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Digital Ads Surge as TV Goes Down the Tubes

March 14th, 2016 | Read more articles from 2016 or Visit the News Archive
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Appearing at Barron’s (Subscription Required)

Facebook, YouTube and Instagram are the most popular social platforms that agencies plan on using.

Boenning & Scattergood

Digital will overtake U.S. TV advertising by 2017, according eMarketer projections.

TV will still grow (2.5% year-over-year) in 2016, despite tailwinds from political advertising and Olympics. This view contrasts with strong recent data from SMI that pointed to strong spending in TV for January. We believe digital advertising and digital video in particular will remain beneficiaries from shifting TV budgets, growing at 2016-2020 compounded annual growth rates (CAGRs) of 11.2% and 14.1%, respectively.

We believe we are near a TV tipping point, as (younger) users migrate to alternate consumption devices and sources. However, TV networks may recapture a portion of ad dollars through other platforms.

Facebook (ticker: FB ) announced it is discontinuing efforts to build a demand-side platform (DSP) as part of its Atlas ad server and measurement platform, due to concerns around “bad ads and fraud.” Facebook’s statement on fraud implies that other parts of the programmatic ecosystem may have significant issues related to fraud and bots, and we question whether this is in part clever marketing/messaging on Facebook’s part. We also note that exchanges and DSPs are making strides in the fight against fraud detection. This includes Rubicon Project (RUBI) which was recently recognized by Pixalate as the number-one marketplace in terms of inventory quality and that TubeMogul ( TUBE ) recently announced a program whereby it would compensate advertisers for fraudulent impressions.

Seventy-six percent of U.S. retail marketers say that their return on investment (ROI) for online channels exceeds that of offline channels, according to research by RetailMeNot ( SALE ). In particular 75% of marketers get above-average results from mobile coupons for unique promotions; 87% of markets plan to increase mobile spending versus 73% for non-mobile digital spend and 62% for offline ad spending. Mobile increasingly drives store traffic and 74% of marketer mobile teams are responsible for both online and in-store sales. EMarketer estimates 44.5% of U.S. retailers will use mobile coupons in 2016 (versus 40.5% in 2015), and that nearly 105 million adults (82.1% of adult digital coupon users) will use mobile coupons this year. We believe mobile will continue to be a significant growth driver for both advertising and promotion spend.

Seventy-five percent of agencies are increasingly interested in digital (streaming) video versus last year, according to a survey by STRATA Marketing. Only 40% of agencies are confident about the ROI of video, and 44% believe video ad buys reach their intended target most of the time. 38% of agencies are spending 6%-10% of ad budgets on paid social advertising, with Facebook (93%), [Alphabet’s ( GOOGL )] YouTube (59%), and Instagram (49%) the most popular social platforms that agencies plan on using. Concerns over inventory quality and transparency of inventory sources are still holding back agency use of programmatic. Less than half of agencies plan to use programmatic for 10%-20% of their business and 30% do not plan to use programmatic at all. This is an improvement over last year, and we see the survey as confirmation that video, social, and programmatic will remain growth drivers for digital advertising.

Facebook is improving its mobile lead-generation capabilities by adding video, customizable disclaimers and duplicate forms. In addition, Facebook is partnering with more customer relationship management (CRM) and email vendors to facilitate lead ads. Separately, Snapchat may be in the process of automating its ad sales through an application programming interface (API), which could facilitate buying. Snapchat’s estimated revenue growth ($300 million-$350 million in 2016, up from about $50 million in 2015) is driving investor interest, at a reported $16 billion valuation. Pinterest’s Buyable Pins are helping retailers gain new customers and sell midpriced ($45-$170) items, after their introduction mid-2015. Black Friday sales benefited from users that were notified of price drops through buyable pins. Anecdotal evidence from several merchants suggests that they can expand their audience through Pinterest. We view social growth to increasingly come from promotion-spend, not just brand spend.

 

—Murali Sankar

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