, for example, has Broadcaster Video on Demand (BVOD), the fastest growing media channel in Australia at the moment, not been identified as a growth driver for the Television industry?
"BVOD has grown more than 34% in the last six months and represents great value for advertisers."
Portrate says It's hard to predict whether the industry is at the bottom of the bottom or the beginning of the rise.
"What I would say is that marketers understand, better then analysts, the importance of keeping their brands top of mind with their customers," she says.
"Some may have diverted funds to hyper-targeted social video channels and platforms but that drives slower growth because it’s fishing in the same customer pool rather than finding new people to buy products outside an existing customer base.
"To build a strong and vibrant customer base, brands need to be engaging and retaining attention of large numbers of Australians effectively and efficiently."
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