TV revenues’ road to recovery

Total advertising growth should return to normal low or mid-single digit levels beyond 2022, so on the surface money won’t necessarily appear to move out of media. However, if we looked at total advertising spend – meaning paid media – for the typical advertiser, we would see that as advertisers mature they tend to shift resources into other forms of marketing, and that they are replaced by newer advertisers who rely on paid media. This would not be a new phenomenon. Marketers whose brands are well known do not need to spend as much on introducing their brands to consumers and can focus more on different ways of engaging with them. Those advertisers who shift resources outside of paid media would rely more on marketing technology software and related services.

I think the depth of the decline in much of Europe was deeper than what we saw in US national TV, but not deeper than what we saw in the US local TV market. The reason for the difference is that trading conventions in most European markets and in US local TV allow for more flexibility than US national TV does, where commitments are made up to 18 months in advance. Were it not for that factor, you would have seen similar declines in the US.

I think that we don’t need to think of OTT as anything other than TV delivered through a different technology. It is experienced almost identically by consumers and, where advertising is allowed, is used by advertisers in mostly similar ways. The content is also similar with some better and some worse than what we see on other forms of TV. So to answer the question, we have to get to the factors which drive pricing in general. Is the programming higher quality or wider reaching? Or a bit of both? Delivery of ads to individual devices may more likely occur in OTT environments, but it exists in non-OTT TV as well. While it will be possible to identify and reach very narrowly defined audiences with higher pricing, the share of inventory which might experience those trends will likely be minimal.

Let’s separate what individual advertisers should do rather than what will happen to the market. Individual advertisers should start with focusing on how to build their businesses and then deploy resources in ways that help to build business, without necessarily focusing on advertising. However, it is likely true that most advertisers will change only incrementally in any given year, and so you can forecast the total industry by focusing on incremental changes.

I wouldn’t say the crisis caused any changes in how to best forecast the advertising industry. It did introduce greater uncertainty in forecasting the specific rates of decline for individual media, but that normally happens in any given year.

The goal of forecasting should be to help paint a picture or tell a story about how an industry is generally evolving. A good forecast is one which tells that story better than another forecast does. In that sense, forecasts can be as solid and reliable as they are in markets with certainty. In some ways, they provide more useful narratives to explain an industry relative to a model that is used in a more easily predictable market.

We are always modifying elements of the forecasts, but no major changes are expected in our next round of updates.

Yes, definitely. A model which is well informed and which attempts to mimic how the world works will still provide a well-structured way to look at the future, whether it is one year out or ten. Obviously, uncertainty – which always exists – is greater the further out into the future you go.

There are many similarities as well as differences, although it really depends on what part of each business we are referring to. For example, “trading” in the financial markets is not much like “trading” in media markets. The assets are perishable in media, and there is typically no ability to re-trade. The value of individual units of trade are also smaller and have an operational application. There are some concepts which are relevant, as with exchanges and bidding which exist in both worlds, although many specific aspects of those concepts are different. Other areas are more similar, such as the relationship management functions that, say, investment bankers focused on industry or company coverage might have and the account management functions that exist in agencies.

They can be very similar, but it depends on one’s preferred approach to valuation. I am a valuation “purist” who believes that all assets can have cashflows which discounted back to the present using a cost of capital that reflects the relative riskiness of those assets. Forecasting advertising at an industry level can be similar. On the other hand, some analysts prefer to establish price targets based on where they think a stock will trade, independent of the value of its cashflows. That’s much more of a speculative approach than anything I might do.

The biggest obstacle to these concepts taking root in media is the ability to trade back-and-forth between buyers and sellers. While I think there could be some novel innovations – and probably a bigger market – that would follow from such trading practices if they existed in media, I’m doubtful media owners would enable them enough for marketers to be able to experiment in any of these tactics.

*VUCA = volatility, uncertainty, complexity, and ambiguity

Brian Wieser, Global President & Business Intelligence at GroupM