Small Data from Cannes 2017

The 2017 ad growth outlook is drifting down, for key markets like the U.S. and U.K., as well as globally. Watch for continuing volatility in 4Q media spending, as marketers weigh maintaining media weight against the profits watched by shareholder activists and potential acquirers.

Budget pressures appear to be most affecting TV and video spending. The U.S. TV ad growth outlook has dropped during upfront negotiations, with reports of roughly flat upfront commitments by a leader like CBS indicating that LSD-MSD declines for TV networks’ overall commitments are on the table. The U.K. TV growth outlook is dropping, now possibly negative, reflecting higher Brexit uncertainty.

In a number of markets, including the U.S. and the U.K., YouTube has seen cuts from a range of large marketers concerned about brand safety. YouTube admits that, while it is on the case with tools like machine learning, ensuring brand safety is more difficult in video than in display. Agencies’ unused upfront commitments to Google Preferred are aggravating the current oversupply of YouTube inventory. FB is not a particular beneficiary of YouTube cuts, however, as it still draws more from marketers’ social than video budgets, as do Instagram and Snapchat.

For 2017, digital ad growth outlooks are thus coming down, primarily for spending on destination video sites like YouTube; over the longer term, providing marketers with means to shift TV budgets to digital at scale remains a central ad market challenge. The view from large marketers like P&G that there is 20-30% waste in the digital ad supply chain sets the table for downward pressure on digital ad budgets outside FB and GOOGL. Some note particular problems with programmatic video. TWTR is slowing in 2Q vs. 1Q, and likely missing budget, although its growth should still be positive for 2017. U.K. digital ad growth has been particularly sluggish in 1H, under 10%, per our checks. One positive is that FB ad spending growth appears to be similar in 2Q as 1Q.

Anecdotes suggest rising search competition for Google, but few point to much near-term impact. CPG marketers claim that search ROI is much higher on Amazon than Google. Pinterest’s ad products increasingly compete for unbranded paid search ad budgets (97% of Pinterest searches are unbranded). However, AMZN’s focus on marketers with larger budgets may slow its inroads into search spending by SMBs. Some note shortfalls in geo-targeting on AMZN as well.

Key secular drivers of share shifts remain how marketers use key platforms in their strategies, and the small data here primarily relates to newer platforms, as well as TV’s go-to content, sports. SNAP’s focus on video is a barrier to scaling spending from SMBs, because video ads require higher production values. Media execs see recent content announcements by social networks (e.g., the SNAP-TWX $100m deal) as facing up to the reality that newer video players like FB and SNAP, conceived as social not video destinations, struggle to scale as options to large-scale TV ad campaigns. Another opportunity for social networks to gain share would appear to be sports advertising, where rates are already high on linear TV, and where stars are becoming media channels in their own right on social networks, and are thus increasingly competing for media and not simply sponsorship budgets.

Trends in monetization rates and methods continue to pressure TV, and suggest that media companies need to look beyond advertising and subscriptions. In the U.S., TV ad loads are likely to continue to drop, with TV ad lengths likely to drop as well. Even backers of vMVPDs doubt that any of the newer offerings will attract more than a few million subscribers over the next year. Thinking of Nike as a media company, which sells shoes not subscriptions, hints at how media companies themselves need to expand their scope of monetization.

The macro environment for ad agencies remains tough, primarily because of challenging conditions for their larger clients, not new competition.With large verticals like CPG/FMCG cutting budgets, agencies are more likely to respond to client losses with cost-cutting of their own (e.g., WPP’s combination of MEC and Maxus). Automation is driving marketers to cut costs, including agency fees. However, even P&G, seen as a lead steer with its focus on media cost cutting, sees its own in-house capabilities as slight, and thus, presumably, not a secular threat to spending with agencies.

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