Warner Bros Discovery CEO David Zaslav called attention to the state of the ad market on November 15. He informed stakeholders that companies will be hard hit if brand advertising does not pick up by next year.
In June of this year, experts first noticed a decline in ad spending after a 15-month growth streak, according to the Standard Media Index’s Core Data Report. The drop in ad spends could be an after-effect of the pandemic and unstable economic conditions that have forced companies to cut budgets.
Ad spends decline for first time in over a year in June
Standard Media Index’s Core Data Report noted that the ad market took a turn for the worse in June. The trend continued with September data showing that ad spends were down 5% year-over-year, compared to last year.
In recent times, one of the best brand advertising campaigns was carried out by food companies that made use of Adam Levine’s DMs to promote their brands. It increased customer engagement and grabbed eyeballs across social media. As budget cuts stifle ad spending, marketers have found creative ways to keep their brands relevant.
Major media companies like Disney, Google, Meta, Comcast, and Paramount Global, all saw a decline in the ad market for September year-on-year. Macroeconomic conditions have reportedly forced marketers to re-evaluate their ad spending, as they budget for the upcoming holiday season.
In recent times, AI has helped shape advertising by fixing biases and has been the driving force behind customer engagement. Many marketers originally approached 2022 hoping for a fresh start after two years of braving the pandemic. However, a record high inflation coupled with geopolitical instability wrecked their plans. Despite the initial optimism shown in the first half of the year, ad spending has declined considerably from June.
The report found that there is slight growth in ad spending for connected TV, e-sports streaming, and on the metaverse.
Budgets cut due to cost cutting and inflation
Ad sales across social media platforms like YouTube, Facebook, Snapchat, and Twitter saw a sharp fall this year, with most companies cutting their profit forecasts due to loss of revenue.
Inflation and the effects of the war in Ukraine have made companies reassess their battle preparedness as the economy deals with rising costs.
Predicting a bleak future ahead, during an earnings call, Ruth Porat, chief financial officer of Alphabet, said, “In YouTube and Network, the pullbacks in spend by some advertisers in the second quarter reflects uncertainty about a number of factors that are challenging to disaggregate. Within other revenues in the third quarter, we expect an ongoing headwind from the fee changes and the slowdown in buyer spend that impacted results in the second quarter.”
Both Snap and Meta also reported that earnings have dwindled as there is less demand for advertising.
Sluggish growth and reduced spending have put major companies on the defensive as they try to navigate an uncertain future.
What does this mean for the future?
In a conversation hosted by the RBC, Zaslav pointed out the pessimistic outlook prevailing in the market. Although he expressed his view that the ad market might improve over the holiday season, he admitted that the ad market is “weaker than it was during COVID. And that could change quite quickly. You know, right now. This is a pretty big miss of the whole Christmas season.”
Media investment firm Magna that conducts industry research, reduced its US advertising growth forecast for 2023, citing weak economic conditions. High inflation and the current economic climate have forced businesses to moderate their ad spending.
Retail media networks might move budgets into digital advertising as streaming services have started offering ad-supported subscription options. The investment firm also stated that ad growth forecast for 2022 will be reduced to 9.8%, down from the 11.1% they had forecast in June. Magna still maintains a positive outlook for 2023 and expects total ad revenue to grow due to organic drivers.
Consumer packaged goods like food, drinks, personal care, and household goods will mostly be forced to reduce advertising spends as they must raise product prices due to rising raw material costs and face the possibility of losing customers.
While some businesses will suffer as the Fed hikes interest rates, lack of advertising could also affect their bottom line, as ads bring in customers.
A looming global recession and rising costs of living have marketers taking a glass half-full approach and reducing spending for late 2022 and 2023, as they prepare to tackle inflation 2023.
