Global advertising spend is on course to rise by 8.3 per cent – or $67.3bn – to $880.9bn (£746bn) this year, according to new data from WARC. Ad spend has been lifted by a positive first half for holding companies and will see a boost from cyclical events in the second, most notably the US midterm elections and the men’s FIFA World Cup in Qatar this November. Market growth is then set to ease significantly – to 2.6 per cent – in 2023, as investment is inhibited by cooling economic conditions and third-party cookie blocking.

The new projections, based on data from 100 ad markets worldwide, amount to a downgrade of 4.3 percentage points (pp) to 2022 growth and 5.7pp to 2023’s prospects, compared to WARC’s previous global forecast in December 2021. Taken together, the new forecasts represent a reduction of almost $90bn in growth potential for the global advertising market this year and next.

Advertising holding companies – which serve many of the world’s biggest brands – have recorded a positive start to 2022, with all major firms upwardly revising forward guidance for the year ahead. Conversely, small to medium-sized businesses (SMBs), who largely buy ad space directly, are bearing the brunt of worsening economic conditions. A slowdown in SMB advertising activity will have the biggest impact on social media companies, who are already struggling to grapple with the impact of Apple’s new privacy measures. WARC expects social media ad spend to rise 11.5 per cent this year (compared to 47.1 per cent in 2021) then ease to just 5.2 per cent in 2023 – the slowest rate yet for the sector.

Aside from businesses, consumers are also feeling the squeeze of soaring price inflation. This is particularly true among low earners, for whom energy and food costs comprise a higher proportion of income. Wealthier consumers, however, have seen the value of their assets appreciate in recent years and are more likely to have received above-inflation pay rises. Spending intentions among high earners remain bullishly positive per Deloitte monitoring. Sectors like technology & electronics (+11.5 per cent in 2023), pharma & healthcare (+7.5 per cent) and household & domestic (+6.5 per cent) are expected to post healthy increases in advertising investment to capture any available disposable income.

Social media’s $40bn shortfall
Apple’s move to block third party cookies across its 2bn devices – which are used by 12 per cent of the global population (860m people) – has already had an adverse impact on the social media companies which rely on third party data, most notably Facebook’s parent company, Meta.

WARC believes that Apple’s privacy push – aside Google’s delayed move to block third party cookies from its Chrome browser (66 per cent global market share) – will remove close to $40bn from the bottom line of these social media companies over the course of this year and next. A recent survey of over 1,500 practitioners for WARC’s Marketer’s Toolkit found that only a 34 per cent of respondents felt fully prepared for a post-cookie advertising market.

Meta recorded its first annual decline in advertising income during Q2 2022 and WARC believes its full year growth will be flat over the forecast period, as the Instagram platform stymies ongoing losses from the core Facebook platform this year and next. TikTok (+41.5 per cent), Snap (+5.8 per cent) and Twitter (+2.7 per cent) are all expected to record growth next year, but at a far slower rate than historically seen, while a number of Chinese platforms are set to record losses.

Of the 18 product sectors monitored by WARC, all bar automotive are on course to increase advertising spend this year. Only four sectors are expected to cut spend the following year: transport & tourism (-0.4 per cent), alcoholic drinks (-1.1 per cent), financial services (-4.5 per cent) and automotive (-12.4 per cent). The automotive sector is dogged by both supply- and demand-side pressures and is the only sector set to cut advertising spend in both 2022 (-5.3 per cent) and 2023.

The technology & electronics sector – the third largest of the 18 monitored by WARC – is forecast to lead growth this year and next (+25 per cent in 2022 and +11.5 per cent in 2023), culminating in a total spend of $85.1bn by 2023. The pharma & healthcare sector then follows, with expected growth of 11.0 per cent this year and a further 7.5 per cent in 2023, by when investment will have topped $60bn globally.

Retail – the largest sector monitored by WARC and which includes Amazon, the world’s largest advertiser by spend – is set to increase advertising investment by 6.8 per cent this year and 3.6 per cent next year, despite retailers seeing tighter margins from inflationary pressures.

AVOD market heats up
Advertising spend in the video streaming sector is set to grow faster than the total ad market this year (+8.4 per cent) and next year (+7 per cent). Within this, the ad-funded video on demand (AVOD) sector – which includes the likes of Hulu, Amazon Prime Video and YouTube – is expected to rise 8  per cent this year and then a further 7.6 per cent in 2023 to reach a value of almost $65bn.

Aside from the social media players, YouTube’s fortunes have also proven vulnerable to privacy changes on Apple devices; WARC believes that YouTube’s advertising revenue will rise 7.3 per cent this year (compared to 45.9 per cent in 2021), but that its growth will then ease to 5.6 per cent in 2023. This would give the company 39.4 per cent of the global AVOD market, a declining share (down 0.9pp from 2021) as competition heats up with the introduction of advertising to Disney+ and Netflix later this year.

There is already evidence of saturation in the streaming market, WARC notes, particularly in the US, with audiences now using seven streaming services on average (compared to the global average of five). Consequently, new entrants are just as likely to be fighting for existing ad spend as they are for incremental dollars, which could hinder overall growth of streaming operators in the short- medium-term.

Streaming services owned by broadcasters (BVOD) are also set to grow their advertising income this year (+9.7 per cent) and next (+5.2 per cent), but from a far lower base (reaching $18.5bn in 2023). Linear TV is set to benefit from cyclic sporting and political events this year, raising advertising investment by 3.6 per cent to $180bn (20.4 per cent of all advertising spend) but the market is then on course to record a 4.5 per cent loss in the absence of these events next year.

“With the growth rate of global output now set to halve and acute supply-side pressures fanning inflation, the economic slowdown has removed close to $90bn from global ad market growth prospects this year and next,” said James McDonald, Director of Data, Intelligence & Forecasting at WARC, and author of the research. “Yet brands are still spending as the COVID recovery continues, and global ad trade remains on course to top $1trn in value by 2025. Platforms with rich sources of first-party data – most notably Amazon, Google and Apple – are well placed to weather future headwinds by offering measured performance in a climate where return on investment becomes paramount.”