Linear TV Ad Revenue, Muffled by Covid-19, Projected to Dip 16% in 2020

Key Insights:Magna projects ad spend will stabilize in the second half before a modest 2021 recovery.Political ad spend will help buoy overall ad revenues, while the postponed Olympics will generate millions in incremental ad revenue next year. The ongoing Covid-19 pandemic and its effects on the advertising industry will both go down in history. In the second quarter of the year, national television advertising saw revenues drop 30%, its worst quarter ever, and linear media ad sales were down by a whopping 38% in the quarter, according to a new U.S. advertising data from Magna. The report, released today, helps quantify the extent of the damage of the ongoing Covid-19 pandemic on the advertising industry after media executives, bracing for the effects of cancellations of advertising windfalls like live sports and the Olympics, warned in the first quarter that the worst was yet to come. By comparison, the 2008-2009 financial crisis only resulted in an 8% decline for national TV advertising sales in a comparable quarter. But there are signs of optimism: Ad spend is expected to stabilize in the second half of the year as businesses reopen, some consumer spending returns and as upcoming elections prompt record-level ad spending, said Vincent Letang, Magna evp and managing partner of global market intelligence. “The macroeconomic environment is getting a little bit better, and some delayed consumption is likely to happen in Q3 and Q4,” said Letang, who authored the report. “And the return of sports on television is going to help. For all these reasons, the second half will be better than the first, which will mitigate the full-year decline.” The first half of the year, unsurprisingly, wasn’t pretty for linear media. Linear ad sales, which includes linear TV, radio, out-of-home and print, declined by 23.1%, with print and radio both down 33%, out-of-home falling 22% and on-screen cinema advertising plummeting 63.6%. National and local television ad sales both saw 19% drops, with the delayed upfronts helping to lock in some advertising revenues and political ads buoying local TV ad sales. Digital ad sales were up slightly at 5.7% in the first half of the year and flat in the second quarter, reflecting the resilience of the medium, especially as marketers continued some lower-funnel efforts. Facebook, YouTube and Amazon all saw U.S. ad sales grow in their second quarters, with Amazon-owned streaming video platform Twitch growing a whopping 52% in Q2, though search advertising recorded its first decline ever, down 3% in the quarter. Because of the sheer size of digital advertising, which comprises about 55% of the U.S. ad market, overall advertising revenues fell by only 7.2% in the first half of the year. Magna predicts declines will stabilize in the second half of 2020. Media owners’ net advertising revenues, which include all media, linear and digital spend, are expected to decline by 4.6% to $213 billion in 2020 overall. Advertising sales are projected to decline by 2% in the second half of the year, compared to the 8% decline in the first half. Linear ad sales will still face the worst outcome, Magna said, with full-year sales expected to decline by 16% to $81 billion by year’s end. Digital advertising sales are projected to grow by 4.2% to $133 billion, and digital video, driven by YouTube and Twitch, will grow 12%. Social media sales are expected to grow by 11%, and search will end the year with 3% growth, primarily due to the increase in ecommerce marketing throughout Covid-19. “In digital media, the classic fact is that when times are tough, marketers are able to maintain their lower-funnel marketing campaigns, and most digital media formats are lower-funnel marketing supporting short-term sales,” Legtang said. “Branding campaigns and branding budgets are more vulnerable to cost-cutting, and that’s what is creating hardships for national television.” The stabilization in the second half will also be helped by political ad spend, which is expected to inject $5.1 billion in net incremental advertising sales, 32% higher than 2016, and nearly $1 billion going to digital media, three times as much as in 2016. That spend will help stabilize the market and provide a major boost to local television advertising, which is otherwise facing several more rocky quarters due to local advertising scale-backs. Next year, however, is expected to be brighter. Magna projects ad sales to rebound by 4%, but the overall ad market will still be slightly smaller than its 2019 size—$222 billion compared to 2019’s $224 billion. The upcoming Tokyo Olympics, which were postponed until 2021, will generate approximately $800 million of incremental ad revenues. Anticipated economic stabilization will drive seven of the top 10 advertising verticals to increase their linear advertising spend, including in the entertainment and restaurant sectors, which contracted substantially this year. (Exceptions include travel and automotive advertising, which will take longer to recover.) “None of them is going back to advertising spend pre-Covid, but they are recovering and going in the right direction,” Letang said. Of course, these predictions hinge on whether or not the Covid-19 pandemic comes under control, and the hope that a vaccination will become available at some point in the first half of the year. Even then, a return to a so-called normal may be altered more permanently: Out-of-home and radio, for example, may face lasting damage as some employees never return to their pre-pandemic commute routines, Letang said.