Ad expenditure is contracting when factoring in ongoing inflation pressures, but pockets of growth remain, especially Out of Home, Cinema and Online Advertising.
The UK ad market witnessed a reverse during the last quarter of 2022, marking the first 4th quarter decline since 2009 according to today’s Advertising Association/WARC Expenditure Report.
Despite a decline in the last quarter, the ad market still managed to grow by 8.8% overall throughout the year, with a total spend of £34.8bn. Online advertising accounted for a staggering 75% of last year’s ad spend, growing by 30% in the first half of 2022 before falling 5.4% in the second half.
Cinema and out-of-home media saw the biggest growth in 2022, with increases of 123.0% and 31.1% respectively. Both managed to keep momentum from the previous year after the disproportionate impact of COVID-19.
Looking ahead, the forecast for 2023 has been lowered slightly to +0.5% (compared to +3.8% in January). The ad market is expected to hit £35bn, with cinema continuing to be a strong performer (projected growth of 37.2%) and out-of-home media seeing modest growth of 4.9%.
It is also predicted that the UK ad industry will experience a 3.9% increase in 2024, amounting to £36.3bn, but this represents a net decline when factoring in inflation and cost of living increases.
Industry Reaction
Elliott Millard, Chief Strategy and Planning Officer, Wavemaker UK states, “There’s a really interesting trend in the spend data if you look closer. Whilst almost all channels show a dichotomy between ‘digital’ and ‘total’ investment (TV is 1.5% down, but BVoD is 15% up, newsbrands are down but digital newsbrands are up etc.), there are two channels that diverge from that trend. The first is OOH, where spend at a headline level has grown faster than spend in to digital, and the second is cinema which has grown at a monster 123% vs total ad-spend at 8.8%.
“We are deep in a cost of living crisis and have been in political turmoil. At the same time, advertising is less trusted than it has ever been. At moments like these, people seek familiarity, they seek unification, and they seek togetherness. That’s why cinema and OOH are so powerful right now – they are public, which means they’re trusted, and they’re a shared experience which means that advertising (or at least the best advertising) is a part of that shared experience. The bravest brands will find ways to turn that to their advantage by being more public, more emotional and more unifying. And by doing that, they’ll be more trusted by the public during a crisis.”
Maor Sadra, Founder and CEO at INCRMNTAL, says, “Brands are returning to their advertising roots with significant investments in cinema, OOH and radio ads. In previous years, these channels were too often dismissed, due to the difficulty of measuring any ads without a click. Advancements in offline and multi-channel measurement have secured their place firmly back at the advertising table however. And brands appear to be revelling in the chance to capture audiences both at the times they are most engaged and in fresh and exciting ways that offer a new dimension to advertising, away from traditional screens, where generic campaigns often lead to ad-blindness.
We’re also not surprised to see ad spend forecasts being downgraded. This is not only due to the ongoing cost-of-living crisis but advancements in incrementality measurement, which have allowed brands to cut budgets in areas where spend isn’t driving results, without impacting their marketing KPIs. The advertising ethos we expect to see throughout the rest of 2023 is to spend smarter, not harder and be more creative with budgets to truly captivate audiences on a different level.
Maor Sadra, Founder and CEO at INCRMNTAL
Gustav Westman, CEO, BrightBid, says, “According to the recent AA/WARC report, ad spend in 2023 is projected to see a modest 0.5% increase, as firms remain cautious due to inflation impacting their budgets. But there is a silver lining – the UK is still the 3rd largest advertising market globally with paid search advertising growing by 12.7% in the last year.
“This demonstrates that even during economic downturns, brands recognise that search advertising offers measurable results and efficient use of marketing budgets. With more advertisers competing for the same target audience, however, this creates an inflationary spiral and increases Cost per Click (CPC) rates.
“To stay ahead of the curve, marketing teams need to take advantage of the current generative AI revolution in search and the benefits this offers. The impact of multimodal search experiences, coupled with the capability of AI technology to produce highly-targeted and precise search results, will provide a cost-effective, swift, and low-risk marketing approach to combat the rising CPC rates, thereby keeping businesses ahead of the competition.”
Emil Bielski, Managing Director, Croud, comments, “It’s tricky to know what to make of the AA/WARC results this year. On the one hand, the results are largely positive – digital advertising remains relatively buoyant, with online advertising making up three quarters of total UK ad spend in 2022. But on the other hand, spend dipped towards the end of the year during the crucial holiday season, with UK advertising spend falling by 5.8% between October – December 2022. This is the first time this has happened in this particular quarter since 2009. That’s significant because it highlights the extent of the challenges faced by advertisers and UK businesses more widely, with projections for 2023 also having been downgraded.
“Overall there are no great signs of growth but if you look at the details, there are reasons to be optimistic. The UK is still the third-largest advertising market in the world; paid search spend grew by 12.7% in 2022; and trading conditions and consumer confidence are also expected to improve in the latter half of this year. As we see small signs that digital marketing is thriving and providing real value to clients particularly in a period where budgets are being monitored more closely than ever, agencies like Croud should be supporting businesses to make smarter marketing investment decisions and prove the value of their marketing via incrementality.
“As trading conditions look set to improve in the second half of 2023 and economic activity and advertising investment are both pretty flat during the year overall, we should interrogate the opportunities that these statistics present us with – for example, how can we retain talent during industry-wide talent shortages? And how can we continue to upskill the employees we retain in vital digital skills? These, for me, are the most crucial things to consider if the advertising industry is going to start bouncing back confidently over the coming years.”
Kate Rowlinson, CEO, EssenceMediacom, adds, “These results reflect what we all know – that 2022 was a challenging year for the UK as a whole, but it’s encouraging to see that the signs point to renewed growth in 2024. This cautious optimism was also evident in our own forecasts looking at how the sector will shape this year. The UK remains the third largest ad market in the world, defined by innovation and experimentation and 2021 saw it grow faster than any market globally. In fact, for us, 2022 was a really positive year as we started unifying our two agencies into EssenceMediacom, and every sign so far in 2023 says that we are looking ahead to a strong year of growth, for our own business and for our clients.
“The prediction that the UK will be the slowest grower in the top 10 ad markets is of course worrying, as advertising is one of our most significant growth drivers for the economy. As consumers struggle with the cost of living crisis, it’s up to us as agencies to empower our clients to help their customers through this difficult time, finding moments of joy and inspiration as well as delivering value across the board through products and services.
On a positive note, it was good to see cinema and OOH regain momentum following COVID. It’s clear that brands have missed the unique opportunities they offer to capitalise on consumers’ attention on the big screen.
By Jez Walters
Jez Walters is the Editor-in-Chief of What’s New in Publishing and a thirty-year veteran of the European advertising, marketing and publishing industries. He has edited and managed WNIP since 2012 with a special focus on how publishers can prosper at a time of profound tech disruption.