Zenith: Ecommerce and video fuel faster-than-expected recovery in global adspend

The global ad market has recovered more rapidly than expected from the severe slump in Q2 caused by the coronavirus pandemic and is now forecast to shrink by 7.5% to US$587bn across 2020 as a whole, according to Zenith’s Advertising Expenditure Forecasts. This is a marked improvement on Zenith’s forecast of a 9.1% decline in July.

Zenith predicts that global adspend will grow by 5.6% to US$620bn in 2021, boosted by the favourable comparison with 2020, as well as the delayed Summer Olympics and UEFA Euro football tournament. This is fractionally begind the 5.8% growth we forecast in July. Despite this bump, spending will remain below the US$634bn spent in 2019. In 2022, adspend will grow by 5.2% to reach US$652bn, exceeding 2019 by US$18bn, though it will be about US$70bn lower than it would have been if it had remained on its pre-pandemic track.

These forecasts assume that the global economy will start a sustained recovery as COVID-19 vaccines are introduced in 2021, and are subject to the wide uncertainty over how rapid this recovery will be.

Digital transformation is rapidly shifting budgets to digital advertising

Zenith predicts that global digital adspend will rise 1.4% in 2020, and increase its share of total adspend to 52%, up from 48% in 2019. The pandemic has forced brands to step up their digital transformation, as ecommerce has proved a vital tool for maintaining relationships with existing customers, mitigating the loss of in-store sales, and even finding new customers. Euromonitor International forecasts that ecommerce sales will increase 25% this year, while in-store sales drop by 5%. Brands have increased their spending on digital media to promote and drive traffic to their own ecommerce operations and to retailer partners. Search and social media, up 8% and 14% respectively, have proved particularly useful for these purposes.

The growth of ecommerce is not expected to reverse once the world starts to recover from the coronavirus pandemic. Now that brands have proved the value of digital transformation under stress, they are likely to press ahead with it enthusiastically, devoting even more of their budgets to digital advertising. Zenith forecasts that digital advertising will account for 58% of global adspend by 2023.

Advertising on connected TV is compensating for the rise of SVOD

Consumers’ viewing habits have been evolving for years, but 2020 saw a real step change as online video platforms benefited from a long-term boost to awareness and demand. Forced to spend much more time at home, consumers flocked to existing SVOD platforms like Netflix, which added 25 million new subscribers in the first half of the year, and new ones like Disney+, which achieved its five-year growth target in just nine months.

Importantly for advertisers, who are locked out of SVOD platforms, demand for ad-funded video on demand (AVOD) has been even stronger, especially on connected TV sets. Between January and April 2020, the reach of SVOD services on connected TV in the US rose by 5%, but the reach of AVOD services rose by 9% to 58.5 million households, or 48% of the total¹.

AVOD combines the premium viewing environment of television with the data-fuelled targeting capabilities of digital advertising. It offers high ad recall, and high reach among young audiences that are hard to find on traditional TV. As it continues to grow over the next few years it will counterbalance the loss of audiences to SVOD and help fuel an average of 8.4% annual growth in online video adspend between 2020 and 2023.

“Now that it offers mass reach in key markets, it’s the right time for brands to invest in connected TV,” said Christian Lee, Global Managing Director at Zenith. “Brands should use connected TV for both branding and performance, exploiting its high ad recall and full targeting and tracking capabilities to drive awareness and sales conversions at the same time.”

Retailer media is diverting commercial budgets to advertising

The spike in ecommerce this year fuelled rapid growth in demand for retailer media – display or search ads that appear on retailer platforms and direct users to products available for purchase there. This is a well-established channel in China but is relatively new elsewhere. By promoting products at the point of purchase, it acts more like in-store displays than traditional above-the-line advertising, and brands commonly pay for it from commercial budgets set aside for negotiating with retailers, rather than from marketing budgets. It can therefore grow without cannibalising existing ad expenditure. Amazon is the main supplier of retailer media outside China, and its revenues grew by more than 40% year-on-year every quarter in 2020.

Retailer media has huge potential for growth globally, given that its market share outside China (3%) was less than a sixth of its market share in China (19%) last year. Zenith estimates advertisers spent US$35bn on retailer media in 2019, and will spend US$51bn in 2020, up 46% year on year.

“Retail platforms are powering their growth by putting pressure on brand margins. Their focus on bottom out price wars, and enhanced consumer experiences, benefit consumers while brands bear the cost,” says Ali Nehme, Global Chief Commerce Officer, Publicis Groupe. “In this scenario, brands must flex their own power, by selecting retailer partners who offer demonstrable value through transparent data and measurement, as well as the ability to deliver the consumers who will drive much needed category growth.”

Asia Pacific and Central & Eastern Europe to lead recovery

Adspend is forecast to bounce back to 2019 levels in 2021 in both Asia Pacific and Central & Eastern Europe. The successful containment of COVID-19 infections in many Asia Pacific markets has limited the economic damage and prepared the region for rapid recovery in 2021. Countries in Central & Eastern Europe have generally suffered more, but their ad markets are less developed – accounting for 0.4% of GDP compared to 0.7% in Asia Pacific – and they have a faster underlying growth rate. Zenith forecasts adspend in both regions to shrink by 6% in 2020 and grow by 7% in 2021.

North America has fared better than any other region this year and is forecast to shrink by just 5.3% in 2020, but that’s partly owing to very heavy political spending in the run-up to the US Presidential election. The absence of political adspend will make the comparison look tougher for 2021, when Zenith forecasts just 3.3% growth. Adspend will then grow by 4.5% in 2022, which is when North America will return to pre-pandemic levels of spending.

Western Europe, Latin America and the Middle East & North Africa (MENA) are all forecast to shrink by 12.3%, 13.8% and 20.0% respectively this year. Of these, Zenith expects the quickest recovery from Latin America, another underdeveloped advertising region with the fastest long-term growth rate of the three, which will overtake 2019 spending levels in 2022. Mature Western Europe will not return to 2019 levels of spending until 2023. MENA has been shrinking for years as a result of conflict, political instability and volatile oil prices, which the pandemic has only exacerbated. Zenith forecasts that adspend in MENA will still be 4.1% lower in 2023 than it was in 2019.

“The global ad market has been recovering from its Q2 nadir throughout the rest of this year,” said Jonathan Barnard, Zenith’s Head of Forecasting. “The prospect of multiple effective vaccines gives us confidence that adspend growth will continue in 2021 and beyond, returning the market to 2019 levels in 2022.”