Why TV Advertising Struggles To Grow (And What To Do About It)
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I’ve written and spoken extensively in the past about why the notion of creative destruction – the ongoing establishment of new businesses in an economy who effectively replace older ones – explains many of the most important trends in advertising. A company who came into existence in 2022 will have a very different media mix than one who came into existence in 2012 or 2002 or any prior era, and those preferences or skews will generally hold for a long time – especially as media mixes can be directly tied to a business’ basic form. A company founded around e-commerce will always have a very different media mix than one formed around bricks-and-mortar retail, for example.
I argue that related trends can be much more important than the shifts of media mixes that existing or incumbent advertisers have, where a percentage point or two of a budget allocation to a media type might shift every year.
Television, for example, benefitted from its earliest days as many large companies were concurrently building businesses which depended upon brand-building in the post-WWII era. Few activities were likely as effective as TV advertising in supporting these efforts. Nationally-oriented TV network groups saw a secondary benefit in subsequent years as a disproportionated share of these businesses organized their marketing efforts along national lines. New categories came into existence – pharma, telecom, theatrical among them – who behaved similarly as the century came to a close.
I was reminded to look at recent trends as Ad Age released its newest list of large global advertisers (although to illustrate the following points, I took a look at their previously released list of domestic advertisers as I think country level data probably explains this phenomenon best, and it will likely hold most everywhere). After eliminating businesses that went through major mergers and acquisitions, we can see how many of the largest advertisers in 2012 were essentially “displaced” by 2022. Just looking at 20 of the largest from 2012, only four were relatively similarly or better ranked in 2022. The other 16 fell, often significantly.
Source: Madison and Wall analysis of Ad Age data
Looking at the broader list of large advertisers in the US, one standout factor is how far automotive advertisers have fallen in terms of their rankings among large advertisers between 2012 and 2022:
GM from 2 to 11
Ford from 6 to 37
Toyota from 10 to 32
Honda from 27 to 58
Nissan from 34 to 69
Volkswagen from 49 to 89
Kia from 65 to 109 (although sibling entity Hyundai did increase its ranking from 85 to 75)
At the same time, many of the largest advertisers in 2022 were significantly smaller a decade earlier, essentially operating in advertising categories that were still emerging. For example, consider Amazon, Alphabet and Expedia (all which were at least in the top 100 in 2012) as well as Booking, Wayfair, Meta, Netflix, Uber, DraftKings, Recruit (Indeed.com), Chewy and Salesforce (which were not among the top 100 in 2012).
Although many of these newer or newly large advertisers will include television as part of their media mix, it is likely to represent a much smaller share of spending than it was for advertisers who emerged in an earlier era. Because their businesses are built around digital media, digital advertising – platforms in particular, given the benefits that follow from their scale – will always have a position of incumbency.
As the trends I describe above play out on an ongoing basis, owners of television-based businesses don’t necessarily decline: some will take share within the medium and grow, at least for a while. Others will focus on consumer payments or other sources of revenue and grow their businesses that way. I think the willingness of consumers to pay for high quality video content is probably under-appreciated. For another approach, as I’ve written previously (including yesterday about Viaplay) I think that globally oriented video-focused subscription-based content businesses are well-positioned for growth, too.
However, for TV network owners to experience long-term growth in advertising revenues, I think it will be necessary for these companies to find ways to become “platforms” or otherwise establish themselves as stand-alone line items on marketers’ media plans rather than compete for share of television budgets. I don’t pretend to think that this would be easy, but where there are efforts from TV network owners to create universal IDs that can run across media inventory beyond television, or where future M&A activity might include existing mid-sized platforms, I can imagine a world where today’s TV network owners can better compete for advertising budgets from the relatively younger digitally oriented businesses that exist in the economy, and also better compete for budget shares from older marketers, too.