1. Factors Curbing Ad Growth: Expenditures Back to Pre-Pandemic Levels, Cumulative Savings Dwindle, and Higher Delinquency Rates
According to S&P Global Ratings, expenditures on services are now back to their pre-pandemic trend, leaving little in the way of post-pandemic catch-up demand. Second, household spending is poised to be more in line with real income growth as the firepower from excess cumulative savings has dwindled. Third, there are signs that consumers are starting to feel the squeeze in their debt-servicing capacity. According to the New York Fed and Equifax credit data, there was a significant increase in the percentage of consumer loans that tipped over into serious delinquency (unpaid for 90 days or more) in the third quarter of 2023. Given S&P Global Ratings anticipates interest rates will remain meaningfully elevated in 2024 (relative to the last monetary cycle), S&P Global Ratings believes there will be a further rise in delinquency rates, especially since student loan repayments have now resumed (starting October); this will likely push up debt servicing costs further and weigh on consumption at the margin.
S&P Global Ratings U.S. Advertising Revenue Forecast
| Advertising Type | 2023 | 2024 | 2025 |
|---|---|---|---|
| Search (%) | 9 | 10.0 | 9.0 |
| Social (%) | 7.0 | 11.0 | 9.0 |
| Digital video (%) | 15.0 | 15.0 | 9.0 |
| Total digital (%) | 8.5 | 10.2 | 8.5 |
| Local television (incl. political) (%) | (17.1) | 14.0 | (13.9) |
| Local political advertising (Mil.US $) | 1,100 | 4,150 | 1,250 |
| Network television (%) | (7.9) | 6.7 | (11.9) |
| Cable television (%) | (5.0) | (4.0) | (3.0) |
| National television (%) | (5.9) | (0.8) | (5.9) |
| Total television (%) | (9.2) | 3.4 | (8.4) |
| Radio (%) | (7.0) | 1.5 | (1.5) |
| Outdoor (%) | 3.5 | 4.0 | 2.8 |
| Print (%) | (15.0) | (6.0) | (5.0) |
| Legacy advertising (excludes Digital) (%) | (8.6) | 1.8 | (5.9) |
| Total advertising (%) | 2.4 | 7.6 | 4.3 |
Source: S&P Global Ratings
2. Digital Advertising: The Primary Growth Engine for 2024
Digital’s growth will be a critical element for 2024 advertising trends. S&P Global Ratings forecasts that U.S. digital advertising revenue will increase by 10.2% in 2024, reflecting stabilizing global macroeconomic growth, albeit slower than in 2023. Digital was the first ad sector to slow down in 2022 and the first to recover, starting around the middle of 2023. Digital video and retail media networks will be the fastest expanding subsegments because both benefit from the continued shift to online shopping, digital video consumption, and connected TV and better demographic targeting provided by video-on-demand viewing. S&P Global Ratings expect growth to moderate to 8.5% in 2025, primarily due to slowing social media advertising. Within the digital category, growth forecasts for 2024 for search, social, and digital video are 9.5%,
After a year of weak global advertising spending due to geopolitical events and fears over a potential macroeconomic recession (which has yet to materialize), S&P Global Ratings believes advertisers resumed spending in the second half of 2023. As a result, it raised the growth estimate for overall 2023 U.S. advertising growth by 130 basis points (bps) to 3.7% (up from 2.4% in our July 2023 forecast).
Digitally focused media platforms- search, streaming, social media, digital commerce, retail media networks, and connected TVs- grew by 10.5%.
3. 2024 Advertising Trends: The Continuing Decline of Legacy Advertising
In contrast, spending on legacy media (TV, radio, and print) remains weak. Legacy media advertising declined 8.5% in 2023, with total linear TV (broadcast and cable) down 10.8%. S&P Global Ratings expect only modest improvement in core advertising on legacy media platforms starting in the second half of 2024. Linear TV will report stronger top-line growth due to expectations for record advertising given the presidential election year and the Paris Summer Olympics.
4. Performance Advertising Outperforms Brand Advertising
2024 advertising trends will be further defined by performance-based advertising’s relative growth vs. brand advertising. Companies have pulled back more on brand advertising over the last year and increasingly shifted their spending toward performance-based advertising as they look to use advertising budgets more efficiently. These campaigns are more data-driven, and S&P Global Ratings thinks they are more likely to result in a customer response. The secular shift of advertising away from traditional media will continue. More than macroeconomic cyclical trends, secular pressures are the main contributors to continued soft advertising spending on legacy media platforms. Advertisers are finally abandoning linear TV. While audiences have been leaving U.S. linear TV for quite some time, advertisers have been slower to follow because the available impressions and unique viewers on all ad-based streaming services remain too small to make buying on streaming platforms efficient.
In addition, ad-based streaming services must still solve several major structural issues, especially a lack of industry standards (audience measurement, buying, etc.) between the streaming services, before advertisers fully embrace advertising on streaming. Still, as new free ad-supported channels and ad-supported tiers of streaming platforms grow and create more ad inventory, they could further dilute linear TV advertising pricing and shift ad dollars away from linear TV.
5. 2024 Advertising Trends: Short Lead Times Challenge Forecasts
S&P Global Ratings expect little visibility into forward advertising trends. Digital (now making up about 70% of total U.S. advertising) and radio advertising are characterized by short lead times. This has been exacerbated by advertisers’ caution in committing to spending because they are concerned about potential macroeconomic weakness. The uncertainty has extended to the U.S. TV sector, which faced both uncertainty amid the weak macroeconomic forecast and Hollywood strikes. As a result, advertisers were reluctant to make early commitments in the 2023-2024 U.S. TV season upfront (for nonsports ad inventory); instead, they looked to delay commitments to the scatter market.
6. Legacy Media’s Role in the 2024 Political Landscape
Legacy media will benefit from 2024 political campaigns. Given the intense political climate in the U.S., S&P Global Ratings expects 2024 will see record political advertising for local TV exceeding that of 2020 (despite the benefit from the Georgia run-offs in 2020). S&P Global Ratings also sees increased spending on political issues and candidates. Given its significant reach and ability to target voters in select districts, the ratings agency believes TV is more attractive than other forms of media for political advertisers.
7. National TV: A Tale of Have and Have Nots
Broadcast TV’s growth will be due to the Paris Summer Olympics (S&P Global Ratings estimates US $1.8 billion in advertising revenues). S&P Global Ratings expects a 6% decline in core broadcast TV advertising, excluding the Olympics. The rating agency also believes national TV will increasingly become a tale of have’s and have-nots--those broadcast and cable networks that have a strong stable of sports, particularly the NFL, and news, especially in a Presidential election year, and those that don’t. Those networks with sports programming will be able to not only demand higher CPMs for their sports ad inventory but also sell more nonsports ad inventory as they will bundle their sports and nonsports inventory to advertisers.
General entertainment and lifestyle cable networks are experiencing significant advertising weakness with weak demand and lower prices. These networks have suffered the biggest audience declines as media companies have prioritized putting new original content on their streaming services instead of their linear TV networks. In addition, these networks were disproportionately hurt by the writers’ and actors’ strikes, which have resulted in a lack of original content and delayed the 2023-2024 TV broadcast season.
8. Live Sports Programming Strongly Demanded by Brands
Another defining element of 2024 advertising trends is that live sports programming on sports networks like ESPN or broadcasters carrying the NFL and college football will continue to see strong demand from advertisers. This is not surprising because as audience ratings for general entertainment continue to slide by over 20% yearly, audience ratings for the NFL keep increasing. Through week 10 of the NFL season, total audience ratings for the NFL are up about 6%. S&P Global Ratings believes that linear TV networks have limited advertising inventory for sports programming and can charge higher prices. As a result of these higher prices, TV advertising budgets have been drained, leaving less money to be spent on general entertainment networks.
Local TV: S&P Global Ratings no longer expects core advertising to grow in 2024 and lowered its 2024 forecast by 400 bps to a 2% decline given ongoing pressures in large markets. Large markets underperformed small markets in 2023 since they can behave more like national markets; S&P Global Ratings expects it will take longer for national advertising to improve as larger advertisers continue to hold back spending amid a challenged macroeconomic environment.
Local advertising in smaller markets largely held up in 2023 as consumers continued to spend and advertisers focused on bottom of the funnel campaigns. While advertising spending will improve in the second half of 2024, S&P Global Ratings believes it will be difficult for local TV to benefit due to meaningful crowd-out from political advertising. Local TV will continue to benefit in 2024 from the resurgence in automotive advertising as inventory continues to build. However, it could take several years for the category to recover to pre-pandemic advertising spending levels. The automotive category remains an important category for local TV, contributing 20%-25% of advertising revenue before the pandemic.
9. 2024 Advertising Trends: Radio Advertising’s Low Visibility
S&P Global Ratings lowered its 2024 radio advertising forecast by 150 bps to a 1.5% increase. That said, it is
difficult to determine the timing and magnitude of an improvement in radio advertising after significant declines in 2023. Radio advertising has some of the shortest lead times in media, which gives us scarce visibility into future performance.
10. Outdoor Advertising: DOOH Reduces Time to Place Ads
S&P Global Ratings modestly lowered its 2024 outdoor advertising forecast by 50 bps to 4%. The recovery in transit ridership and transit advertising from the pandemic essentially stalled in 2023, and S&P Global Ratings does not expect any material improvement in 2024. The industry’s conversion from static to digital billboards reduces the time needed to place an ad,
allowing companies to book business as economic conditions improve quickly. At the same time, S&P Global ratings believe outdoor advertising remains an attractive way to reach consumers given its
captive audience of drivers, commuters, and pedestrians.
11. 2024 Advertising Trends: More Downside Risk than Upside Potential
S&P Global Ratings believes there is greater downside risk to its 2024 7.6% advertising growth forecast than upside potential.For instance, lower economic growth could stall any improvement in legacy advertising. Additionally,2024 advertising trends highly depend on key periodic macroeconomic indicators (GDP, consumer spending, employment, etc.). Therefore, persistently high inflation and higher-for-longer interest rates could more quickly deplete consumer savings, weaken consumer discretionary spending, and delay any improvement in legacy advertising spending. Lastly, audience declines for linear TV could worsen. The shortened 2023-2024 TV broadcast season may have permanently decreased audience ratings, accelerating advertising dollars moving off of TV and depressing CPM pricing.
