Record digital ad revenue preceded slowest quarter in a decade, IAB finds

U.S. digital ad revenue rose to a record $125 billion last year, up 16% from 2018, according to the Interactive Advertising Bureau’s semiannual report prepared by PwC. Much of that growth was powered by bright spots digital audio and video across both mobile and desktop.

But despite 2019 posting the tenth straight year of double-digital growth in digital revenue, it also saw the lowest growth rate since 2012. The strong year was soon followed by a rough start to 2020 — a looming economic recession, a move away from third-party cookies and the coronavirus pandemic beginning to hit the country. The advertising industry remained mostly resilient in the first quarter, with 12% year-over-year growth to $31 billion driven by video, social and more mature formats like search and banner ads, the IAB found in separate insights on Q1 revenue and in the new edition of its Coronavirus Impact Report on publishers.

“With the impact of COVID-19, which really started to impact companies around the time of mid-March, so if you think about the quarter having three months of revenue activity, for the most part many companies were reporting that maybe one-sixth of the quarter had some level of impact from COVID-19,” PwC partner David Silverman said on a call Thursday to discuss the report.

Coupled with the pandemic forcing many brands to trim advertising budgets, 2020 overall may see the first dip in U.S. digital ad revenue in more than a decade. Meanwhile, global ad spend is set to fall nearly $50 billion this year (8.1%) as businesses across industries cancel or delay media buys, according to new data from the World Advertising Research Center (WARC). Overall global ad spend is set to reach $563 billion this year, down from a previously estimated $612.6 billion.

“The first quarter of 2020 revenues mark the slowest year-over-year quarter growth since 2010, when revenues increased 8.6% from the prior year,” according to the report. “Many companies are expecting a continuing negative impact to the second quarter and significant uncertainty as to the severity and duration to the quarters beyond.”

Breaking down 2019

Digital video continued to be the industry’s bright spot, with revenue rising to about $22 billion in 2019 — a 33.5% lift compared with the prior year. The format comprises 17% of all ad spend, including connected TV, with more than two-thirds coming from mobile devices. Digital audio saw revenue jump 21.2%, reaching $2.7 billion. Mobile now makes up 79% of all digital audio revenue, per the IAB.

Last year, mobile ad revenue hit nearly $86.7 billion, up 24% from 2018. Mobile now makes up 70% of total digital ad spend, having overtaken desktop in 2015. Social media, meanwhile, represents 29% of the pie, per the IAB. Revenue for the format reached about $36 billion, a 23% lift from 2018. Between 2012 and 2019, social media revenue has spurred a 43% compound annual growth rate and maintains strong growth despite the pandemic, per the report.

Contributing $54.7 billion and a 43.9% share, search maintained its dominance over all digital channels in 2019. That number is up nearly 13% from the year prior.

To add context to the 2019 findings and early impacts the coronavirus pandemic may have on the industry, the IAB fielded five studies from media sellers between April 29 to May 11. The report found that two-thirds of advertising sellers — publishers, platforms and programmatic — saw declining ad rates since lockdowns began in March.

“We’re seeing in this new CPM study that connected devices are experiencing the least impact,” said Sue Hogan, IAB’s SVP of research and analytics.

Podcasting, in particular, stands out with only a 6% dip in CPM, making it the most resilient on the ad pricing front so far in 2020. Video has also shown resilience in ad pricing compared to other channels.

“Video is having its moment,” Hogan said. “Entertainment is being embraced by viewers who are sharing and talking about it in ways I haven’t seen since the early days of cable. And it is gaining traction from a dollar standpoint.”

What does the rest of 2020 hold?

Both sell-side and buy-side industry players predicted downward trends for the rest of the year, as nearly 70% of advertisers paused or canceled campaigns due to the pandemic, Hogan said. She noted that brands are rapidly pivoting to tweak their product-focused messaging to mission- or cause-related content.

Almost three-quarters of advertising executives said the COVID-19 outbreak is having a greater effect on the industry than the 2008 financial crisis, a separate IAB survey found in late March, which also found that 63% of brands changed their messaging because of the pandemic, leading to a 42% jump in mission-based marketing and 41% lift in cause-related content.

Media that allows for more flexible targeting and creative production, such as audio and search, are better positioned in the near term to meet buyers’ needs as they adapt to a new post-pandemic environment, Hogan said. However, the pendulum is starting to swing back to more product-focused messaging as lockdowns relax around the country, she added.

“You’re going to see other advertisers jump into the fray,” Hogan said.

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