Ad spending will remain strong despite a looming recession

The news: Advertising spending will continue to grow throughout 2022 despite an ongoing industry rough patch as fears of a recession loom and stocks of ad-reliant companies take a tumble.

The challenges: Several factors including economic concerns, Big Tech stumbles, and a lack of new ad solutions are souring an otherwise positive outlook for the advertising industry.

  • A potential recession has obvious implications on advertising—if consumers have less to spend, it doesn’t make sense to advertise products they can’t buy. Inflation and supply chain challenges could also affect ad spending.
  • Some Big Tech firms reliant on advertising revenues have given warnings about their revenue outlooks. Snapchat warned investors late last month that it won’t meet its revenue expectations, sending social media stocks into a downward spiral.
  • Many advertising sectors have struggled to adapt to industry-wide changes. On mobile devices, a widely accepted post-AppTrackingTransparency solution has yet to emerge, costing companies additional ad revenues and making advertisers uneasy about the effectiveness of their spending.
  • Video advertising has its own woes. Advertisers are spending more on connected TV (CTV) given its high adoption rate among US consumers and flexibility compared with linear ads, but concerns about accuracy have re-emerged after a study revealed advertisers are losing $1 billion annually on dead ads.

Marching onwards: There are key differences between the current economy and the recession of 2008 that are leaving advertising’s outlook as a net positive. We still expect US ad spending to increase 13.2% year over year in 2022.

  • In a Q&A about the current state of advertising, Insider Intelligence analyst Peter Newman pointed out that the 17.5% decrease in ad spend between 2008 and 2009 mostly came from mediums like print that entered long-term decline, while others like TV and digital remained strong for years.
  • Consumer spending is going through several changes in response to the economy, but remains strong overall despite inflation and a possible recession. If spending should suddenly turn the other way, advertisers and Big Tech firms will have to adjust their plans.
  • Social media and CTV troubles may cause doubt, but advertisers have few other places to spend. Platforms like Facebook have had their share of hiccups with shots at new ad solutions, but are still the gatekeepers to huge swaths of consumers and will benefit from a tightening ad market.
  • Other ad formats like search and augmented reality will also continue to perform well, giving advertisers more options to invest their precious dollars.

The big takeaway: The 2008 recession and the economic outlook of today are not the same. The ad industry is facing tumultuous times and the road to finding new solutions to the changing landscape will be difficult, but spending will remain strong throughout 2022.

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