AA/Warc: Adspend further consolidates online as traditional channels suffer

The UK ad market grew 6.1% to £36.6bn in 2023, according to the latest Expenditure Report from the Advertising Association (AA) and Warc.

However, traditional media channels continued their steep declines, led by direct mail at 12.6%.

Regional news brands fell by 10.1%, magazines by 9.1%, national news brands by 6.3% and cinema by 4.2%.

TV declined by 8.9%, although a bright note came from the broadcaster VOD (BVOD) sub-category, which showed strong growth of 15.9%.

Notably, online channels accounted for more than three-quarters of UK adspend for the first time. These formats grew 11% to total £28.7bn, or 78.4% of the market.

Elliott Millard, chief strategy and planning officer at Wavemaker UK, thought the reliance on digital “should cause some concern”. First of all, “the continuing movement of advertising effort into short-termism is an issue”.

Secondly, he explained: “The other concern is one of exclusion. Government surveys suggest that nearly a quarter of the UK suffers from digital exclusion — a lack of the digital skills needed for everyday life — and that more than 11m cannot use the internet effectively. That’s a huge chunk of the UK that brands are missing out on with an over-reliance on digital channels.”

James Shoreland, CEO of VCCP Media, took another view: “Spend in digital can often be driven by small businesses for a variety of reasons, not least of which is cost.  Bigger brands, particularly those backed by private equity (PE), tend to invest more in so-called ‘traditional media’ such as TV and outdoor. This is important for any brand that wants to populate culture and transform its fortunes at pace. The cost of money in today’s economy means PE-backed firms may be tightening their belts and thus traditional media’s share is reduced.

“So, yes, digital is now the largest slice of the pie — but it’s not necessarily reflective of how media spend is changing. It’s perhaps another reflection of just how interdependent the health of the economy and the advertising industry are on each other.”

OOH was the only other medium to post growth at 9.7%. Digital OOH outpaced the wider medium at 12.2%.

Taking into account inflationary pressures, the total UK ad market actually contracted by 1.2% in real terms — behind overall UK real GDP growth of 0.1% last year.

Golden quarter

 In Q4, the all-important festive season, adspend grew 7.4% to £9.7bn.

The growth was led by digital OOH (up 18.1%), BVOD (15.9%) and search (12.9%).

In general, this period was also boosted by the men’s Rugby World Cup.

Outperformance

The study estimated that in 2023 the UK outperformed its neighbours, with France’s ad market growing by 2.1% and Ireland by 3%, while Germany declined by 0.7%.

Looking ahead, the AA and Warc expect the UK ad market to grow 5.8% — a downward revision of 0.1 percentage point as a result of “prolonged inflationary pressures” — to reach £38.8bn this year.

While search (+8.9%) and online display (+6.4%) are forecast to witness the strongest growth yet again, importantly TV, cinema and radio are all expected to return to growth at 2.6%, 2.5% and 2.3% respectively in 2024.

Furthermore, the men’s Euros, the upcoming general election and the Paris Olympic Games are all set to contribute to strong growth in BVOD (+14.1%).

While Millard celebrated the anticipated return to growth for more traditional channels, he warned: “Their growth is far behind that of digital and a landscape that invests more than three-quarters in digital is likely missing moments of collectivism, as well as missing an audience who could drive further business growth.”

In 2025, the market is forecast to grow 4.5% to surpass £40bn amid an anticipated easing in economic pressures. The AA and Warc are expecting growth of 11% for BVOD, 6.4% for search and 5.5% for online display.

Exports on the rise

Stephen Woodford, CEO of the AA, said: “The continued shift to online advertising formats reflects the changing shape of our economy, with people increasingly shopping online as well as on the high street, and businesses striving to provide the best customer experience in all scenarios.

“The UK advertising industry is much respected around the world, which is why we continue to see the exports of UK advertising services grow — an important source of additional revenue for many advertising businesses in a domestic economy that has little to no growth.” 

James McDonald, director of data, intelligence and forecasting at Warc, added: “Our latest survey of media owners confirms 2023 as a challenging year for most, with few properties recording gains and spend instead further consolidating within search and online display formats – particularly social media.

“Our forecasts assume that the UK’s economy will begin to break from the pattern of stagnation that has come to define recent quarters. Easing inflation over the coming 18 months should encourage more favourable trading conditions within the advertising sector, facilitating growth across a broader range of channels in turn.”