Digital media is ubiquitous in American life, coinciding with and driving significant growth in spending on related advertising. However, with so much scale and so many problems to address, there is also substantial public discussion around regulation and the role of digital media in years ahead.
In the US, digital content consumption is robust, and still growing fast. Alphabet remains the single biggest entity among all media owners tracked by Nielsen’s DCR, with 30% of total digital time spent during June 2019. This include publishers using Google's AMP. Across all of its properties, Facebook had 15% of total digital time spent in during the same period, supported only partially by Instagram, which accounted for a 2.4% share on its own: with WhatsApp much smaller (0.8% share) the bulk of Facebook -related activity remains on the core app.
Other media owners remain relatively small, with Verizon the next largest at 4.7% share of digital time spent in June 2019 – or more like 4.0% excluding Tumblr, now set to be sold – followed by Amazon, Microsoft, Snap and Twitter*. New players are emerging, but few account for much time among broad audiences. For example, consumption of Bytedance properties barely register, at least among American adults 18+.
These companies have all participated in an advertising economy that appears to be shifting massive shares of total spending towards digital media. Pure-play digital media owners on mobile or desktop computers saw total normalized growth of around +21% in 2018 (ex-political advertising). We forecast normalized +17% growth in 2019 and +15% in 2020. However, adding back expectations for political advertising reverses this trend and produced +23% growth in 2018 ahead of what we anticipate will be +15% growth in 2019 and +16% in 2020.
Video is increasingly important to digital advertising, but relatively little of related spending is truly a substitute for traditional TV advertising. Most of the largest digital media owners still have relatively little video-related content that would be rightly called “premium,” at least compared to television. Those which do, such as Hulu, are arguably better viewed as participants in the television industry, not least because most of their consumption occurs on traditional TV sets. Investments in original ad-supported content intended for distribution on PCs and mobile devices are still relatively modest.
Thinking of digital growth as resulting from a “shift” of spending is an over-simplification. Of course, most large marketers have shifted some spending from other media (mostly print) into digital. But the bigger driver of spending is occurring as the broader economy transitions to feature a rising number of marketers who are endemic to digital media, such as app developers and e-commerce-focused companies, including direct brands. These marketers are far more likely to devote the vast majority of their advertising resources to digital media than are other types of marketers, and as these companies have become increasingly common, they have implicitly replaced companies who would have been oriented around traditional media.
The scale of some of these relatively new companies is massive. Consider that Google, Facebook, Netflix, Amazon, Expedia, Uber, IAC and Booking.com each spent $1bn or more on advertising during 2018, for a combined total of $28bn last year. They will presumably spend more like $33bn this year. If only half of this spending were in the United States, these eight companies alone would be responsible for 8% of the industry’s total spending and around two percentage points of growth. The many other still-large app-centric companies who have also become large advertisers in recent years include Spotify, Square and Lyft, who each spend more than $100mm annually on advertising. While most of these marketers will buy some traditional media, digital advertising remains core to what most of them do. As a result, it is unsurprising that digital advertising continues to grow at a robust pace, if one that will slow over time.
Whatever the level of digital advertising growth that will occur this year, it will still be substantial. But regardless of any spending trends, the specter of regulation and the role of government in digital advertising is probably the most pronounced feature of the industry these days. For example, early stage antitrust investigations are likely underway with the US Department of Justice focused on Alphabet and Apple, and the US Federal Trade Commission is focused on Amazon and Facebook. Whether or not those investigations lead to any action remains to be seen, and any such efforts may take years to play out. Most immediately, efforts led by European regulators are likely to have a more meaningful impact.
At the state level in the U.S., there is the looming introduction of the California Consumer Privacy Act next year and similar legislation around consumer privacy in other states. While modest in comparison to Europe’s GDPR, the implementation of these laws may force some minor changes in the ways the industry operates. And then there are still outstanding investigations which are specific to Facebook in the wake of the Cambridge Analytica scandal, such as those by state-level attorneys-general, among others.
Regulation can have the effect of making an industry more stagnant, locking in dominant players and preventing new ones from emerging. However, digital media may not play out that way. Opportunities for companies and individuals to innovate will likely persist given the hyper-connected nature of the internet and the ease with which innovation can occur. To the extent this continues, the importance of digital advertising to marketers will also increase, even as the medium decelerates and matures.
Brian Wieser is global president of business development at GroupM.