By David Turner (Head of Investment)
Well what a year so far. Though SMI (agency market expenditure) reported very slight YOY declines in Q1, this decline has now increased to -5.1% (January-September).
What’s behind this decline in agency demand? There are differing explanations for this, but it has been heavily driven by the declining performance of three channels: television, digital and radio.
Back in 2017, the Lions tour drew a significant amount of expenditure into this channel, and in particular into SKY Television. When compared to 2018, if we were to remove SKY and look only at TVNZ and MediaWorks, the two networks have performed well, experiencing a slight lift in expenditure (+0.4% YOY). Strong demand has continued through and into Q4, so we expect these two to finish up in a similar position.
After holding up well in January through May (+3.3% YOY), digital investment shifted with a disastrous June through September (down -14% YOY). Unfortunately the granularity of detail via SMI is limited for digital, but it appears the real loser has been Facebook, with expenditure declining more than -21% YOY. The recent security breaches, questions around transparency/reporting and the changes in their algorithms have truly had an impact.
It also appears that the growth of programmatic trading desks is no longer capable of offsetting the declines in direct digital expenditure. This highlights that greater efficiencies can be gained via programmatic buying methods, and the majority of desks have sufficient data to buy inventory more effectively. (However, it is important to point out that the SMI results only measure agency demand, which does differ when compared to total market IAB results.)
Like digital, radio also experienced a strong start to the year (Q1 grew +1.7%), followed by a disappointing May through September (down -10.9% YOY). It’s been a double whammy for radio, with both the Lions tour and the general election pushing huge demand in 2017, so much so that Q3 2017 was one of the most demanded quarters.
However, it’s not all doom and gloom for radio, as demand for direct remains strong. Q4 has seen the return of agency demand, though in saying that, we predict the full year to net out in a YOY revenue decline from agencies. At a network level, NZME are unfortunately fearing the worst, with the strength of MediaWorks’ audience enabling them to out-perform the rest of the market.
It’s clear that there is some instability in the market, however this will not be a blanket result across all media. Television demand is currently exceeding all expectations in Q4, and outdoor, of course, continues to grow, with solid demand across Q4. From an agency expenditure point of view, we predict digital to be the one key channel that will come off worse in 2018.