Ben Shepherd, in his newsletter Signal, looks at the media in 2024:
SIGNAL TAKES A LOOK AT THE CURRENT AND FUTURE STATE OF THE MEDIA AND AD MARKET BY LOOKING AT THE RECENT PERFORMANCE OF 3 TYPES OF MEDIA BUSINESSES – INCUMBENT LOCAL TV, A LARGE PROGRAMMATIC PLATFORM, AND 2x SUPPLY SIDE AGGREGATORS
The biggest question I am being asked now internally and externally is my view on the media market. The reality is the outlook is mixed. The ad market is not a homogenous blob, it’s like a big garden and some areas are thriving and growing, and other areas are surviving, and some are even withering. Last week we were lucky enough to have a series of announcements that gave us a good view of how key participants in the media world are faring.
THE TV LED MEDIA GROUPS – SEVEN AND NINE – EXPERIENCING ‘HEADWINDS’ CURRENTLY BUT WELL PLACED FOR VIDEO BOOM
What’s new:
At Seven’s AGM last week there were some key takeouts. Firstly, Chair Kerry Stokes told shareholders he believes the total video market driven by more accurate measurement of audiences via VOZ to be worth $6.5 billion. This is 50%+ higher than the current cumulative revenue from the VOZ participants and demonstrates Seven feel VOZ can drive sustained high CAGR for the next decade. Secondly, Seven flagged 2024 FY Q1 revenues likely down 8% and that the early read on Q2 (the Christmas retail quarter) to be pacing at similar levels with a slight moderation in decline. Over at Nine, their read was Q1 2024 FY was down 12% and Q2 is looking similar. Neither is making predictions around Q3 and Q4 as the market is very short.
Why it matters:
The metro TV decline across the category was outlined by Seven at 10.9%. This is s sharp drop but when viewed in comparison to a longer period (for instance, the last 5 years) the TV CAGR drop is just above 1%. These declines 2023 need to be looked at closely as they should be a normalisation/correction event post COVID rather than a sustained trend. It could be argued that the TV pullback in 2023 has been an overcorrection, and the format has copped unfairly declines due to wider macro advertising reductions meaning that the largest general line on a media plan (TV) is being seen as the cleanest area to cut and make savings. But doing this ignores the strategic effectiveness of the channel and means for marketers they are leaving a lot on the table when it comes to using the format effectively. Add to this the disruption and innovation that is happening within screens more generally, and the local networks are in a really good position to reap the rewards of this. Video/screen advertising will be one of the largest gainers over the next decade and this growth should be incremental – bringing in video revenue from non-video channels led by out of home, radio and search.
Marketer implication?
We are getting close to a time where marketers will be able to reach a high majority of their customers through high quality video means – solus, sound on, full screen, high engagement. This could be via linear, on demand, streaming services etc. And it will be all day, multiple contexts, driving rapid reach. Many will need to choose between high fragmentation of media channels (spreading a budget across 4-5 channels, 15-25 media partners), or achieving a better result through video with significantly less administrative handling. In that sense the $6.5b Kerry Stokes claims is unlocked via better measurement could be an understatement. Could video be a $10b market within 5 years? Maybe. Will the local networks have the same share as they do now? No. But it’s entirely feasible they could grow their topline at a pretty respectable rate and be key players.
THE TRADE DESK – UP 25% IN A DOWN AD MARKET AND WELL POSITIONED AS THE CTV INFRASTRUCTURE PIPE
What’s new:
The Trade Desk Q3 revenues were up 25% in a really tough ad market. The Trade Desk flagged connected TV as its largest growing sector. Based on a relatively flat programmatic market, this indicates The Trade Desk is growing primarily through taking share from other operators. This illustrates further consolidation in the demand side of programmatic. The Trade Desk disclosed that 40% of spend in Q3 was video. They also forecast Q4 growth of 22%
Why it matters:
The Trade Desk results demonstrate 2 key things. The first is consolidation within programmatic – the sector is becoming much more about a handful of dominant players and TTD has positioned itself alongside Google as the main demand side player. The second is around the importance TTD places on video. Video is now the largest revenue contributor and its largest growth driver. In my view this demonstrates that The Trade Desk see significant sustained growth in video over the next decade, much more than other channels, and they are positioning themselves as the preferred partner for the main players in this space.
Marketer implication?
The TTD results send a few clear signals for marketers. One is the importance of video. Marketers should take confidence from the opportunity that exists here and begin to think about how they reallocate spend from other channels into video to take advantage of the opportunity. Secondly, the share driven growth line for TTD shows consolidation is occurring in this space and will continue. For video content providers in competition with YouTube (which is really all of them), TTD could represent a more aligned non-competitive partner, which could bring more supply onto the platform and reaffirm TTD as the main plumbing for the modern video ecosystem.
MAGNITE AND PUBMATIC DEMONSTRATE BOTH THE CURRENT CHALLENGE OF THE MARKET AND THE FUTURE OPPORTUNITY OF VIDEO
What’s new:
Magnite and Pubmatic are good representations of how demand is faring for a broad section of the ad supported internet. Both are mid-sized entities (Magnite is ~$1b USD) in valuation, Pubmatic around $775m USD). For Q3 Pubmatic revenue was down ~2%, with guidance for Q4 on track for +/- 2% revenue change. Magnite was up 5% for Q3 with similar growth forecast for Q4. In short, Pubmatic is facing significant challenges in revenue growth leading to a decline year on year, Magnite is growing, but in mid-single digits.
Why it matters:
For Magnite the most interesting area is like TTD, they see the main contribution of future growth in video/TV. Magnite is seeing 20% year on year increases here, which demonstrates that the other formats (mobile/desktop display) are in decline. Continued growth into 2024 suggests video will be growing at that same ~20% pace. At the same time Pubmatic is placing the majority of its growth bets in TV and video. One interesting provocation is whether a consortium of TV and video networks should buy a platform themselves and use it as a centralised piece of infrastructure to interface with the market. The US networks worked together on Hulu back in 2007 so they have shown they can do it. It’s an unlikely proposition but not a ridiculous one – video inventory is going to be more and more valuable in the future, and the good inventory is ultimately in the hands of a select few. (internationally Disney, Netflix, Amazon, locally Seven, Nine, Foxtel, SBS, Paramount)
Marketer implication?
The results this week show the incongruence of video right now. The leading video companies locally are experiencing revenue declines (Seven and Nine), but at the same time US technology businesses are basing the majority of their future on being the pipes these video companies run their inventory through. The strength of brand is supposedly more important than ever to the marketing community, but the leading brand building channel is seeing the largest declines. The video opportunity right now is both extremely exciting and challenging. Exciting in that we are at the start of what should be a huge growth boom for video that will transform how we use it, buy it, measure it, and understand its contribution to selling more for our clients. But challenging in that the environment around video (how its traded, participants, the proposition, the underlying intelligence) is going to profoundly change.
SIGNAL is HERE
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