AA/Warc adspend report: industry analysis

What an excellent start to the year for the UK advertising industry, with the AA/WARC Expenditure report revealing that this is our strongest first quarter in three years, and that we’re on track to see a decade of continuous growth by 2019.

Interestingly, this quarter’s growth seems to have been shared around, with traditional mediums and online alike seeing impressive year-on-year uplift and suggesting that perhaps, amidst Brexit uncertainty, budget is being more cautiously distributed to cover all bases.

Nevertheless, it’s still digital which has dominated – no doubt because it’s never been more important for brands to speak to consumers holistically through whichever digital channel they appear on. Notably, mobile has experienced the strongest year-on-year growth in comparison to Q1 2017, with a striking 26.5% uplift in spend.

This is reflective of wider shifts we’re seeing in the market, with mobile being seen not simply as a means to connect with consumers through display advertising, but also through exploratory technology such as Augmented Reality. As this trend towards AR hardens up in the coming quarters, we expect that mobile will continue on a similar trajectory of growth.

The new WARC figures make for excellent reading for advertisers, as ad spend continues unabated in the face of challenging market conditions. Online has unsurprisingly grown massively, particularly with mobile; as we’ve seen with Instagram’s IGTV announcement recently, consumers seem to be switching to their mobiles for their short-, medium- and long-form content.

This is – and will be – a huge opportunity for advertisers, as social media companies and brands capitalise on the demand for video wherever, whenever.

But it’s the increase in out-of-home, TV and radio that catches the eye this time round. Advertisers are seeing real value in creating content for different mediums to reach different audiences. You only need to look at recent hits such as ITV’s Love Island and Sky’s Westworld to know that programmes on these ‘traditional’ channels at specific times in the evening still pull in millions of people within different age groups and demographics.

If advertisers get this right – i.e. by harnessing quality content, at the right time, to the right audience – then they’ll truly reap the successes of their spend.

This latest set of results only serves to underline the strength of the UK advertising industry, which has now grown for the 19th consecutive quarter and come in ahead of forecast at £5.7 billion.

Whilst we’re seeing a resurgence in traditional formats like Radio, TV and out-of-home, digital continues to dominate. A number of factors are driving this behaviour, beyond just tangible performance improvements.

Not only does digital allow organisations to mould their creative around the needs of the consumer, but an increasing number of businesses are now more effectively leveraging detailed insights and learnings on consumer behaviour to drive their connected media strategy through the line.

Against this backdrop, it’s unsurprising that search now accounts for nearly one third of UK ad spend, reflecting the wider shift in market sentiment towards delivering relevant and value-add content to consumers when and where they need it.

As broader uncertainties around Brexit continue to bubble away, it’s heartening to see the advertising industry really showcase its value to the economy with the strongest start to the year since 2015, and a GDP-beating growth rate year-on-year.

Moreover, it’s not just online stealing the headlines; traditional advertising formats are noticeable in their continued strong presence in the media mix, with the out-of-home sector experiencing a 5.3% growth rate in comparison to Q1 2017.

This is likely because, in an uncertain business environment, we tend to see heavier advertising investment in tried and true broadcast mediums such as out-of-home, TV and Radio.

Not only do they help maintain market share and consideration, but they also deliver reach, brand fame and impact that will build a strong foundation for any potentially turbulent quarters ahead when activation becomes more important.

Crucially, the unique qualities of Digital Out-of-Home enable brands to do both, leveraging data to add dynamic and real-time elements to the existing strengths of traditional out-of-home.

The latest ad spend figures demonstrate the sheer resilience of the industry during uncertain times. The sustained growth over the last four quarters is promising and proves that advertising remains an important investment for British businesses.

That said, we must not forget that the UK is a creative powerhouse driven by a talented diverse and international workforce, and the outcome of ongoing Government negotiations could potentially affect the way that workforce is built today.

However, how the industry responds to these challenges will be key, and it’s crucial that the UK remains committed to upholding its prestige for world-class advertising.

Likewise, it’s interesting to see traditional media proving its worth to advertisers in this climate. Digital spend is once again leading growth, but the sector has been forced to address concerns related to brand safety and transparency in recent months. This is likely to have encouraged advertisers to re-balance their spend in favour of more traditional channels.

Going forward, digital advertising will need to continue its focus on developing on an ecosystem characterised by transparency and accountability. This will ensure it goes from strength to strength.

The results point to a remarkably robust and resilient ad industry here in the UK, particularly in the shadow of Brexit and future uncertainties. Nineteen consecutive quarters of market growth is impressive, as is the fact that Q1 2018 is recorded as the strongest first quarter of three years.

It’s particularly noteworthy to see print display ad revenue for national news brands rising for the first time in seven years – proof of the increasing appetite for news and trustworthy content. Likewise, it’s encouraging to see reinvestment in traditional brand building media such as radio, Out-of-Home and TV – it’s always tempting during uncertain times to invest more heavily in activation channels that deliver short-term cash flow. Social continues to over-perform, but it will be interesting to see whether this continues over the next few quarters given the impact of various scandals on user growth numbers.

Although the story overall is vastly positive, it shouldn’t be forgotten that uncertain climates like these require dynamic and responsive decision making, as well as increased scrutiny of the evidence available to inform strategies moving forward.

While some may claim that a rise in spending across traditional channels is owed to some of the negative headlines that have surrounded some of adland’s tech giants, it’s impossible to ignore that this growth sits alongside a rise in spending on internet advertising as well, with ad spend as a whole roundly outperforming estimates in Q1 of this year.

This overall growth is largely due to marketers applying more data-led solutions, enabling them able to better understand how different channels impact specific campaigns and products, with this added certainty giving rise to further investment.

Furthermore the weighting of spend is exactly where we’d expect it to be – digital-centric, but with growth in more traditional channels as advertisers better understand how channels complement each other and how multichannel campaigns actually boost sales.