The ad spend canary flipped sideways by economic turbulence

Chris Pash
By Chris Pash | 3 March 2023
Credit: Brydon McCluskey vuia Unsplash.jpg

Advertising spend, as measured by media agency bookings, had a rough start to the year, with the numbers indicating a softer market ahead, according to industry analysts.

The SMI (Standard Media Index) put overall ad spend down 10% in January.

This was still the second highest January ad spend, even when compared to January 2022 when a strong Australian Open broadcast was fuelled by the success of Ash Barty.

This was partly the reason television ad spend recorded a 19.2% drop in January this year. The other was the disappearance of government ad spend.

However, industry analysts worry about the impact of economic uncertainty, of rising inflation and whether or not brands will maintain their focus in the face of falling consumer confidence.

Investment banks have been talking about a "challenging" outlook for media (Jefferies), "tougher" economic conditions (UBS) and declining digital advertising as the macro backdrop continues to "soften" (Macquarie).

Sarah Keith, group managing director, Involved Media: “It’s been a rough start to the year, with January proving to be the beginning of what could be a roller-coaster 12 months.

“When TV experiences a 19% decline – even knowing what percentage is related to government spending and therefore can be explained – it still has a significant impact on our collective optimism.

“SMI is reporting strong forwards for February, but the ongoing global economic uncertainty has well and truly reached our shores and is impacting local decision making.”

Craig Cooper, chief investment officer at Carat: “Whilst January 2023 does have the second largest monthly spend in last five years, the share of expenditure between channels has shifted significantly.

"Digital in January pre COVID held a 34.2% share and is now sitting at 42%.

“Media partners that have accelerated their transformation into operating as a digital first channel, are more than likely to be beneficiaries of increased revenues in 2023.

“The drop in government spend is significant in January 2023 versus January 2022, but is not unusual in what was a federal election year in 2022.

“There may be some upsides in February 2023 due to the NSW election, but with current economic headwinds, the gains in Retail, Insurance and Travel may not fill this gap entirely. We may see other sectors like banking, entertainment and communications start to ramp up ad spend from February onwards to potentially offset these government related artificial YOY declines.

“The January 2023 linear TV declines appear to be driven by the MTV market, and pleasingly (as an investment lead) this could trigger a decline in the inflationary trading conditions we have seen over the last 12 months.

"Interestingly, regional TV has fared much better in January 2023, with c.-10% declines YOY which could be a result of increased importance of these markets given consumer migration during and post COVID."

Media analyst Steve Allen, Pearman's director of strategy and research: “The predicted slowdown in media marketing has clicked in earlier than expected, especially given the strength of Retail Sales (ABS) across the board in January. Which signifies nervousness by Marketers.

“Given the sheer amount of negative publicity in the coming increases in mortgage rates (which only affects approximately 10% of the total population and 25% of mortgage holders) it is no wonder that marketers could be overreacting. 2023 at least the first half, is going to be rocky, and a bit unpredictable.”

Paige Wheaton, Mindshare national head of investment: “After two to three years of elevated government investment in market, it was expected that this will normalise heading into 2023.

“The magnitude of it’s contribution to ongoing monthly and annual growth is going to shift the dial considerably.

“At Mindshare, we saw growth YOY particularly driven by the Retail & Auto categories, and conversely to market continue to see channel diversity and growth in digital investment.

“In video, navigating a very strong 2022 baseline and the shift in tentpole programming again in 2023 didn’t deliver strong enough mass audience engagement. The growth in video is testament to clients utilising their budgets conservatively at a time of year where delivery can be challenged.

“What I’m excited about is the ongoing evolution in digital audio and the collaborative efforts of the market to diversify and transcend how we have always thought of radio as a product. We’re anticipating this growth trajectory to increase pace.”

Paul Wilkinson, head of commercial, Half Dome: "This month’s report again showcases the importance of applying context; viewed in isolation, the figures paint a dire picture of the market with an overall decline of 10%.  However, this is against the backdrop of January 2022, when we saw record advertiser investment driving the market to all-time highs. With this in mind, and the fact that January 2023 is the second highest in SMI history, we are still in positive territory – for now, at least.  
"When we start to dig a little deeper, we can see that much of this decline stems from a reduction in government advertising, which tends to be cyclical in nature.  Further, given the lack of COVID-related messaging and the fact we are not heading towards a federal election, it’s logical to see a year-on-year decline in overall expenditure. On the flip side, it's encouraging to note that key categories such as automotive, retail and travel are increasing investment in media.
"I found the individual channel trends interesting. Traditional channels such as TV and radio have declined, however their digital counterparts are showing growth. Again, context is important as the base is clearly lower, however I do envisage this trend to continue driven by the focus of advertisers switching to a digital-first mentality." 
Jimmy Dau, national partnerships director, Bohemia: "A level of caution still remains in the market with clients having a keen eye on the effects of rising interest rates and inflation. I suspect that while it’s too early to say that the annual media spend will decrease, there definitely would be a revised outlook on how budgets will be phased across the year.
"If you remove the government spending, the top 10 categories see a 1% growth YOY with retail up 8.7% which is in line with the January year-on-year retail sales growth of 7.5% according to the ABS
"While television is back -19%, it’s off a 24% increase for 2022 vs 2021. The BVOD increase of 12% may seem modest but it does validate the importance of the converged screens trading tests that we are prioritising at Bohemia to help manage the audience volatility that will only continue in the coming years."
John Vlasakakis, co-founder, Next&Co: "We are seeing quite the opposite with existing clients upping spends due to performance gains and new clients going quite aggressive with new strategies."

Yulia Edirisinghe, strategy director, The Pistol: "Short-term declines in digital spend are to be expected while the market returns to equilibrium following the record-breaking investments seen during the pandemic. It’s fantastic to see consumers return to their lives as usual, and advertisers reap the benefits of a broader range of channels like out-of-home and cinema advertising. We know that the multiplier effect of engaging audiences cross-channel is significant, and taking an integrated approach to media planning is critical to driving brand preference and enhanced ROI.

"If the last three years have taught us anything, the allocation of media investment will continue to be driven by the forces in consumer behaviour - and all data indicates that the acceleration in digital adoption we’ve seen is here to stay. Consumers across all age groups - but especially those younger age cohorts - expect digital-first touch points.
"But that’s not all, today’s consumer expects consented personalisation, they expect AI-led product recommendations, and they expect brands to add genuine value to their lives.
"These are all things that require the capabilities of digital media channels, reinforced by strong data strategies, seamless integration and powerful AI. And if our clients’ performance over the most recent peak period is anything to go by, the brands that deliver against these promises will be rewarded exceptionally well by the customers who love them."
Mattie Mould, Media Director,  Edge: "Excluding government spending - which is moving as expected post-COVID - the interesting story is the drop in digital spend.
"For all remaining categories to drop in digital spend feels like a direct response to the change in reliability and stability from the digital juggernauts. With TikTok being the latest of the tech giants to start bleeding staff - following the trend of Meta, Google and Yahoo - companies are losing faith in these previously core channels. It’ll be the challenge for tech to keep showing value moving forwards."


Dean Shell, managing director at Shell Media: "I’m not at all surprised at these latest SMI results for the month of January – the 10% year-on-year decline was predictable. 

"Government spending, on a state and federal level propped up these January numbers largely due to the fact we entered an election year in 2022 on both counts. Add to this the raft of COVID-19 health messaging still in the market last year it was always going to result in a decline in media spend as opposed to growth for January 2023.

"Whilst consumer confidence levels continue to fluctuate as a result of various economic factors, it’s good to see media spend increases in the travel sector in particular.  2023 will certainly bring other economic challenges which will impact consumer spending to a certain degree, but not as significantly as some of the doomsayers would have you believe.

"Our view is that the coming months will, from a trading perspective, soften somewhat, but those channels still holding and delivering consistent audiences should remain strong – particularly the out-of-home and cinema sectors who both posted strong year-on-year growth in January 2023.  

"The decline in ad spend for programmatic and social media most likely indicates a type of 're-calibration'  for these channels, however not too much cause for alarm.  Our prediction is that as consumers grapple with the uncertainty around the cost of living/rising interest rates/ post-pandemic freedoms, we will see 5% - 10% growth in media channels that reflect a 'return to lifestyle approach'."

Amy Dascanio, general manager, media, Enigma: "The latest January decline of -10% year on year is not surprising, and while the double-digit decline feels worrying, it is not all doom and gloom. This latest January result is the second highest January ad spend in the last 10 years, and from Q4 2020 the ad market had previously experienced nearly 2 years of consecutive quarterly year-on-year growth which was unsustainable heading in to 2023’s unpredictable conditions.

"Clients are continuing to be cautious with budgets heading into Q1, given the ongoing economic pressures and the upcoming NSW federal election. Roy Morgan’s latest consumer confidence results were down 3.2pt to 83.6, the lowest for 2023, and these conditions have extended the “wait and see” approach we were experiencing towards the end of 2022 into the Q1. However, for those clients eager to capitalise on driving long term brand growth, the current market does present opportunities. The ad market is currently trading short-term with deals in play, particularly for linear TV and Radio.

"The most uplifting result was the 64% increase in Travel ad spends, with all Australian households impacted by the current economic factors, it is promising to see consumer sentiment is high for Australians to start spending again on holidays and getting back to some normality in these post covid times.

"There are signs of positivity in the market, and we are currently having more forward-thinking discussions with our clients, with planning cycles focused on Q2 and beyond which for us is an encouraging sign for the year ahead."

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