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Chart of the Month: Ad spending signals challenging media landscape

High inflation, rising interest rates, and more limited sales across the economy have bolstered expectations for a recession, particularly with the Reserve Bank charting a course directly toward this destination. A recession will affect, and already has affected, various parts of the economy in different ways.

Concerns around the looming recession have already influenced the media landscape, with TodayFM being abruptly ended. All of this comes amid swirling talk of a more challenging outlook for advertising, which will challenge the media sector.

Ad market shifts towards digital

Detailed and regular insights on advertising spend is hard to come by. The Advertising standards Authority (ASA) provides annual snapshots, and its most recent update, for the 2022 year, showed that total ad spending had risen to $3.39b. Ad spending fell more than 11% in 2020 as COVID-19 hit the economy, but 2022 spending was 22% higher than pre-pandemic.

Looking at ad spending by type over recent years shows a few key trends. TV and radio ad spending has remained fairly similar since 2012 (although more of this is moving from traditional TV and radio and onto digital channels for those mediums). Newspaper, magazine, and mail advertising has continued to fall over time. Out of home spending has risen, but all these trends are eclipsed by the rise in digital spending.

Digital spending, in the ASA data, including both pure digital-only advertising, and the digital/online advertising for TV, radio, newspapers, and magazines. Over time, total digital ad spending has risen from just 17% of total ad spend in 2012, to 60% in 2022.

Ad spending remains high, but looks to have plateaued

The ASA data is great to aid an understanding of the size and composition of the ad market, but annual snapshots make it hard to get a read in the trend of ad spend. However, Interactive Advertising Bureau (IAB) New Zealand produces regular Digital Advertising Revenue Reports for their members, and also publishes some headline details in public media releases. Examining these public figures reveals a plateauing in digital ad spending over 2022, in line with more challenging economic conditions being warned of.

As our Chart of the Month shows, digital ad spending in 2022 has plateaued at just over $500m a quarter over 2022, with digital ad spending growth slowing.

Up until the end of 2019, ad spending had shown continued strong growth, with annual growth of 14%pa in the 2019 calendar year. Over 2020 as the pandemic hit, annual average growth slowed to below 10%pa, before strong growth over 2021 as ad spending lifted and the comparison was to the lacklustre 2020 year. Annual average spending growth at the start of 2022 was still above 30%pa but had slipped below 10% at the end of the year.

In fact, digital ad spending growth at the end of 2022 slipped 0.9%, the only quarter to record a fall in spending since the start of at least 2008 – aside from the June 2020 quarter during the COVID-19 Level 4 lockdown.

Figures for the first quarter of 2023 won’t be out for another month or so, but the plateauing in digital ad spending lends support to anecdotal conversations that ad spending hasn’t been as easy to come by recently. Limited growth in ad spending will put further pressure on media agencies already battling higher input costs. But more broadly, a slowdown in ad spending implies that businesses are keeping a closer eye on expenses, a clear sign of softer economic times to come.

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