GroupM recently released its Global End-of-Year Forecast, showing a much faster expansion in the advertising industry than previously anticipated, driven primarily by growth in the US, UK, and China. 2021 growth is forecasted at 22.5% (excluding U.S. political advertising), an upward revision from September’s prediction of 19.2%; and 2022 is forecasted at 9.7% (excluding U.S. political advertising), an upward revision from June’s prediction of 8.8%.

GroupM identified major areas to consider at this point:

• Digital advertising: Likely growing by 30.5% by end 2021, up from June’s forecast of 26% growth.
  • Digital advertising accounted for 64.4% of all advertising in 2021, up from 60.5% in 2020.
  • Alphabet, Meta, and Amazon account for 80-90% of the global total.
• Television advertising: Forecasted to grow by 11.7% in 2021, up from June’s estimate of 9.3%. Given 2020’s decline of 13.7%, the industry is not expected to return to 2019 levels until 2023.
  • Subsequent years will be roughly flat – up 1-2% per year through 2026 – for television advertising in most major markets around the world, as the largest advertisers continue to incrementally shift spending.
  • Overall, connected TV+ will account for about 10% of total TV advertising in 2022 ($17 billion of a total of $171 billion) and is expected to double by 2026.
• Audio advertising: Expectations for audio are that it will grow 15.6% in 2021 and 6.4% in 2022. In subsequent years, we assume a reversion to historical trends: largely flat.
• OOH advertising: Outdoor advertising is expected to grow 17.1% in 2021 and 14.9% in 2022. In subsequent years, we assume a reversion to historical trends: mid-single-digit growth.

Communicate sat with Brian Wieser, Global President, Business Intelligence at GroupM to dig into these findings.

What does the faster-than-anticipated growth rate that you are forecasting tell you?

It is surprising how fast the advertising market globally is growing, how pretty uniform that expansion is, and [how] the acceleration relative to expectations has continued.

Expectations for economic activity are improving generally around the world; that helps. Inflation expectations are rising too, which also helps. If you have a consumer price inflation of 5% versus zero, ceteris paribus [all other things being equal], you would expect more advertising. As long as inflation doesn’t cause friction in the market – European-level or American-level inflation – it’s doesn’t make much difference other than cause more advertising because of the way that marketers tend to budget.

I use a super simple example in the United States. A great bakery near where I live no longer makes bread on Mondays because they can’t find labor, because they’re not willing to pay enough. But there are other places where I can get bread. Even if I’m used to a baguette at $3 and someone else is selling a good baguette for $4, I’m happy to pay more. So, my money will just get spent somewhere else. The baker who decides that they can’t pay their staff 20% more and charge $4 loses. If every baker decided that consumers won’t pay $4 for a baguette, you’d have fewer purchases of baguettes and, if there were an advertising industry centered around baguettes, there would be less advertising of baguettes; but that’s not the situation we’re in.

That, and the supply chain issues, are the most common issues that come up in conversations around the advertising market. Supply chain challenges mean, in part, there are fewer goods to advertise. But what I think a lot of people are missing is that, when we hear individual companies complaining about not getting access to goods, it’s because their competitor bought the good instead. And so, the advertising is coming from someone else. Supply chain constraints have not proven to be negative at this stage.

The growth is mostly concentrated in three main markets, China, the US, and the UK. What drives this dominance?

The US has always punched above weight in the sense of how important advertising is relative to the market. It’s always been amusing to me how investors in particular, and other observers always look at the American advertising intensity and say, “Well, if advertising is X% of GDP in the US, surely everywhere else will catch up.” No! Who says it will?

If you look at what drives advertising, economic activity is a proxy, but it’s not the driver. The driver is the composition of the economy. If advertising is a choice that a company makes because it’s better than the alternative, you need a catalyst. Imagine you had an economy completely composed of monopolies that had fast-growing GDP, would you see a lot of advertising? No, you’d see very little. Some level of competition is necessary.

You can also have too much competition. Imagine an economy with nothing but small businesses – no large ones operating at a large scale. It doesn’t matter what total economic growth is happening, GDP or otherwise; you wouldn’t necessarily see a lot of advertising. If you have a lot of categories that are large enough, oligopolistic but not monopolistic, you probably have the conditions for a lot of advertising.

The United States has all these characteristics. And the UK is growing into this kind of advertising intensity, and also benefiting from American companies looking to the UK as their second market after the US.

The three things that China, the UK, and the US have in common are massive pools of venture capital and other sources of cheap capital that are driving huge levels of investment into companies operating at a very large scale in emerging fields. There’s some activity like that, say, in Germany, but just not anywhere near as much.

What about the MENA region?

In MENA, the total estimate for this year is $5.3 billion with a growth rate of 15%, and 17% next year. Last year, we didn’t record much of a decline, but the ups and downs that we see in the region are idiosyncratic. They’re different than any other market. If the government coffers are really strong in KSA, that’s going to drive a lot of advertising. If not, you won’t see as much.

Do the trends that you identified apply to the region as well?

It’s somewhat unique; really different factors drive the advertising market compared to other markets. But a lot of what we say is applicable [in MENA].

TV ad spending has been growing. Is this related to the pandemic?

No, that’s more because of the decline last year. In most markets, television goes back to 2019 levels by either next year or, for some, this year.

People might have watched more television during the worst parts of the pandemic but that didn’t necessarily impact advertising budgets. Consumption and advertising spending don’t relate to each other.

You also mention the inevitable deceleration of digital. What makes you predict that?

Well, unless you believe that the advertising market is going to be completely disconnected from economic activity, unless our whole economy is going to become advertising, it has to decelerate. It’s a math exercise as much as anything.

So, it’s not due to changes in behaviors, for example.

Consumer behaviors matter more when we look at shifts in spending within like-for-like media. That truth has been misapplied to all advertising.

That’s interesting because we keep being told that advertisers need to follow eyeballs.

Next time someone says that, I’ll simply show you the math on it. People say, “Oh, the consumers are in control” and I say, “How do you quantify that? Are you saying they didn’t have control 50 years ago? They couldn’t just walk away? Why is it different now?” “Advertising follows eyeballs” is another truism. Show me the money! Show me where this goes. Whenever anyone says something that sounds like a fact, ask them, “Why do you believe that’s true?”