Madison and Wall: Saturday Summary
For the week ending May 12, 2023
Below is a summary of some of key data points and ideas from my regular publications during the past week along with quick-takes on additional news:
Chocolate Industry: A Brief Review of Current Business Trends. I enjoy eating chocolate and I enjoy analyzing companies – two great tastes that taste great together, you might say. But it has an advertising component too – there’s probably $5 billion of annual spending on advertising in the category annually, as I review in this note. If nothing else it’s a great teaser for my upcoming “Chocolate Marathon” in Paris on Sunday, June 25 (yes, it’s 26 miles long, involves eating a lot of chocolate and is ideally timed for those returning home from Cannes. Reach out to me at brian@madisonandwall.com if you are interested in joining or sponsoring.)
Global Ad Growth Was ~+3% During 1Q23 Despite Difficult Comparables. I have now developed estimates for quarterly global advertising growth data for the largest sellers of advertising going back to 2018 and covering the most recent period. Looking at the data on this basis we can see how the industry’s difficult comparables are likely a much bigger drag on growth than economic conditions. To be sure, some media like TV are declining meaningfully – ITV, which this week reported a 10% quarterly decline, was probably representative of the overall medium – while the much large group of digital ad sellers was probably up 6% collectively. In total, global advertising probably expanded around 3% in the first quarter of 2023 and remains on track towards improving in the second half of 2023, if only because those growth rates will lap softer growth rates as the year progresses.
Ad Tech Beats Ad Platform Growth, Helped By Digital Media's Complexity. As with spending on agencies, spending on ad tech is outpacing growth on digital media. This is most likely a good thing, at least so long as marketers are vetting their partners well and have clear goals. Intermediaries, used right, should be able to help marketers accomplish goals better when more of their services and products are used.
Top 100 Marketer CEO and CFO 1Q23 Commentary. Don’t believe me when I say advertisers are still spending? Read for yourself what CEOs and CFOs of 16 large marketers said on their most recent earnings calls over the past month. With comments from executives at Adidas, Allstate, American Express, Booking, Capital One, Clorox, Colgate-Palmolive, Expedia, Hershey, Kimberly-Clark, P&G, Progressive, Restaurant Brands International, Unilever and Wayfair.
Pay TV's $100 Billion Funding Source for an Ad-Free Streaming Future. Of course, those marketers aren’t going to have as many eyeballs to reach via television in years ahead. In this note I showcase data I have developed covering more than 15 years of historical spending on video content by consumers in the United States, and highlight how much money they have at their disposal if (or when) they “cut the cord” to fund spending on ad-free streaming services. I estimate that spending on traditional pay TV services in the United States fell by 4% during the last quarter, while spending on streaming – mostly ad-free tiers – was up 22%. Data from Antenna pretty clearly shows that so far, most who begin subscribing to streaming services are choosing ad-free tiers, even if ad-supported tiers are available as options to them.
Looking at two specific items I didn’t have a chance to write about during the week:
Disney’s calendar first quarter results were broadly consistent with overall industry trends during the period, both in terms of advertising as well as affiliate fees. TV ad revenues were down by 15% and company-wide affiliate fees were down 5%, although subscription revenues were up 18%. I thought comments about the company’s efforts to grow advertising via programmatic and addressable sales may unintentionally have been willfully optimistic. I will argue that the pools of money available to support professional TV-based content via advertising are relatively fixed for the most part. One network / AVOD owner might initiate a tactic to grow, but it will turn out to be a share driver that likely only has short-term benefits.
One other point worth calling out: I think that price increases on streaming services may help to speed up profitability of the streamers, but they may also contribute to accelerated cord-cutting as consumers’ budgets may also be relatively fixed (refer back to my prior analysis above showing a 22% gain in spending on streaming but a 4% cut in spending on the much bigger conventional MVPD and vMVPD services.
Finally, the company also talked about taking a programming charge of $1.5 billion, similar to actions taken by many of its peers. Across the industry owners of streaming services have expensed too little of the costs required to produce content when they report these costs on an accrual basis during individual quarters, which is a key reason why one needs to focus on cash content costs rather than GAAP expenses.
Twitter and Comcast’s NBC Universal announced that Linda Yaccarino, NBCU’s former head of advertising sales, would become Twitter’s new CEO. While I and many others been critical of most of Elon Musk’s choices since he bought the company last year, this news is almost certainly a very positive one for the service and for marketers, who genuinely want Twitter to succeed.
Most of the money that Twitter lost – and which, incidentally, was probably gained by its competitors over the past two quarters – will come back to Twitter if Musk allows Yaccarino to run the company as she sees fit. That may be a big “if”, but if Musk has an interest in building a bigger, more valuable Twitter rather than running it into the ground, he’ll let her lead by making the decisions that marketers will welcome.