Advertising on YouTube and ad-supported video-on-demand (AVOD) services will grow from approximately $19 billion in 2021 to approximately $53 billion in 2025 in the U.S., a 29% compound annual growth rate, according to a new report from analysts MoffettNathanson. MN sees 67% of the 2025 spending, or approximately $35.5 billion, going to YouTube alone, with other AVOD providers splitting the remaining 33% or $17.5 billion, just about how spending is allocated currently.
MN characterizes the YouTube/AVOD ad spending as a new “mid-top layer” of the traditional marketing funnel, sitting below top-of-funnel brand advertising traditionally dominated by TV spending which MN forecasts will stay roughly flat by 2025 at around $70 billion. It sees total top-of-funnel spending declining from $108 billion in 2021 to around $99 billion in 2025. Below the YouTube/AVOD layer is middle-of-the-funnel digital/social media (except search) which will increase from an estimated $64 billion in 2021 to an estimated $137 billion in 2025, a 21% CAGR.
MN’s optimism about YouTube/AVOD growth is based on these providers being able to offer targeted advertising capabilities to longer-form video content. This mirrors my own bullishness on connected TV advertising - blending the best of TV’s reach and lean-back experience with digital’s targeting, measurability and attribution. YouTube’s global ad revenue grew to a record $6.9 billion in Q4 on surging direct response ads. Over 120 million U.S. viewers streamed YouTube or YouTube TV on a connected TV in December.
YouTube/AVOD will benefit not only from impression growth as streaming/CTV becomes more popular but also by improvements in CPMs due to targeting. MN cites Discovery saying targeted ads on discovery+ are yielding 3x higher CPMs than in Discovery’s linear channel. MN also sees more spending moving to YouTube/AVOD with performance-oriented, down-funnel campaigns that lead to increased consumer conversion and purchases. This is already happening at YouTube, with Amazon and NBCUniversal, among others, positioning themselves for success as well.
Overall, MN is optimistic about U.S. ad spending, forecasting it will increase from about 1.1% of GDP currently to around 1.6% of GDP in 2025, totalling around $431 billion. Contributing to the higher spending is a bigger addressable market for advertising as digital becomes more compelling for advertisers, e-commerce ads increase and more small-to-medium sized business spend on advertising.
Join us at the Connected TV Advertising Summit (virtual) on June 9th and 10th (afternoons) to learn more about how CTVs are driving the explosion in streaming viewership and interest from advertisers. Registration is complimentary.