June 20, 2020

The June 2020 U.S. mid-year forecast is marked by declines in consumer and advertising spend across the board. The COVID pandemic sharply transformed the economic expectations from growth as recently as mid-March to the worst economic decline since the peak of the Great Depression in 1932. That’s according to consensus data as of mid-May tracked by Refinitiv that called for a 5.7% inflation-adjusted decline in economic activity.

American society is also facing challenges of historic proportions. Long-standing and persistent institutionalized racism and matters of societal inequality are dominant issues in the United States and are compounding the consequences of economic and social restrictions brought forward by the pandemic. Furthermore, it is currently difficult to predict what the economic impact will be as a result of a polarized electorate’s vote in the upcoming national elections later this year.

However, we do see positive news on the horizon as the U.S. ad market’s decline is abating after an initial freefall that began in late March. With that being said, when we exclude political advertising, we expect a 13% decline during 2020, followed by 4% growth next year on a comparable basis. Including political advertising, which is forecasted to still expand massively in 2020, the U.S. advertising market will fall by only 8% percent in 2020. In 2021, as underlying improvements in the ad market are offset by the absence of political advertising after the election, we expect a further 1% decline.

For context, a 13% decline will not be as bad as the 16% drop seen in the 2009 financial crisis. That we “only” expect a 13% decline is surprising. We might normally expect that because the 2020 economic decline is so much worse than 2009, advertising should be much weaker. In nominal terms, GDP declined in 2009 by 1.8%; 2020 will probably fall by something closer to 4% on a comparable basis. The declines from the 2009 downturn played out over months, as financial institutions ground to a halt because of illiquidity concerns. By contrast, in 2020, during March most conventional in-store retail activity ground to a halt, as did tourism, hospitality and place-based entertainment industries. But most other economic activity continued, and over the course of weeks, a significant amount of retail and hospitality activity returned, as BOPIS (bought online, picked-up in-store/curbside) or delivery strategies were implemented. Large brands that initially paused spending retained substantial portions of their budgets, even as many small businesses saw their operations devastated. Many evidently transitioned their operations online and supported those operations with related digital media spending.

Understanding that context, here are the eight key takeaways from This Year, Next Year: U.S. Mid-Year Forecast Report:

  •     Digital advertising is expected to decline by only 3% during 2020 on an underlying basis or be flat including political advertising. Regardless of the base, we expect a rebound in 2021 with underlying growth of 12%, or 9% including political advertising. Political advertising activity should amount to approximately $3 billion this year across all digital media.
  •     Television advertising is expected to decline by 7% in 2020 and fall by another 12% next year. National TV should decline around 11% this year, followed by 6% growth in 2021. Digital extensions and related media, including Hulu, Roku, etc., will fare much better, with only a modest 3% decline in 2020 and a 15% gain in 2021. We estimate those digital extensions will amount to around 14% of total national TV spending this year. Local TV should see a more substantial underlying decline of 34% this year because of the weakness in local retail and automotive advertising, rebounding slightly next year by 10%. Including political advertising, though, we think local will probably grow slightly, 1% during 2020 because of the presence of around $8 billion in political advertising compared to $5 billion during 2018.
  •     Print media is expected to decline 26% in 2020 and a further 20% decline in 2021 as we presume publishers generally disinvest in their operations, aside from a handful of premium news publications. While investments in digital extensions will help on the margins, both types of publishers will generally continue to lose share to other forms of media, especially digital media owners who have generally been better able to satisfy marketers’ goals.
  •     OOH advertising is set to decline by “only” 21% this year, with second quarter cuts to spending more muted than we have seen in other markets around the world. This is perhaps, in part, because the U.S. never shut down as comprehensively, but also because many budgets would have been committed on an ongoing basis prior to the pandemic. On the upside, we estimate that digital revenue will account for 38% of the medium’s activity this year, rising to 40% next year.
  •     Audio media is expected to fall by 24% this year and then fall further by 7% next year. Overall, audio remains a cost-efficient vehicle and the growth in digital formats, especially podcasts, is generally making the medium more appealing to marketers. Digital activity – which we think accounts for 17% of revenue in 2020 – should continue to expand its share of the medium, which, collectively, is likely to decline slightly on an ongoing basis.  
  •     Direct Mail is estimated to generate around $15 billion in revenue during 2020, down 16% on an underlying basis but down by only 7% including political advertising. We expect to see only a modest -2% underlying decline next year, or 11% including political. Directories are expected to decline by 38% this year and another 34% next year. We expect directories will generate less than $1 billion in revenue during 2021, well below the $17 billion peak in 2005.
  •     Political advertising is estimated to see $15 billion in spending during 2020 versus the $8 billion in 2018. We estimate slightly more than half of this amount will go to local TV and much of this activity will be concentrated in “swing states,” which usually account for only a minority of the country’s population. It is possible this growth could accelerate further in 2020, especially because figures from 2019 do not include the bulk of activity from the Michael Bloomberg campaign as most of that data has yet to be made available by the FEC for analysis. It also remains to be seen whether June’s current demonstrations will lead to incremental political fundraising activity.
  •     2021 and Beyond: If a COVID vaccine is developed and distributed by some time in the first half of next year, we presume that all normal activities made particularly challenging with social distancing will return in some form next year. Activities such as the Olympics are assumed to occur, as are all professional sports. Economic activity is presumed to be somewhat normal after 2022, although the scale of decline and the actions taken at the present time will all have implications on the specific pace at which the economy expands, let alone when we return back to even just 2019 levels.

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