Outlook - A slow start to the advertising market in 2024

Chris Pash
By Chris Pash | 12 December 2023
Credit: Zach Betten via Unsplash

Advertising agencies will be looking for a recovery in 2024 but analysts expect a slow start as brands gain more confidence.

Various forecasts show growth in advertising spend next year, including MAGNA which puts Australia's total advertising revenue growth in 2024 at 3.8% to $A27.7 billion.

Dentsu predicts 2.3% but GroupM sees a flat year in 2024 with just 0.9% growth, most of it in the second half.

Digital is the growth story and within that retail is the smallest segment but growing fast. Cinema and outdoor will continue their rise. 

Modelling by Morgan Stanley puts the retail media sector in Australia at $1 billion in ad spend in 2022, with Woolworths, Coles and Amazon together accounting for three-quarters of that.

Analysts estimate an annual growth rate 23% over the next five years, to reach $2.8 billion by 2027.

The same Morgan Stanley analysis forecast 2% a year for traditional media over the same period.

However, CMOs have a brighter outlook. Forrester, the global marketing consultancy, in its Predictions 2024: Media And Advertising study, says there’s new confidence building within the media world.

Marketers will take more risks in 2024 as media budgets stabilise and grow.

“B2C marketing teams are ready to ‘shake off’ the last few years, after having been shackled by a global pandemic and mired in economic uncertainty,” says Forrester.

“With most of that in the rearview mirror, CMOs will enter 2024 with optimism about media partners’ usual suspects — ready to build, test, and learn.”

Forrester anticipates a year where advertisers invest in proven media partners and experiment within “safe” spaces.

“Media giants — Google, Meta, and TikTok — may have gotten a few chinks in their armour this past year, but they are entering 2024 with more might," says Forrester.

The latest SMI (Standard Media Index) numbers, October, show an overall fall of 3.2%. 

However, 2023 compared to the previous year is still tracking for the second largest year on SMI records.

And the comparisons will be easier going into 2024.

Media industry analyst Steve Allen, Pearman's director of strategy and research, sees growth in 2024 but says the outlook is complex.

He says Australians are living through the epicentre of the squeeze on household budgets, following the 13th consecutive Reserve Bank rate rise. 

He predicts this pain to peak in the March to June quarters of 2024. This will be mostly centred on those with mortgages and those renters who comprise 62.66% of the 14+ population.

“In the media landscape, more and more fragmentation, which leads to some largely unmeasured but sizable fragments of new media channels … clients at least, in their communications mix and marketing expenditure.

“Retail media and influencers; neither is comprehensively measured,  and little comes through media agencies. Thus not included in the measurements by SMI (Standard Media Index). In addition to the circa $9 billion reported in SMI for 2023, we estimate $2.8 billion in Retail Media, plus another $310 million in promoters and influencers.”

Allen forecasts the 2023 total media markets (includes Search/Google, Social,  but not Retail Media nor Influencers) at A$21.7 billion, thus these additional communication channels inflates this overall figure by nearly 15% to circa A$24.9 billion. 

“Thus our outlook is a little pessimistic, not just because these newer comms channels largely do not go through agencies,” he says.

The forecast is for calendar year 2024 +3.19% (as against original 2023 forecast of +2.89%, which now looks more like a slight movement of growth down to +2.68%).

“The advertising market in our view will remain subdued all through to, and including, 2028, but will get minisculely better each calendar year,” says Allen.

“Thus no discernible joy for the big media players, unless they take market share from each other, or,  from other sectors in the media landscape.

“We forecast the only growth mediums of any note and size in the marketplace will be Outdoor and Radio, plus of course Digital in Social. Minor media moving forward will be Cinema, plus Magazines as they plot there careful and strategic recovery.”

Weakness in the Australian metropolitan free-to-air TV advertising is continuing, overshadowed by economic uncertainty and dipping consumer confidence.

Analysts at investment bank Goldman Sachs say the total TV market remains soft with forward bookings over October-December suggesting only a “slight moderation” in decline. 

The metro metro free-to-air market revenue was down -12% in the September quarter, offset by solid BVOD growth. 

“We see some downside risk into 2H24 given softer consumer sentiment and continued audience declines (SVOD/Digital video cannibalisation) that is steadily reducing TV audience reach,” the analysts write in a note to clients.

UBS analysts have lowered their full financial year metro FTA ad market growth to -7.5%  from -2%.

“Visibility in ad markets remains extremely short,” they say.

At Morningstar, director Brian Han says advertising conditions in TV remain subdued, with September quarter total market revenue down 8%. Broadcast video on demand, or BVOD, revenue was up around 13%. But it was not enough to offset the 12% fall in metropolitan free-to-air advertising market, with regional likely not much better. 

“Faced with this top-line headwind, TV operators are zeroing in on expenses,” Han says in a note to clients.

Trading updates from Nine Entertainment and Seven West Media give an indication of the state of ad spend in television.

Nine and Seven are pulling back on costs. 

“Nine has seen no discernible improvement into the December quarter," CEO Mike Sneesby told the company's AGM.

Seven West Media has a $60 million cost cutting program between the 2024 and 2025 financial years. The analysts say this is  likely to offset some, but not all, of the expected market declines into the second half of 2024.

"Seven was slightly ahead of the market, which was down 8% during the period," says CEO James Warburton.

The digital advertising sector has picked up. Despite a challenged market, the Australian digital advertising industry grew 2% to $14.2 billion in the year to the end of June, according to IAB Australia. 

The big three digital advertising platforms -- Google, Meta and Amazon -- have reported better than expected growth following a post-COVID restrictions dip.

Google reported September quarter advertising revenue up 9% to $59.65 billion. YouTube ad sales were 12% higher at $7.95 billion.

Meta, the parent of Facebook, Instagram and Threads, reported a stronger than expected September quarter with advertising revenue at $US33.64 billion, 23% higher than the same three months last year.

Amazon posted what it described as “robust” growth, partly driven by better measurement and AI-driven ad relevance. Advertising revenue grew 26% to $US12.06 billion in the three months compared to the same quarter last year.

And the Trade Desk, the global technology platform for buyers of advertising, has been leading the market in growth.

The company posted a 25% rise in revenue to  $US493 million for the September quarter. 

Jeff Green, founder and CEO, says agencies and brands are being more deliberate with advertising budgets. 

“They are shifting ad budgets to where they can be more flexible, agile and data-driven in everything they do – especially in times of uncertainty,” he says. 

He says connected TV continues to be the fastest growing channel of The Trade Desk’s business and a key driver of overall omnichannel growth. 

“The industry is evolving fast as providers shift inventory into biddable marketplaces to maximise ad revenue, and as advertisers look to bring more precision and addressability to their TV campaigns,” he says. 

And Green expects retail media to continue in 2024 to be one of the fastest growing areas of growth. 

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