This post by GroupM's Adam Smith summarises the latest forecasts for 2015 ad expenditure in the UK and how they will impact on media categories.
The UK economy is in strong, but vulnerable, recovery. Our trade deficit is a symptom. its run-rate of 5% of GDP is the highest it has ever been in peacetime. This is not healthy. It suggests under investment in domestic production (guilty), excess borrowing to consume (guilty), and, in particular, excess borrowing from foreigners (which can dry up without warning, especially with the Fed calling its dollars home).
Another symptom is relying on consumers to save less rather than earning more. Takehome pay has risen 8% since 2008; CPI, 20%. Falling oil and supermarket prices will increase real spending power temporarily. Lasting improvement requires better productivity, which requires corporate investment, which requires a degree of confidence about the future which UK Plc may lack. For these ad forecasts, the short-term looks more attractive than the long-term. The advertising recovery peaked in 2013. And even the short-term comes with a government health warning. Low wage growth brought a tax shortfall, so the government is not finished with austerity yet. We will hear more about this after the election. The 11% (of GDP) annual budget deficit the coalition inherited in 2010 is still running at 5%-6% (same as Spain, worse than Italy) and the pile of accumulated public debt has doubled, to £1.5 trillion (nearly 90% of annual GDP).
Our forecasts for 2014 and 2015 are fractionally firmer, with 2015 now comfortably taking total expected media and marketing investment past £20 billion. The two main UK ad themes for 2014 are TV inflation and the strength of online display. TV's rising prices are a classic combination of advertiser demand meeting falling audience supply. This proves traditional TV lacks substitutes, and reminds us the on-demand alternative is scarce and expensive. To expand the supply of the online video audience while balancing quality, price and risk is a big opportunity, especially if traditional commercial tV continues to lose viewers. For now, radio appears to be the main beneficiary of excess TV demand, while print and out-of-home look like they may have donated blood to TV.
The IAB reported online display up 30% in the first half. It correctly summarises the drivers as video, social and mobile, but the underlying reason is more practical and attractive formats for brands – richer, more trackable, more graphic and more clickable. Direct marketing often pioneers new media as it can control risk and is compulsively experimental. Brand advertising is a slower burn as it puts more at stake and success is harder to account.
Display has, however, been the main source of UK digital ad growth since 2013, and we see this lead growing wider in 2015. There is plenty of structural headroom. The IAB says brand advertising still accounts for only 17% of UK online advertising. The longer-term question is whether online will wrest investment from network TV with the ease it did from print. This is a fairer fight. It will unleash creativity. It will force attention on the relative efficiency of simple broadcast and 'addressability at scale': what IHS's Daniel Knapp neatly called 'the shift in how audiences are built: from averages to individuals'. Contingent is how brands reckon 'waste'. 'One man's trash is another man's treasure', as King Of The Hill's cantankerous grandfather put it in the context of his ex-wife remarrying.
Despite infinite digital competition, brands still queue up to appear in the strongest media franchises. The rest must 'premiumise', meaning make themselves indispensable by being plural, versatile, bespoke – things humans do well but siloes impede. The 'multitouchpoint' evolution in TV sponsorship is an example. Necessity has made news and magazine brands mothers of invention too. Mechanisation and technology are convenient, but are mechanical and technical, and struggle with intangibles like context and engagement. Data is not science, even when 'big'. For science, you need scientists. Brands need special care. As they make more of digital, we remember tools and techniques are only aids to creativity, not a substitute for it.