Trends In Global Advertising Industry: Winners And Losers – Part 1
The $600 billion advertising industry, which is growing at 5% rate annually, is undergoing a rapid transition.  While TV ads continue to rule the roost with over 40% share, digital ads that include online desktop and mobile ads have taken the center stage and are growing at a rapid pace. According to eMarketer, Mobile advertising is the key driver of growth around the world and advertisers will spend $64.25 billion worldwide on mobile advertising in 2015, an increase of nearly 60% over 2014.  So while social media platforms, search engines, programmatic ad platforms and other Internet properties stand to gain from this trend, the clear losers are the TV networks and print media that rely on advertising.
Budget allocation for online ads is increasing at the expense of TV and print media. While budget for TV ads is expected to shrink by 3% each year till 2020, print ad revenue is on a steep decline. World-wide, print ads declined 5.2% in 2014 from a year earlier and are down over 17.5% over the last five years.  This leads us to believe that print ads will be relegated to the botoom tier and makeup only a small portion of the ad industry in the future. However, a turf war between TV ads and Online ads will continue in the near foreseeable future. This is a two part article, and in the first part we delve deeper on what’s driving this fundamental shift. In the second part next week, we explore the impact on key industry players.
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What Is Driving The Fundamental Shift In Ad Dollars From Traditional To Online Media?
The Internet advertising market is gaining traction owing to increasing ubiquity of smartphones, tablets and PCs, coupled with an improvement in ad measurement techniques. Internet penetration is changing user behavior and user-generated content is facilitating a move away from traditional content generation sources such as TV and print publications. More notably, the move online is being driven by the emergence of programmatic platforms that enable advertisers to generate higher ROI for their ad dollars by matching relevant ads to websites with engaging content across geographies and time slots. Consider the following:
- Consumers Are Spending More Time On Connected Devices: – One of the primary reasons for the shift in adverting budget from TV and print is the change in user and consumer behavior facilitated by the advent of Internet enabled devices. According to research, globally consumers spend more time each day engaging with mobile devices (97 minutes) than on television (81 minutes), the desktop (70 minutes), radio (44 minutes), and print media (33 minutes). While globally consumers spend 97 minutes per day on mobile, they spent 37 minutes with tablets, which together account for 37 per cent of media time.  As a result, advertising managers are now allocating more budget for online ads, where engagement levels are higher.
- Online Content Is Becoming Attractive, Thus Luring Viewers:– On the content supply side, user generated video content is on the rise due to a number of factors including the proliferation of low cost but high quality video equipment, the increase in Internet penetration and bandwidth, and the low storage costs of online content. Additionally, premium video content is also growing because many traditional media companies are boosting their online presence to capture a shift of viewers moving online for streaming digital content. On the demand side, online video content is becoming increasingly popular due to broader Internet access and the advent of smart connected devices (which include tablets, smartphones and notebook PCs). Furthermore, newer video formats are coming to fore that allow easy rollout of pre-roll and interstitial video ads. As online video content empowers users to choose what, when and over which medium to watch content, viewers are spending more time viewing videos online rather than on traditional TV. We expect these trends will continue to drive demand and supply for online video content in the future. The change in consumer behavior is prompting the migration of TV ad budgets to online spending. As a result, the video advertising industry has become fragmented, primarily due to the growing popularity of online video streaming. Furthermore, digital video ad spending is increasing at a faster pace and much of this growth is coming from mobile devices. While TV ad spending was at $66 billion in the U.S. during 2014, mobile ad spending grew by 76% from $7.1 billion in 2013 to $12.5 billion during the year, according to Interactive Advertising Bureau (IAB). 
- Placing Ads Online Is Cheaper:– Online video ads cost per impression (CPM) still lags TV CPM. While a Turns study estimates that cost per impression (eCPM) for online video is in the $8-$12 range,  TVB estimates this at $25 for TV.  We expect TV and digital video advertising spend to converge as multi-platform and multi-screen video advertising get integrated.
- Better ROI In Online Ads Due To Programmatic Platforms:– Over the past few years content providers have been increasingly adopting ad-exchange mechanisms that use real-time bidding (RTB) platforms. An RTB or programmatic platform is a method of selling and buying online display ads in real time. RTB aggregates the impression slots offered across multiple ad networks and matches them (based on the advertisers target, budget and placement requirements) with the most appropriate ads. Additionally, an RTB employs a dynamic pricing auction method which allows the publisher to supply his impression to the highest bidder at any given instant. This results in advantages such as better cost efficiency, higher performance and greater granularity with targeting and measuring an ad’s effectiveness.
- Rise of Social Media Is Fueling Rapid Shift:. Social media ad spending is expected to outpace the overall Internet ad market, and grow at around 18% CAGR during 2014–2019.  This is further shifting ads dollars away from traditional advertising that advocates consumption of content on an individual and personal level. Social media websites such as Facebook have been able to increase their share in online ads and average ad price for these websites has increased tenfold. In Q2, average price per ad for Facebook strengthened by 220% annually.
See More at Trefis | View Interactive Institutional Research (Powered by Trefis)Notes:
- Advertisers Will Spend Nearly $600 Billion Worldwide in 2015, December 10 2014 [↩] [↩]
- World Press Trends: Newspaper Revenues Shift To New Sources, June 06 2015, www.wan-infra.org [↩] [↩]
- S. Online Ad Spending Continues to Catch TV, April 22 2015 [↩]
- Advertsing Intelligence Report, May 2015, www.turn.com [↩]
- TV Cost & CPM Trends- Network TV Primetime [↩]
- Digital to Overtake TV Ad Spending in Two Years, Says Forrester, Advertising Age, November 4, 2014 [↩]