Marketer's Toolkit 2023: A new pattern for global advertising investment?

The coming 12 months will potentially usher in a new pattern for global advertising investment as digital investment growth slows, media planning is re-assessed and pressures for industry reform continue to grow, according to the latest instalment of WARC’s Marketer’s Toolkit 2023.

Why it matters

Against a backdrop of economic crises, geopolitical complexity, spiralling inflation, supply chain disruption, and structural technology shifts, marketers are re-evaluating their approach. Ad spend is growing but at a slower pace. 

WARC’s latest forecast anticipates a $90bn reduction in global ad market growth for 2022 and 2023, meaning digital media owners are likely to fight harder for ad revenue growth – and, increasingly, will compete with one another for ad dollars. 

Meta’s first-ever year-on-year quarterly revenue decline – announced last July – may one day be seen as the moment the digital advertising industry tipped into a new, less expansive phase. 

Key trends 

The Future of Media report, part of WARC’s annual Marketer’s Toolkit, highlights key trends in three vital areas: advertising investment, media planning, and industry reform.

• Digital investment reaches the top of the ‘S’ curve

Nearly a third of WARC’s Marketer’s Toolkit respondents expect 2023 marketing budgets to be lower than 2022. WARC has downgraded its global advertising investment forecast to $880.9bn, removing $90bn of growth potential for 2022 and 2023. 

Retail media is increasingly favoured by advertisers, and is now the fourth-largest medium by ad spend, with global investment totalling $110.7bn in 2022 and forecast to reach $121.9bn in 2023.

Marketers are rebalancing their ad budgets, decreasing investment in offline channels and increasing spend in online video, social media and gaming. TikTok ranked top for increased investment in 2023 by 76% of marketers, according to WARC’s Toolkit survey.

• Fragmentation calls for more fluid media planning 

More than a third (34%) of survey respondents identified media and audience fragmentation as one of their biggest causes for concern when drawing up plans for 2023. The situation calls for advertisers to adopt a more fluid approach to media planning and branding, and one that emphasises the importance of communities over basic demographics in segmentation.

While over half (52%) of survey participants expect to increase investment with social media influencers and creators as a whole, two-thirds (65%) are planning to work with content creators to connect with communities “aligned with specific interests authentically tied to the brand”.

• Fixing the media ecosystem

More than half (54%) of US respondents to the Marketer’s Toolkit survey said that media planning recommendations in 2023 will include more diverse publishers, reflecting the importance of minority audiences in that market.

However, with only a third (34%) of advertisers planning to include more low-carbon alternatives in their media plans in 2023, it is clear more work must be done to persuade marketers of their role in combating climate change.

WARC says

“While the breakneck speed of growth in ad investment witnessed in 2021 could never have been maintained, media owners like Meta, alongside brands and agencies, are also challenged by other fundamental issues – from cleansing the ecosystem of misinformation, using ad dollars to promote greater diversity and inclusion, attracting and retaining the right talent, to saving the planet from catastrophic climate change” – Alex Brownsell, Head of Content, WARC Media.

The Future of Media is the third in a series of four reports that make up The Marketer’s Toolkit 2023. Based on exclusive data from WARC Media, findings from a global survey of 1,700+ marketers, and interviews with with senior marketing leaders, the report is a guide to help brands focus, survive and thrive in 2023 and beyond. A complimentary sample of this report is available here. WARC clients can read the full report.

India’s advertising industry eyes a gloomy Q1

India’s post-festive season always sees an advertising slowdown, but agencies and media companies are more than usually concerned this year as maco-economic and geopolitical factors start to bite. 

Why it matters

While some of these factors aren’t exactly new – the effects of war in Ukraine and China’s COVID-19 lockdowns have been playing out for many months now – India’s advertising industry had largely managed to avoid feeling their impact. The final quarter of 2022, for example, was boosted by the festive season and the ICC T20 World Cup.

But as economic growth stalls and brands rein in their advertising spending, “things look quite bleak for us in this quarter”, one senior agency executive told e4m. Indeed, things are so gloomy that some in the industry don’t expect even IPL 2023, which starts in April, will turn the situation around.

Factors at work 

• Increased raw material prices have led to a reassessment of business costs and ad budgets have been a casualty.
• Fears of recession have prompted advertisers to rebalance spending away from more expensive traditional media formats and towards lower-cost digital formats.
• Start-up clients are reported to have slashed ad budgets to almost zero, in large part a consequence of venture capital funding being scaled down.

A media expert says 

“Indian media companies may have to adapt to the new economic reality by finding ways to reduce costs, diversifying their revenue streams, and focusing on digital platforms. They may also have to be more creative and innovative in order to attract and retain customers.”

Sourced from e4m

Super Bowl audience likely to grow, 76% excited for ads

A new survey indicates that Super Bowl audiences are set to grow from last year’s half-decade peak of 112m viewers, with over three-quarters excited for the ads.

Why it matters

Marketing Brew’s and Harris Poll’s Super Bowl survey of 1,050 US adults strengthens the narrative that many of the game’s viewers are as excited for the ads as for the game itself, which takes place in just under two weeks’ time. With high prices for spots during the game, brands want to be sure the investment will pay off.

What’s going on

- 79% of the sample say they’re likely to watch (versus 70% in 2022).

- Women are a key growth audience: 75% said they planned to watch, compared to 62% who said they would be watching last year.

- 76% of likely viewers say they are ‘somewhat excited’ for the ads (versus the 82% who are excited about the game and the 71% who are excited about the halftime show).

The survey drilled deeper into the marketing question, with 84% of the sample believing that Super Bowl advertising was a ‘smart investment’ for brands.

Interestingly, many respondents (73%) were not fans of releasing Super Bowl ads ahead of the game, a likely reaction to the recent trend of brands trailing their creative online before the event.

Sourced from Marketing Brew, WARC

Creative Impact: New track to run at Cannes Lions 2023

WARC and LIONS have launched a Creative Impact stream to drive the effectiveness conversation at Cannes Lions 2023, with a program of content to run at the festival.

The significant focus on effectiveness at this year’s Cannes Lions International Festival of Creativity (Monday 19 - Friday 23 June 2023) reflects the extreme pressure on marketing budgets in the current economic climate, and the urgent need to prove the role creativity can play in supercharging sustainable commercial growth. You can find the full release here. 

Creative Impact will uncover what it takes to build, protect and grow a business through creativity in 2023.

- It will ask what creative effectiveness means in the current media and economic environment, and what types of creative thinking will make the biggest impact.

- It will also cover how to make a proven and compelling case for investment in creative marketing to the C-suite of an organisation.

The Creative Impact content stream will be a core part of the delegate experience, alongside other festival programming. It will feature workshops and accelerators, ensuring delegates come back equipped with tools and insights they can plug directly into their own organisations and marketing plans.

Get involved

Anyone who would like to submit content ideas to be considered for the Creative Impact content stream, as well as any other part of the Festival or LIONS content schedule, can do so all year round. Details about how to do this can be found here.

Attendees of Cannes Lions 2023 will be able to attend the Creative Impact content stream as part of their delegate pass. This year also sees the launch of the Creative Brand Marketer pass. Exclusively for advertisers, the pass is designed to help brand marketers learn how to unlock creativity with learning opportunities, insights and exclusive networking invites. Find out more about pass options here.

Spotify shifts strategy as losses widen

Spotify has just shy of half a billion users, but it has struggled to turn that popularity into profit, and with its drive into podcasting yet to bear fruit, its Q4 earnings report sets a backdrop to a change in strategy.

Why it matters

Music is expensive, and while users can get most of it for free on Spotify (with a few ads), music rights cost the platform around 70% of its total revenues. As a result, podcasts became not only a critical area for revenue growth but also for profitability, a long-time promise reiterated at last year’s investor day.

But that’s not how it has turned out so far. Up until very recently, its strategy had been focused on creating hits and buying studios or exclusive contracts with the likes of Joe Rogan, and Harry and Meghan. Hits are important, but it appears that driving the use of tools might be more important.

Now the trick it seems Spotify must pull off is to become more like its bigger, richer, and more versatile competitor YouTube, as Bloomberg’s Luke Shaw observed recently. That means building a platform for all podcasters, and to build an ad capability that can funnel money toward the creators to keep them sweet – but without these same creators working directly with a brand and circumventing Spotify’s plumbing. It’s a big and difficult bet.

Q4: big expenses on growing user base

Spotify’s Q4 shareholder deck echoes many of the other stories coming out of the tech world: while it remains well-used, its hefty pandemic-era investments are becoming tough to sustain. As a result, last week it announced it would cut 6% of its staff.

The good news is that its monthly active users grew to reach 489 million versus an expected 478m. Within that, premium subscribers grew to 205m while ad-supported users grew by 22m in the quarter to reach 295m.

But it has made hefty losses of €430m on the full year’s €11.7bn revenues. This is much more costly than 2021’s €34m loss on the back of €9.7m.

Investors will focus on the company’s negative-free cash flow in the fourth quarter, which is a measure of its ability to make the kinds of investments that will help build growth, profitability, and new advertising capability. However, it’s worth noting that full-year cash flow was positive.

Advertising

Podcasts and their advertising potential do appear to be moving in the right direction, with podcast revenue growth of 30%, which has helped to drive the 14% growth in ad-supported revenue growth.

But these have come at a cost: Operating expenses grew 44% year-over-year (or 36% constant currency), driven primarily by higher personnel costs related to expanding the global ad sales team, as well as platform investment, acquisitions, and higher advertising expenses targeting emerging markets and Gen Z. 

“These investments largely reflect various growth initiatives that were greenlit toward the end of 2021,” the company told shareholders.

“Ad-Supported Gross Margin was 5.1% in Q4, down 554 basis points [year-over-year]. The Y/Y trend reflects improving podcast profitability offset by new podcast content investments and softer Ad-Supported music profitability (as advertising monetization lagged engagement in select markets).”

Sourced from Spotify, Bloomberg, WARC