Global Marketing Monitor: Weekly Market Trends (May 15, 2021)

New data brought new reasons for concerns for businesses regarding inflation Following several weeks where input cost inflation for manufacturers was a topic of focus consumer price inflation CPI was central during the past week given the release of new data indicating that US CPI accelerated during April to a muchhigherthanexpected 42 growth rate on an annual basis Unexpectedly higher levels of inflation in the US are relevant to the global economy because changes in US inflation can lead to changes in US interest rates which can then concurrently impact currency exchange rates trade and capital flows across markets around the worldWhile the number was eyepopping given recent history of inflation running under 2 most of the past decade and not exceeding 3 since December 2011 it is fairly important to note that fully half of the increase was due to rising transportation costs which only account for a small share of total consumer expenditures and which clearly are experiencing shortterm disruptions in the wake of recovery from the depths of the pandemicStill rising costs are a potential concern Following on recent increases in global commodity costs US producer price data also came out this week and showed a significant 62 rise for April There is a semiconductor shortage that is disrupting manufacturing and causing other manufacturers to prioritize manufacturing their most expensive products or otherwise causing scarcity around the world There is constrained labor activity due to pandemic fears andor limited school options And then we have a significant amount of pentup demand for a wide range of goods and services in many markets illustrated by the massive increases in retail sales data we are seeing data from this week showed US April retail sales were up 51 yearoveryear and by 22 over April 2019 while Putting it all together consumerfocused manufacturers are generally planning to raise prices over the course of the year leading to the likelihood of additional inflation later in 2021Higher inflation leads to higher media pricing and more spending on advertising Higher levels of inflation will all else equal contribute to higher prices and growth in media owner ad revenue as we track this data in nominal terms We wrote last week that some companies will spend more on advertising while they invest against their brands in order to help justify higher pricing At the same time many other marketers simply allocate resources to advertising as a percentage of revenue If revenue rises solely because of inflation budgets for advertising will generally rise as wellIt remains to be seen just how much full year inflation will rise vs prior expectations For now they are only slightly higher now when compared with late last year Current consensus estimates tracked by Refinitiv call for 28 inflation for the US during 2021 vs more like 21 six months ago Similarly in the Euro Zone inflation forecasts now call for a level of 17 vs 10 six months ago By contrast in China expectations for inflation are actually lower at 16 now vs 21 in the fall However the general trend is up relative to estimates we aggregated in November the only markets with inflation expectations which have been raised by more than 1 by Oxford Economics are Argentina Brazil Nigeria and TurkeyIf thatamp8217s all that happens we probably wouldnamp8217t be overly concerned around the disruptive effects on economies amp8211 or the media industry amp8211 that might follow from these levels of inflationamp160amp160 However the risks seem clearly positioned amp8220upamp8221 rather than down and towards those ends it remains important to monitor how these trends play outDigital advertising debate faster growth ahead We think so Concerns were raised on Wall Street early in the week regarding whether or not expectations for growth in digital advertising are too high among the analyst community and whether or not there is evidence to support a view that growth could be elevated vs recent years Weamp8217ve certainly come out on the side of expecting elevated growth recentlyTowards the end of the week we saw more quantitative evidence capturing some of these trends with several relatively large companies reporting their quarterly earnings results They reflect a mix of ongoing growth in appcentric platforms and developers the rise of Chinabased manufacturers newly selling their goods abroad and accelerated focus on ecommerce by new and emerging brands in traditional categoriesNew app developer spending AppLovin is a developer of mobile games and provides marketing services for other developers They grew revenues organically by 89 during the most recent quarter and spent 44 of its revenue on sales and marketing of which 90 is accounted for by advertising costs during the most recent quarter They are now trending towards spending more than 1 billion this year We could argue this spending is essentially new to the advertising market as their service and their customersamp8217 products donamp8217t exactly replace anything that came beforeChinabased manufacturer spending outside of China Wish is an app which connects mostly Chinese merchants and manufacturers with consumers in other countries buying ad inventory to promote those products and providing logistical and other services to its merchant customers During the most recent quarter the company incurred 470 million of sales and marketing expenses essentially all advertising and is on track to spend around 2 billion this year This level of spending represents 57 of revenue and perhaps around 10 of total gross merchandising volume Arguably this money is incremental to a given economy primarily because it reflects incremental demand for advertising from a segment of marketers who would otherwise not have ready access to consumers in markets outside of China Wish is not unique in benefitting from this source of spending each of Google Facebook and Amazon are almost certainly generating billions of dollars in revenue from marketers who operations are limited to China but whose spending is deployed elsewhere around the worldEcommerce focused and higher ad intensity Casper is a company best known for making mattresses but features much more of a directtoconsumer business model and more of a digital focus vs companies which have been around longer Sales and marketing expenses amp8211 primarily advertising costs amp8211 accounted for 32 of revenue in the most recent quarter By contrast an older competitor such as Tempur Sealy spends closer to 10 of their revenues on advertising Higher ad intensity for new business models from upstarts in established sectors is not unique to the mattress industry we can see this in pay TV Netflix vs cable operators or retailing as well Amazon vs legacy bricksandmortar retailers for additional examplesIn addition to these trends we also consider the rapid increase in small business formation as another important factor contributing to high levels of growth in digital media at the present time All of these sources of advertising growth are tangible illustrations of the effects of creative destruction we have referenced previously and all lead to heightened levels of spending on digital mediaTelevision wonamp8217t benefit very much from these sources of spending One place where we donamp8217t expect elevated growth is in television There are clearly many pockets of growth but to keep the metaphor going pockets of growth are partially offset by holes in the proverbial liningConsider Disneyamp8217s results for its most recent fiscal quarter we can see that the companyamp8217s directtoconsumer advertising revenues amp8211 primarily Hulu in the United States amp8211 continued to grow rapidly in the quarter rising by 28 But at the same time their linear broadcasting and cable ad revenues in the US fell by 22 which equaled a greater amount in absolute terms There were mitigating factors to be sure such as the shifting the Academy Awards by a quarter the absence of a college football playoff game and some political advertising in the yearago quarter but this data broadly reflects what we expect to occur to television in years ahead advertising spending associated with professionally produced streaming video will generally replace spending that goes to traditional TV as owners of media properties disinvest in their traditional TV networks and plow programming resources into newer operationsSpending on videorelated content and services was down slightly in the first quarter in the US Stable wouldnamp8217t be the worst thing for some sectors If we look at spending on video in all forms in the US including paytv services streaming services VOD spending on films in the theater and via DVD etc using a combination of our analysis of paytv subscription revenues and newly released data from trade group DEG we calculate a 2 decline in spending on video and related services by consumers during the first quarter of 2021 This was similar to what we observed in analyzing figures for all of 2020 Of course the absence of theatrical releases was a significant factor in this outcome excluding these revenues from our definition of video spending we could calculate a nearly 2 increase year over year As comparable growth in years between 2012 and 2019 was generally in a 02 range it seems reasonable to assume that this might the level to which spending will gradually return as the economy returns to a new amp8220normalamp8221 Newer forms of video services amp8211 such as Disney or any other streaming offering amp8211 will mostly have the effect of capturing a share of spending rather than causing new spending to occur Anything more would take a more radical kind of change in business model paired with consumer or business behaviors much as we are presently seeing in the digital advertising businessCopyright and Republished with permissionPhoto courtesy of GroupMClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNetamp160

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Global Marketing Monitor: Weekly Market Trends (May 15, 2021)

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Brian Wieser

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Global Marketing Monitor: Weekly Market Trends (May 15, 2021)

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