MoffettNathanson Research

A new report from MoffettNathanson says online ad spending was flat in second quarter while TV advertising fell by 28%. “This stark divergence illustrates the impact COVID-19 is having on the economy, with businesses positioned for the digital future faring much better than those tied to the traditional ecosystem,” the research firm says in a new report, “U.S. Advertising; Explaining the Inexplicable.”

The 19-page report, issued Monday, notes that TV advertising is driven by the nation’s top brand marketers, which, as expected, cut back on spending due to major disruptions to their businesses as Americans sheltered in place. The big digital ad platforms, meanwhile, rely far more on a “long tail” of small and medium sized businesses. And while many SMBs have also been hit hard from the pandemic, “others that are more digitally focused have stepped in to keep the online ad marketplace afloat,” the report says.

If there is any good news from MoffettNathanson it is that second quarter is expected to be the worst quarter of the crisis with businesses gradually reopening after the easing of lockdown measures. As such, the forecast calls for digital ad spending to improve and return to double-digit growth by the end of the year.

The return of live sports, especially the NBA basketball season, is projected to boost TV ad spending in third quarter, followed by a gusher of political ad spending in Q4. Despite those revenue infusions, the report predicts TV ad spend will fall by 9% in both the third and fourth quarters compared to growth of 8% in Q3 and 13% in Q4 for online media.

The projections are part of a long-term ad share shift underway before the changes brought on by COVID-19. During the past five years, online advertising’s share of the U.S. market doubled to 46% in 2019 from 23% in 2014 as TV’s share fell by 10 percentage points to 34% in 2019. MoffettNathanson says the trend will continue to gain steam with online ad share reaching two-thirds of the market by 2024 as TV’s share falls to around a quarter.

With digital ad spending holding up relatively well, the report suggests COVID’s impact on ad spending “will be unlike any other past recession,” with the ratio of ad spend to the country’s gross domestic product declining fractionally to 1.06% in 2020 compared to a 20-times larger drop in this key advertising indicator in the 2000-01 and 2008-09 recessions. “As digital now accounts for nearly half of the U.S. ad marketplace, it has relatively insulated the total ad market from spending declines seen during past economic recessions,” according to the report.

It turns out that digital’s growth isn’t all coming at the expense of other mediums but has instead broadened the total market pie, the analysts say. While they project online ad spending to rise by nearly $70 billion over the next four years, TV ad budgets will decline by just $5 billion and other advertising, including print, outdoor and radio, will fall by $14 billion.

As evidence of the importance of SMBs to Facebook’s growth, the reports estimates that 87% of the $6 billion increase in the social media giant’s ad revenues from Q4 2016 to Q1 2019 came from the long tail of SMBs. “Facebook has been insulated by its broad and growing advertiser base,” the analysts say, as the social giant has been adding advertisers twice as fast as it did in 2018.

In light of what it calls “relatively robust” digital ad results in Q2, the research firm has raised its 2020 forecast for online advertising growth to 4%, compared to an earlier projection for a 4% decline. And with weaker than expected trends in the quarter from traditional media, it is lowering its forecast for radio to -19% from an earlier -17%, while also lowering its 2020 ad forecast for print to -17% from -16% and outdoor to -14% from -13%.

All in, the revised MoffettNathanson forecast calls for the U.S. ad market to fall by 5% in 2020 (down from -9% previously) with traditional media down 13% as online advertising rises by 4%.