2020 Political Ad Spending to Hit Record $9.8 Billion-Plus: Study

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U.S. ad gains will slow excluding election spending as the economy normalizes and TV ad spending is "soft," but streaming services will "account for multiple billions of dollars" once they hit scale, GroupM predicts.

U.S. advertising will record a 6.2 percent gain in 2019 to $244 billion before slowing to a 4.0 percent improvement in 2020 when excluding political advertising, ad media giant GroupM forecast on Tuesday. But political ad spending could reach $9.8 billion or more, which the firm says would be a record.

It cited continued digital ad growth partially offset by lower TV spending and a normalizing economy.

U.S. political advertising is expected to hit $9.8 billion or more in 2020, compared with a projected $2.1 billion in 2019 and $8.4 billion in 2018, boosting growth to 8.1 percent next year due to the presidential election, GroupM said, but highlighted that its core forecast excludes political spending “because the scale of this activity meaningfully distorts year-over-year growth.”

Its forecast for 2019, authored by Brian Wieser, GroupM's global president, business intelligence, said this would mean “a fourth consecutive year of solid mid-single-digit growth for the industry on an underlying basis,” noting that when excluding directories and direct mail, the gain will reach 7.6 percent. Meanwhile, including political advertising in all years brings growth down a few notches to 3.8 percent. “However we look at it, growth has been robust relative to the general economy, which is generally decelerating on an underlying basis,” the report said.

That will mean a slowing for 2020 “as the economy reverts toward normalcy after a period of growth likely supported by factors including the 2017 domestic tax cut, an expanding federal deficit and low interest rates,” GroupM said. “As the effects of these fade, heightened trade barriers should concurrently become a drag on the overall economy.”

The 2020 Summer Olympics in Tokyo will “provide some marginal benefits, although we note that it can be difficult to identify the degree to which Olympic activity captures spending that would already have occurred or if it causes incremental spending to flow into the advertising market.” 

New streaming video services will also be a boon for advertising in the coming years. “We expect the new and existing streaming video services to account for multiple billions of dollars in domestic advertising spending by the time these services are all operating at scale,” the report said.

“Digital behemoths” have also been core engines for the advertising market, it noted. “Digital-first marketers are likely driving much of the industry’s recent growth. ... We can point to Facebook, Amazon, Netflix, Alphabet, eBay, IAC, Uber and Booking.com as eight companies that are likely to spend more than $30 billion on advertising globally this year. Most of this spending will go into their home market, the U.S., adding billions of incremental spending every year into the domestic advertising economy.”

Advertising revenue to pure-play internet-based companies will grow by 20 percent this year to $127 billion, representing a 50 percent share of the overall U.S. ad market, and 13 percent in 2020, the firm projects.

But GroupM also warned: “Such rapid growth from these marketers as we have seen in recent years should abate, and eventually they should normalize their growth rates. This would contribute to industry-wide ad spend deceleration. However, the U.S. is more likely to produce more of these kinds of marketers in years ahead than are most other economies, and so there is some reason for a degree of optimism around these figures.”

TV advertising, meanwhile, is “soft” as 2019 comes to an end and will finish the year with a 7.0 percent decline, or 2.0 percent when excluding political ads, to $65 billion. “National TV advertising will be closer to zero, or even up very slightly, while local is down by low-single-digits,” GroupM said. “We expect this declining trend to persist, even with new forms of premium TV advertising regularly emerging. Certainly the ad-supported SVOD services will be attractive environments, and their enhanced targeting capabilities will also appeal to advertisers. They will partially offset the ongoing erosion of traditional TV’s reach and frequency, but the core set of advertisers that have historically driven TV spending are likely to reduce the budgets they allocate to the medium.”

Discussing political advertising in 2020, GroupM said trends indicate that "fundraising through the end of 2020 will exceed $10 billion and could approach $12 billion for federal races, of which somewhere between 60 and 70 percent ($7 billion–$8 billion) would likely be disbursed during 2020. Local, non-federal races are tracked separately ... data from FollowTheMoney.org indicates that in 2018, there was a total of $8.7 billion in fundraising during that calendar year alone. Assuming that number rises next year, we could expect $16 billion–$20 billion in total political spending on all activities in the U.S. in 2020."

Concluded the firm: "How much of this will turn into media spending? Our understanding is that in a typical campaign, 60 percent of funds raised may be deployed into media spending, which would translate into $9.6 billion–$12 billion in total activity during 2020, which places our $9.8 billion estimate on the low end of this range."

Wieser also forecasts U.K. advertising to grow 7.8 percent in 2019 to £22 billion ($28.5 billion), followed by a 6.7 percent gain next year to £24 billion ($31.1 billion).

“Despite all the uncertainty facing the United Kingdom in 2019, the media industry has held strong,” he said. “Since 2013, the U.K.’s advertising sector has expanded by more than half, up 55 percent over that year’s levels, and, with that growth, the U.K. is unambiguously the fourth-largest market on earth. If recent growth trends were to persist, within five years the U.K. would possibly match Japan’s size and become the third largest. But, of course, the key word ‘if’ is difficult to bank on without much certainty around the relationship the U.K. will have with the rest of Europe, or the health of its own economy over that time horizon.”

He said the U.K. and the U.S. are “relatively unique among large, mature advertising economies in posting the growth that each have in recent years. The commonalities include spending by more small businesses on digital media, but we think the more substantial factors are the emergence of massively scaled digital brand owners whose businesses are endemic to the internet.”