Madison and Wall: Saturday Summary
For the week ending August 4, 2023
This past week saw some key players in advertising reporting second quarter results, reinforcing trends we saw during the prior two weeks.
On the upside we saw Amazon posting a 22% gain in ad revenues in constant currency terms, while on the downside we saw Warner Bros. Discovery posting a 13% decline. Less clearly, the company which I believe is the world’s 15th biggest seller of advertising, Apple, provided essentially no details about their advertising business, as is their custom. There was a comment in their 10-Q indicating that growth in the company’s Services segment – whose revenues rose from $14 billion to $15 billion during the quarter – was due “primarily to higher net sales from advertising, cloud services and the App Store.” While a specific growth rate is anyones’ guess, I interpret this language paired with the growth we can see in the rest of the industry as suggesting a low double digit level.
Putting this in context, we have additional clarity on the health of advertising during the second quarter. Focusing on the top 20 companies – 70% of the industry outside of China - those left to report next week include TV network owners Disney, Paramount, Fox and RTL as well as I Heart Media. If we assume declines of 5 to 10% in ad revenue - probably not far from where we saw the likes of WBD, BCE, Televisa Unvision, MFE, Comcast and others ended up reporting - we’d wind up with growth of 5.3% on the low end and 5.6% on the high end, incorporating my estimates for revenue at private companies among this group.
Looking more broadly and reviewing some of the quarter’s other emerging trends, we can point to one large print-based publisher which was down by double digits (as we saw with Gannett) and traditional radio companies that slightly less negative, at least in the US. Cumulus and Audacy were down in the second quarter by a combined high single-digit level, although there are pockets of growth in other countries. Despite some content investment-driven growth from Spotify and the widely known effectiveness of audio advertising, spending by advertisers on the medium is unlikely to ever grow again, at least so long as most of the industry continues to focus its ad products on smaller and geographically constrained advertisers for whom digital platforms generally provide better overall alternatives. Incidentally, I have theorized that one of the reasons why there is growth in audio in some countries is because the sector is primarily organized along national lines in many instances outside of the US.
Outdoor is a little more mixed, and likely up based on numbers from Outfront and Lamar, complementing figures from top 20 company JC Decaux. While outdoor advertising is still experiencing some growth that is recovery-based, I think that the out-of-home industry has generally done a better job marketing itself to national advertisers, and paired with the experiential nature of much of the industry, it should remain as the best positioned form of “traditional” media.
Offsetting those outcomes, there are a myriad of smaller digital businesses posting significant growth, especially those focused on retail and commerce media such as Uber, which is well on its way to building a billion dollar advertising business.
Results from agencies reinforce that there growthy trends, at least as relates to large brand spending. While overall agency revenues were probably up only 3% in the quarter, weakness was heavily skewed towards cuts in spending from tech-based companies in the US, and towards services provided by creative agencies. Data from WPP showed that GroupM was up by 6%, while Publicis’ media division was up by double digit levels. Vivendi cited Havas’ media division as “excelling” in a half where that business grew 4%, implying at least mid-single digit growth. Without being specific, IPG’s CEO described Mediabrands as strong, as did Omnicom’s, where media would have outperformed the 5% level of growth posted by that company’s Advertising & Media segment, where it accounts for around half of the segment’s revenue.
Overall, it’s safe to say that media is currently experiencing “normal” growth.