Historically, ad prices have served as an indicator of economic crisis. This time around, though, it’s not as easy to read the tea leaves.
The usual signs of advertising in a downturn just aren’t coming through. Normally, ad prices contract amid so much economic turmoil. In fact, this happened during the global lockdown in April 2020. Back then the circumstances were more straightforward.
This time, however, is more complicated: there are so many contradictory forces at play around this downturn that advertisers don’t feel like it’s anywhere close to a recession and are thus spending, which is supporting the pricing, said Ian Whittaker, founder of Liberty Sky Advisors. That’s not to say those prices don’t reveal anything about the markets. They’re just not as conclusive as they normally are.
Sure, the precarious economic cocktail of intense pressure on costs of living, soaring inflation and high inflation rates is already slowing down advertising, but that’s not trickling down to online ad prices. Otherwise, ad agency Incubeta might have seen a more discernible shift in the cost of advertising in May and June compared to the same months last year.
“Looking at our clients in the social space, we’ve seen CPMs rise since the end of May and throughout June,” said Harry Hughes, media success director at Incubeta. “However, if we compare it to the same period in 2021, the trend was similar, suggesting the recent high inflation figures in the wider economy aren’t affecting media prices at the moment.”
The real impact on inflation is down to something more fundamental: the decline of third-party addressability and the subsequent importance of publisher data as an alternative. Private deals are a vector for that data. As a result, those deals are becoming more valuable. The volatility in the economy doesn’t change that. If anything, it reinforces that value.
In January, the mean average CPM spent in private deals in the U.K. between the top five largest programmatic advertisers was £5.90. In May, it was £9.01.
It’s a similar story in CTV where CPMs continue to be dictated by the availability of inventory.
“CPMs have been flat across Q1 and Q2 compared to the same period last year,” said Katie Long, head of demand at ad tech vendor Beachfront. “Nevertheless, there was an uptick in spending from quarter to quarter this year. A lot of that is driven by audiences continuing to move from linear viewing into streaming. The economy isn’t a factor.”
Even so, there are signs elsewhere that the economy is starting to have an impact — albeit a limited one — on ad prices. Advertisers are slowing down advertising. And when this happens there’s less competition for impressions, which means fewer bids to drive up CPMs. Granted, this is likely to equate to slight price increases on the back of the economy. That said, things change fast. And If consumer confidence continues to wane due to the “cost of living crisis,” ad prices could be affected later in the year as advertisers pull back even further on their spending.
Execs at media agency Tinuiti saw hints of this start to play out over the first half of the year. Facebook CPMs bought by the agency rose 6% year over year in the second quarter, for example. That’s a big deceleration from 33% a quarter earlier, as advertisers ran up against much tougher year-ago comparisons. While Facebook’s reported price per ad has declined year over year in recent quarters, the social network largely attributes this to mix shifts toward markets and services that monetize at lower rates. That’s likely to have a compounding effect in a downturn that’s slipping into a recession.
“Our assumption here is that we’re seeing clients across the board pull back spend and when this happens you see downward pressure on CPMs — albeit to varying degrees,” said Kolin Kleveno, svp of addressable media at Tinuiti. “Regardless of the channel, everyone is in the trepidation phase where they’re hearing the market is on the cusp of a recession. That makes marketers more reluctant to put media dollars out there.”
This pullback flicks at a broader issue.
Digital advertising buffer
Historically, online advertising has been recession-proof. Along with a steady stream of new, direct-to-consumer advertisers pouring dollars into their ads businesses, online media owners have also benefited from the fact that advertisers tend to feel more confident paying more for ads if they know they’re leading to more in sales. Now, both of those advantages are weakened.
“The D2C market is set to consolidate, as the many, many businesses with unsustainable unit economics are exposed by a downturn,” said Joseph Teasdale, head of tech at Enders Analysis. “Add to that the fact that targeting and attribution are getting harder, due to technical and legal restrictions piling up.”
The macroeconomic climate could make an awkward situation even more so.
Indeed, price inflation has been a bugbear for marketers since before the pandemic. Just ask TV advertisers. Two years ago the average CPM for a 30-second spot for an all-adult audience across linear TV channels was £6.80 in the U.K. per marketing intelligence firm Warc. A year later it was £9.64. In 2022, it’s already at £11.65.
Chances are inflation won’t stop there — even as more people watch less linear TV. Those declines aren’t really spilling over into ad prices because broadcasters continue to edge up prices of linear advertising to protect their margins. Not only have they capitalized on an influx of online advertisers looking to spend on TV for the first time, but they’ve also been able to put up prices without much resistance from advertisers. Not when linear TV is still viewed — or more appropriately views itself — as a premium environment.
The problem for marketers, however, is what this premium buys them. It’s no secret that linear TV continues to skew toward older viewers and consequently demographics that aren’t always representative of the broad reach advertisers have become accustomed to. In other words, advertisers are paying more for less when it comes to linear advertising.
Eventually, that’s going to start coming through in the econometric analysis of ads. And when that happens marketers will have to decide whether they continue to spend as much as they do on linear TV advertising. Until then, inflation is set to continue. But it won’t be the economy that’s driving it, it will be audience behavior.
“Inflation is mostly being driven by audience declines rather than revenue (demand),” said Keith Welling, managing partner at media agency UM. “The level of inflation varies hugely by audience. The cost of TV however is still hugely competitive when compared to most high-quality brand safe CTV/OLV video channels for broad audiences.”
So TV’s inflation issues are partly a measurement issue? They are if you subscribe to the view that there isn’t really inflation in TV — at least not in real terms. The thinking goes like this: if a marketer had a way to buy and subsequently measure ads across all a broadcaster’s linear and addressable inventory then the price would come down. But that’s not the way TV is traded. Instead, broadcasters incentivize advertisers to buy their addressable ads at a set price with little or no reporting on what those dollars actually get them. That revenue goes into the price of linear TV but the reach doesn’t necessarily. Not for those advertisers that want younger, more diverse audiences. These contradictory forces are unsustainable.
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