2016 Impact on Digital Spending
As we come to the end of another year, many people spend time reminiscing about the past. While it’s good to revisit events to inform the future, it’s even more important to be aware of swiftly-shifting trends, especially in the digital advertising world.
According to the Interactive Advertising Bureau (IAB), a study predicts that digital advertising spend will surpass television spend in the US in 2016.
As these dollars are shifted, there are several factors contributing to increased digital competition in 2016. They are Television upfronts, the 2016 Summer Olympic Games, and U.S. political ad spending.
What Happened with Upfronts in 2015 and Why Does it Matter?
It seems silly to start a blog about digital with something as seemingly archaic as the Mad Men-esque world of television upfronts, but there were some interesting developments in 2015 that will directly affect digital inventory and pricing in the next year.
An upfront is a group of hosted gatherings from the major networks in which new shows are presented. Marketers are given a chance to buy television spots up front – several months before the traditional fall television season begins – at lower rates. Historically these have been major events, sometimes attended by celebrities to promote their new shows. In past years, it is estimated that up to 80% of available inventory has been purchased at this time.
During the upfront for the 2016 season, however, there were an unprecedented number of agencies in review. This means that agencies representing billions of dollars in annual media spending were essentially on-hold during the most spend-heavy time of year. The brands up for review included Unilever, P&G, General Mills, Clorox, Coty, and L’Oreal – historically very TV-centric advertisers who were considered mainstays in the upfront world. If you’ve only been in the digital world, and never participated in an upfront buy, we cannot emphasize enough how much this impacted the upfront season.
But This is TV – How Does it Affect Digital?
For years, marketers raided their print and radio budgets to find money for digital advertising, but those budgets are now “too small to fuel the growth of digital media, so money from TV budgets is now being used,” said Vincent Letang, Magna Global’s director of global forecasting.
Since major brands did not make upfront commitments, they will have more dollars to spend towards digital. Imagine an influx of even a small portion of those large television budgets into digital, and it starts to become a reality of how tight things are going to get.
2016 Summer Olympic Games Will Create a Summer of Change
A Billion Dollar INDUSTRY
The 2016 Summer Olympic Games will be held in Rio de Janeiro, Brazil during August 5-21, 2016. There will be 10,500 athletes from 206 countries participating in 42 sports with two new additions: golf and rugby.
NBC Universal expects to sell over $1 billion of advertising for its telecast. Commercials are big and splashy and dominated by advertisers with large budgets. The audience expected to exceed 20 million viewers. Viewership should be higher in U.S. than past several Olympics because there is only a 1-hour time difference between Rio de Janeiro and New York. Add to that a high-interest sport such as Golf, and you have even more TV viewers than ever before.
How Does it Affect Digital?
Although there is a lot of TV inventory, there is actually very little streaming inventory. NBCU may not have enough digital capacity to meet demands for ads to accompany streaming-video coverage.
“There is probably a 10 to 1 ratio of what I’ll call linear capacity to digital capacity,” said Seth Winter, executive vice president of ad sales for NBC sports.
Since digital is an ever-changing world, this could certainly change by the time the Olympics roll around in August. But as it looks now, if advertisers want to include Olympic inventory on their digital plans, they should be prepared to pay a premium.
State of the U.S. Political Advertising Industry
Probably the biggest impact on digital spending and inventory in 2016 will be from politics. According to a report from Borrell Associates, political ad spending will hit $11.4 billion in 2016. Combined with 2015, total political ad spending could be over $16 billion. Television is still the strongest vehicle, and 51% is expected to go to TV spending.
Although there is expected to be record-breaking spending from political candidates, the expansion of ballot initiatives and more funding from Super PACs means there will also be an explosion in issue/advocacy spending.
In terms of candidate spending, all television and radio stations must accept advertising from legally qualified candidates for federal office, and they generally garner the lowest inventory prices. Stations are not legally required to accept advertising from state or local races, but many candidates will still run on location stations, increasing pressure on inventory.
Digital a Key Part of Political Spending
Almost 10% (just over $1 billion) will go toward digital, which is nearly a 5,000 percent increase from 2008.
How Does IT Affect Digital?
Since Federal offices “unofficially” tend to get the lowest rates on TV and radio, the corresponding TV and radio websites may increase CPMs to make up for lost revenue. This is something to keep in mind if your media plans include local or geo-targeted impressions in areas with highly contested races.
Borrell also indicates that social media will be especially important in 2016, possibly getting almost half of all digital spending.
All states with primaries or caucuses in first quarter will experience increased inventory pressure and thus higher CPMs, particularly leading up to and during Super Tuesday on 3/1. If any of these states also have Senate races, this will only add to the pressure and make local or geo-targeted pricing that much more difficult. Some of the states to watch out for are Colorado, Nevada, New Hampshire, North Carolina, Ohio, Pennsylvania and Wisconsin (note that NH and NC also have gubernatorial races as well).
In addition to these races, all 435 seats of the House of Representatives are up for election. Inventory pressure caused by these races will vary greatly depending on how competitive the race is, and should be considered when buying geo-targeted locations.
Of course, we haven’t even touched the surface of state and local elections, which will impact media buying in ways that cannot be predicted on a broader scale.
What should digital advertisers do?
Be prepared for higher digital CPMs. Although the use of programmatic levels the playing field, many ad exchanges and DSPs could be even more susceptible to volatility given their auction-based pricing model.
Programmatic video and mobile have become buzzwords for 2016, and could be a good place to broaden a marketer’s digital media mix. However, both will likely still be impacted by higher-than-expected CPMs.
If you haven’t yet included brand-safe software in your digital campaigns, now is this time to invest in one (or make sure your media partners engage with a reputable company). With increased pressure on high-quality inventory, programmatic buying models may turn to lower-quality inventory to deliver impressions.
Keep a vigilant eye on pacing and delivery to avoid spikes and ensure full delivery of ordered buys.
It’s always a good idea to build your social content calendar out as much as possible, but 2016 will definitely be the year to include some sort of fluidity model to plan for unforeseen circumstances.
Consider all possible organic enhancements and focus on building organic equity ahead of time.
With all these changes, 2016 could be a challenging year for digital advertising. But with careful planning, diligence and a little creativity, it could also be a year where new opportunities are uncovered and explored.