Media Market Update: 2023 Outlook – Insights, Commentaries & Articles

By Manuel Reyes, Founder of Cortex Media

Concerns about economic uncertainty continue to be front and center as many brands remain unsure about what to expect and how best to prepare for the year ahead. It’s yet to be seen if the U.S. will suffer a significant recession in terms of a widespread and prolonged downturn. Given the Fed’s proactive, managed approach to the economy, a mild recession or a soft landing to slower growth are both still possible.

At Cortex, we believe a “slowcession” is the most likely scenario as we consider 2023. This new term means the economy “comes to a near standstill but never slips into reverse.” A slowcession is also currently considered a better outcome than a recession. However, it could linger from quarter to quarter, or even year to year, much like stagflation did in the 1970s and early 1980’s. Sometimes, a quick dip followed by a sharp rebound is preferable. Only a crystal ball or hindsight can tell us definitively.

Today, without question, we are seeing delayed media investment decisions by brands, which translates to low demand and declining media inflation in our current Media Market Outlook. We will also state that a slowcession is expected, but as of now, its length cannot yet be determined.

US Media Market Update – Digital

The overall digital media market is projected to grow by 6-7% in 2023. The first quarter of this year, however, was off to a slow start as digital publishers reported that they are tracking 10% to 25% behind revenue forecasts for Q1.

Programmatic Open Marketplaces Falter as Other Options Increase

Programmatic Open Marketplaces had attracted significant advertising expenditure in the past, despite growing concerns over brand safety issues. Now, though, open marketplace revenues are down by as much as 20%-55%. Brands are currently focusing on private marketplaces and direct deals that are not only more effective in delivering ads to the right audiences, but provide higher assurance, more control, and improved safety. The next trend in programmatic will be a shift to “curated marketplaces,” which agencies are advocating as a way of adding “value” to advertising delivery options. Curated marketplaces give media buyers the ability to control their inventory sourcing by working with chosen partners to “curate” supply, based on a brand’s business goals. Expect agencies to tout higher effectiveness through better selected audiences.

Other Changes are Afoot in Digital Media

Agencies are trying to consolidate programmatic work by pushing for fewer platforms. They say this will save money, simplify tasks, and prevent bidding against oneself when chasing the same inventory on multiple platforms simultaneously. We are already seeing several SSPs shutting down or filing for bankruptcy protection. The Trade Desk, the largest independent global demand side platform, introduced OpenPath last year to provide advertisers with direct access to premium inventory from top publishers and a clearer view of ad impressions. Today, they are testing their legacy relationships with agencies by selling their services directly and cutting agencies out. Google continues to be in the news, and the giant may have to divest parts of its sales-side ad tech business. Certainly, government efforts continue to focus on this front.

Universal Identifiers Still Lack Consensus

No digital advertising conversation would be complete without mentioning our cookie-less world. A universal identity solution is now critical; however, there is no industry consensus nor any wide acceptance of a single solution currently. Cortex does not believe this will be resolved any time soon. Three different models continue to be developed: deterministic, probabilistic, and contextual.

US Media Market Update – TV & Upfronts

While there is no major activity on Upfronts yet, the media inflation outlook is a lot lower than in previous years and is expected to be at 7%-8%. However, it will likely rise if the economy shows signs of improvement soon.

Fluidity Deals, Cancellation Windows & Ratings

Fluidity deals have allowed the networks to raise the cost of formerly lower-priced non-linear impressions to achieve pricing parity with linear impressions. This year’s conditions for fluidity deals will depend on who has the upper hand (buyers or sellers) given the timing of negotiations. Additional oversight of fluidity deals will be needed as the reallocation of impressions between linear and streaming will continue to increase. There is noise in the market about possible changes to cancellation windows for streaming inventory. Interestingly, while linear flexibility remains the same as in previous years with the standard cancelation options, streaming deals generally have just a 2-week cancelation period based on current IAB Guidelines. That may now be changing. Although linear and streaming were bundled together in last year’s upfronts, buyers were clever by committing more money to streaming with its greater flexibility on cancelations.

Most TV deals are expected to be based on existing Nielsen ratings. While advertisers want the benefit of cross-media measurement and a single view of who’s watching, the marketplace is not ready for a change of currency yet, nor does it have the confidence in the next Nielsen offering currently. There are still worries about the continuity of results used for tracking, as well as the duplication of impressions across screens. Data Driven Linear, which made its first appearance in the last few years, seemed to be a solution to bridge the gap between linear and digital offerings. We never saw it prove its actual contribution to the mix, other than justifying higher costs above upfront and regular scatter. The lack of agreement on measurement and the steady flow to streaming may have choked the initiative as a valid revenue improvement strategy for TV. It was only mildly present in 2022 discussions.

Streaming is Growing, but Inventory Tightens

Without question, there is a growing shift in media budgets towards ad-supported streaming services. While OTT spending currently represents a small percentage of total digital spend per month, major advertisers are now committing to streaming. According to MediaRadar, five services — Hulu, HBO Max, Discovery+, Paramount and Peacock — currently account for 65% of the ad spend on streaming. Despite increased costs over the past two years, the streaming industry is 4% up overall in Q4 2022 vs year ago. Hulu is up 22% in revenue. Yet, the streaming market continues to shape-shift. Disney/Iger discussed plan to either buy 100% of Hulu– (Comcast now owns 33%) — or sell it. FAST network growth is changing the streaming landscape and eating into subscriptions, but it will provide advertisers with additional inventory. Interestingly, Netflix ran out of inventory in Q4; however, this was due to low subscription rates— there were just 600,000 sign ups for their ad supported service.

Development to Watch

Artificial Intelligence AI will take center stage on content/creative generation, but real gains may come from improved optimization in buying processes. Expect to see AI solutions for programmatic buying, brand safety, and attribution during the next couple of years. That said, there are still concerns about ceding control to an application that provides no verification.Lawsuits have already been filed for improper use of data for AI training purposes. One such example is Getty Images vs Stability AI. In the case, Getty Images alleges that Stability AI copied 12 million images to train its AI model without permission or compensation’ by simply “scraping” its site.

Privacy Issues of consumer privacy, particularly regarding data collection/permissions, have not gone away. Cortex is expecting to see increased compliance efforts by government agencies. Additionally, agencies are now working to reinforce their expertise in this area.

Other Items

•     IAB will experience intense lobbying on what constitutes an impression/view and on cancellation terms as it revises its Terms & Conditions

•     Retail media will continue to grow, led by Amazon. Everyone is trying to get into the market and take greater advantage of advertising, sales and/or promotion budgets. While the large retail chains already have very solid ad operations, smaller ones are starting to join efforts through aggregators. This move is helping them gain volume and reach the national scale they lack in their commercial footprint, so as to capture a piece of this growing pie.

What is less talked about, but still very much a factor for pricing purposes, is who owns the budget for these buys. Brand builders tend to see these placements with some skepticism about their reach, and value them low in their unit-cost scale. But CPG sales reps dealing with the retailers purchase depts. want to exert some control on the ad budget, to make it part of an overall more favorable deal. This is still a moving target, and each advertiser has its own way to manage the conflict.

•     There has been an uptick in influencer marketing during the last 8 months. Now brands are refining their approach by looking for both long-term influencer relationships, as well as niche opportunities.

•     ROI models are now expected to shift focus to “attention” metrics.

Cortex Media has been providing media auditing and consulting services to top-tier advertisers in North America, Latin America, Europe and Asia since 2001.

You may contact Manuel Reyes at mreyes@cortexmedia.com | +1 305 790 4436

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