IAB forecasts slowing growth in U.S. digital ad revenue
U.S. digital ad revenue grew to $58 billion for the first half of 2019, up 17 percent when compared to the same time last year, according to the Interactive Advertising Bureau's twice-yearly report, which was prepared by PwC.
Despite the increase, a closer look at the report shows potential headwinds that may lead to the industry's first decline in 10 years. Although revenue increased year-over-year in 2019, the 17 percent uptick was lower than the last half of 2018. PwC says this trend of shrinking growth was last seen in 2009, which led to the industry's first-ever decline, which was largely attributed to the Great Recession.
“I’ve been through two economic downturns with these [IAB] studies and in both cases, even though the industry was growing super strong, the overall economy did have an impact on all digital advertising,” Silverman says. “Those were the only points in time where we saw a year-over-year decrease.”
Silverman adds that digital ad revenue is “very dependent on the economy and we would see an impact if we went into a recession.”
When coupled with imminent U.S. privacy regulation, where a patchwork of 52 privacy laws — one for each state plus Puerto Rico, Washington D.C. — is becoming reality, the digital advertising landscape suddenly faces an uphill battle at continuing its ridiculous growth.
Trade bodies such as the IAB, Association of National Advertisers and the 4A's are all moving to create a single, federal policy regarding U.S. privacy regulation, but many industry experts believe that will be unlikely given the turmoil in D.C.“Privacy regulation is going to be a tremendous hurdle the industry is going to face,” Silverman says. “Having a patchwork is going to make this a real problem for the industry to effectively utilize the underlying data on the consumer.”
Sue Hogan, senior VP of research and measurement at the IAB, adds that “a patchwork of state-by-state approach will potentially cripple the digital ad industry. A [patchwork of laws] will also dis-empower consumers.”
The IAB believes growth in areas such as video, digital audio, advanced TV and new innovations once 5G arrives may offset any potential downturn.
Digital video, for example, showed growth across all formats, hitting $9.5 billion in the first half of 2019, up nearly 36 percent year-over-year. Video ad revenues on mobile also now comprise 67 percent of all digital video ad revenues, up from about 60 percent in the prior year, the IAB says. Digital audio, meanwhile, reached $1.2 billion for the first half of this year, up 30 percent when compared to the same time last year.
Hogan believes 5G—which will increase mobile speeds and provide data from connected devices and apparel—will also help drive future growth. “Emerging media and 5G will drive a lot of ad revenue because the ad load will be a lot lighter.”
Still, 5G itself isn’t likely to roll out at scale until at least 2021. Applications that jump-started 4G adoption — such as Uber, Airbnb, e-commerce and social media — have yet to be created for 5G. “When you dig into it, the shift to mobile created new markets,” Silverman says. “Those things happened between 2012 and now, and it fueled super-high growth rates of 20 percent. It would be unexpected to continue to grow for 20-plus percent for years. The industry has matured so the question is, what’s next?”
By the numbers
The report says search advertising totaled $26 billion for the first six months of 2019, up nearly 14 percent year-over-year. Although the advertising format captures the most revenue, it only represents about 45 percent of total advertising revenue for the first half of 2019. That’s down from 46 percent when compared to the previous year. The IAB attributes the decline to video stealing search’s market share.
Banner ads, which include display and sponsorships, totaled nearly $18 billion for the first half of 2019, up 13 percent when compared to the previous year. Meanwhile, mobile, which also includes tablet devices, accounted for 69 percent of all ad revenue generated for the first six months this year, up from 62 percent when compared to the same time last year (mobile first overtook desktop in 2016).
For the first half of 2019, social media revenue was $16.5 billion, up nearly 26 percent when compared to the same time last year.