Media agencies are cautiously bracing for a potential recession — even as they grapple with inflation and supply chain issues. But despite the looming concern, media spending is holding steady or slightly increasing in 2022, according to respondents to a recent survey Digiday conducted for this inaugural media agency report. And the majority of respondents also expect spending to increase between 10-19% in 2023.
In its second quarter financial filing this year, Interpublic Group (IPG) noted that the agency holding company, “experienced growth, driven in our domestic market by growth across all disciplines, most notably in our advertising and media businesses … .” But it cautioned that its prospects for continued financial improvement, “could be affected by the course of the pandemic … the impact of any general economic slowdown … and the impact of continuing and unpredictable supply chain disruptions across the global economy.”
Indeed, agency executives who participated in a Digiday focus group on the state of media spending tempered survey respondents’ optimism about the coming year. Executives anticipated client spending will remain relatively flat or shift within channels depending upon the state of the economy, which is subject to change on a daily basis.
Looking forward, clients and agencies are considering how to most effectively spend media budgets in the short- and long-term future.With lingering pandemic effects and supply chain and recession issues weighing heavily on their minds, agency executives said flexibility to change spending plans mid-stream is key for 2023.
“Recovery from the pandemic in the media sphere versus our clients’ businesses has been two very different things,” said Katie Klein, PHD’s chief investment officer. “The initial bounce back from Covid happened a lot sooner in many ways, but it didn’t mean our clients’ businesses were recovering. It didn’t mean that they were able to make decisions faster or have longer outlooks.”
“The aftereffects of the pandemic, including [the questions of] are we or aren’t we in a recession, are still real factors,” she added. “That need for flexibility is here and it’s expected. It’s applicable to ongoing situations that are the aftermath of the past two to three years.”
Bearing that recent history in mind, Digiday’s first annual media agency report examines the current and future state of media agencies from the perspective of client spending (within media channels and by client categories), and from agencies’ own investments in staffing and practice areas.
Digiday+ members will have the opportunity to come together virtually to dive into this research on Wednesday, November 2, at 12 pm ET.
Digiday’s senior editor, media buying and planning, Michael Bürgi, and Digiday Media’s research editor Catherine Wolf will reveal the results of the Annual Report, explore its findings and hold a short Q&A following the presentation.
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Methodology
To assess the current state of media planning and buying and to understand which channels clients are investing in now and where they will be spending in the future, Digiday+ Research collected responses from 128 agency participants in a survey fielded in September/October 2022.
For additional industry insight, Digiday hosted a focus group of eight senior media agency executives who oversee media investment at holding company-owned and independent media agencies to gather first-person accounts of client spending and agency plans for staff and practice expansion. Agencies that participated in the focus group were:
- Assembly Global
- Crossmedia
- Havas Media Group
- Horizon Media
- Mediahub
- Novus
- PHD
- UM
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Despite recession fears, clients split on expanding, contracting or keeping budgets steady in 2022
With a recession looming and supply chain issues still leaving some store shelves empty, media agencies and their clients are weighing how to most effectively allocate media budgets in the remainder of 2022 and moving forward into 2023.
Agency respondents said clients thus far have been nearly equally divided on whether to increase, decrease or keep budgets the same in 2022, with about one-third of agencies selecting each category. In all, the results trended slightly toward cautious optimism with 34% of agencies saying clients increased their budgets and 31% saying they kept them the same in 2022. 33% said clients have decreased budgets.
Jade Watts, chief media officer at Mediahub, said the conversation around spending is nuanced, with decisions about how to allocate budgets differing by client category. “It really depends on the vertical,” Watts said. “We have a handful of travel clients, retail clients, entertainment, those have been significantly up. We haven’t seen any slowdown in those. But we have noticed that there are more Silicon Valley emergent tech clients who, while not pulling back yet, are being a little bit more cautious, and are in a little bit more of a wait-and-see mode.”
Of the agencies that said they’ve seen client budgets increase in 2022, the majority of respondents (39%) said the increase was a relatively conservative 10-19%. That aligns with Zenith’s forecasted ad spending growth rate of 12% for North America in 2022, and with U.S. consumer spending habits, which to this point have held steady, not yet declining despite recession woes. According to the U.S. Bureau of Economic Analysis, personal consumption expenditures increased marginally by less than 1% to $67.5 billion in August 2022.
Valerie Davis, president, North America, for Assembly Global, said her agency has experienced budget increases in the current year. “I have actually seen clients spend go up and agility is key,” she said. “It’s not that our clients want to cut back. It’s that they’re looking for where to spend their next best dollar. They know they need to be in the marketplace. They’ve learned that, in a recession, they can’t lose that brand visibility. … We’re seeing clients not necessarily cutting spend but being very judicious in how they spend across channels.”
While slightly more agency respondents saw client budgets increase than hold steady in 2022, nearly one-third (31%) of respondents said budgets remained the same. But flat spending doesn’t necessarily mean that a client’s budget won’t change, rather that the same budget may be shifted into different media channels.
Paul DeJarnatt, vp of digital at Novus, said clients are trying to find the sweet spot between needing to get out into the marketplace and balancing concerns about inflation. That results in mostly flat spending.
“[Clients] want to prepare for a possible recession and not over invest, but they’re also not cutting back too much,” DeJarnatt said. “They know if they do, they’re going to lose ground in market share and in the marketplace. We consider right now flat to be a win for how they’re approaching the marketplace because it does strike the right balance of caution, but not overcautious.”
Assembly Global’s Davis added that pulling back on upfront TV spending can help clients remain flexible during times of economic uncertainty. “We have a lot of clients who obviously are very interested in the upfronts, but as an agency we’re suggesting in some moments that they pull out of upfronts because of the agility factor,” she said. “Because you can get the same visibility if you’re buying in local TV and in local markets.”
Another one-third of agency respondents (33%) said their clients have decreased budgets. Of those that said budgets decreased in 2022, more than half (56%) said the decrease was a fairly small 10-19% – so far. Interestingly, that’s the same percentage range by which agencies said most clients increased spending. So, is decreased spending by some clients an early sign of what’s to come for the rest of the industry? It’s hard to say.
Christine Merrifield-Wehrle, head of investment at Crossmedia, said clients are looking for ROI, and if they don’t find it, they will cut budgets. “They’re going to spend their money where [money is] being spent,” she said. “At the same time, the economy’s playing very heavily into our consumers. … So, needless to say, that goes into our advertising budgets. Because if consumers aren’t spending, we’re advertising and we’re not seeing the growth. Performance media is front and center for everybody.”
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Agencies expect spending to inch up in 2023, with elections and Olympics as added wild cards
Despite clients’ caution around expanding media budgets in 2022, media agencies are optimistic about their spending in 2023. Nearly half (49%) of survey respondents said they expect budgets to increase next year. Of those respondents, 44% said that budgets will increase by a modest 10-19% – the same range witnessed by the majority of agencies who reported budget increases in 2022.
About one-third of respondents (31%) said budgets will remain the same in 2023 — not a bad thing considering the economic uncertainty. And fewer than 20% said they expect spending to be cut in 2023.
Focus group executives, however, emphatically agreed that it’s too early to predict how clients will spend in 2023. In addition to a potential recession and lingering supply chain issues, some said they expect the 2024 U.S. elections and the 2024 Summer Olympics to factor into budget plans.
Assembly Global’s Davis said she’s already seen the mid-term 2022 elections affect spending, and she expects more of the same next year. “The budgets are 20% higher than they were in the last presidential election in terms of spend in the marketplace,” Davis said. “With the presidential election coming, it’s going to be insanity and a much earlier cycle.”
Again, Davis said her agency is advising clients to remain flexible with spending plans and place less emphasis on upfront TV buying when it comes to the election cycle. “The way we’re guiding clients is precisely tied to the agility that we’ve been talking about – the pivot to making sure that we’re balancing the funnel so [clients] can get out,” she said.
“If you’re buying an upfronts, sometimes you cannot control local media, or the messages that are going into the market,” she added. “If you think about being aligned to messaging in the marketplace, we’re looking at the mix definitely as an agile performance space. Because in our view, all media should be performance. We’re looking at very much a digital focus, but also a local focus in terms of how we’re buying television and radio.”
Crossmedia’s Merrifield-Wehrle agreed that remaining adaptable will be key in 2023. “It’s a futures market,” she said. “2023-2024 is an Olympic market, a big election market. It’s about agility, but also looking around the corner in order to advise your clients as best as possible. And trying to keep, within the major media companies, flexibility across their P&Ls and across their channels. … It’s not linear versus digital, considering those organizations have multiple platforms to deliver against.”
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Client spending accelerates in digital display, social and streaming channels
Although the exact amounts of their media budgets may fluctuate for the remainder of this year and into next, brands are consistent about which media channels they want to funnel those funds into in 2022 and 2023. Digital display/websites and social media are the top two media channels targeted for spending increases in both years. 86% of respondents who saw clients raise budgets said clients have increased display/website spending in 2022, and 78% say they will do so in 2023. Likewise, slightly more than 80% of those respondents said clients have increased social media spending in 2022 and will do so in 2023.
Mediahub’s Watts, said that digital spending’s upswing comes at the detriment of some traditional channels. “We’re seeing significant growth in digital across the board and it’s coming at the expense of a lot of national TV, as well as traditional radio,” she said. “The reason so many clients are pushing more money toward digital is just for the sheer accountability that digital offers our clients versus some of the more national linear TV.”
Indeed, broadcast media (including TV and radio) is the No. 1 channel in which agency respondents expect clients to decrease spending in 2023, with 75% of survey respondents who said total budgets will decrease, also expecting cuts in that channel. Print media (including newspapers and magazines) isn’t far behind, with 69% of those respondents expecting decreases in that channel next year.
But while traditional print and broadcast channels may be suffering, the newer visual medium of streaming video/CTV has had a healthier 2022 and is expected to continue trending upward in 2023. Streaming video/CTV was the third most likely media channel to receive additional client dollars in both years, according to agency survey respondents reporting current or future increases. 61% of those respondents said clients increased spending in 2022 and 66% expect them to do so in 2023.
David Campanelli, evp and chief investment officer at Horizon Media, said that although money may be moving out of traditional TV and into streaming, funds often remain in the hands of the same broadcast companies. “It’s not necessarily going from linear TV to broader digital, but primarily from linear to CTV,” he said. “A lot of those premium CTV publishers are also living within traditional media companies, like Peacock, Paramount Plus or Hulu, so a lot of it is staying in that traditional media company ecosystem.”
Clients are undoubtedly moving more money into digital for its sheer market pervasiveness as well, although that too may be easing up, according to Amy Ginsberg, chief investment officer, North America, for Havas Media Group. “For any upfront advertisers, you’re forced to put more money into digital,” she said. “There is this [feeling of] even if you wanted to spend more on linear, you couldn’t. But we’re seeing a slowdown, not in the move to digital, but in the growth in digital. It’s still growing, but not as fast as it was. That’s a function of clients not spending as much as they were the year before, and the spending is starting to slow for us a little bit too.”
Notably, while digital display/websites and social media were at the top of survey results as channels with client spending increases in 2022 and 2023, agencies also expected the channels to see decreases in both years. (Digiday posed separate questions about channel spending depending on whether survey respondents said overall budgets were increasing or decreasing.) Of the respondents who saw overall budget decreases, more than 60% said clients had decreased digital display/website spending in 2022 and would do so in 2023; and more than 50% said the same for social media spending.
Horizon Media’s Campanelli pointed out that digital channels are the quickest to invest in and to withdraw from during periods of financial instability. Additionally, because digital media investments don’t need to be made as far in advance as traditional channels, client budget increases and decreases aren’t necessarily fixed, even within the same calendar year.
“When short-term economic pain hits, digital is also the first thing that gets cut because it is much more flexible,” Campanelli said. “Typically, over the summer, short-term cuts happened in digital and social much more than they did in linear because we were locked into linear and those cuts have to be made 30 to 45 days out. It’s less of a consumption or a media decision and more of a budgetary decision about what we can cut short term.”
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Smarter, opinionated clients will make channel pivots more complex for agencies
Other factors like brand size, product type and client-specific KPIs also influence decisions about which media channels to spend in and affect the counsel agencies give clients, according to focus group participants. They expect individual client traits to play more of a role in spending recommendations should the U.S. enter a recession.
Assembly Global’s Davis said her agency may alter guidance in light of possible economic upheaval. “It’s really dependent on the client and where they are within their ecosystem of the vertical they’re in,” Davis said. “Whether they’re a challenger or a champion brand, there are so many dynamics that go into our recommendations. But from a macro-dynamic perspective and knowing what is likely to happen [with the economy], we’re definitely looking at clients to focus on digital and agile media types.”
Crossmedia’s Merrifield-Wehrle noted that brands are taking more of an active role and voicing opinions about which channels they feel would best suit their marketing goals. “Our clients are smarter than they’ve ever been,” she said. “They’re more knowledgeable about the platforms and they’re on a different level as far as pressure when it comes to performance media, especially as we head into a recession with less money from the consumer.”
“It used to be that they didn’t know the platforms and ignorance was bliss,” Merrifield-Wehrle added. “Now they know what those platforms utilize to generate ROI. … People don’t want to pull out of that upper funnel because they know they need to keep the branding conversation through a recession, but they have so much pressure to deliver on that lower funnel to keep their bottom line afloat. It’s definitely more of a challenging conversation than ever before, considering all of the nuances in the market, and how the different KPIs are — holistic versus line items.”
PHD’s Klein said agencies need to be flexible and adapt to client needs, especially around a possible recession. “[Spending] trends are also predicated upon individual client business objectives,” she said. “Clients are certainly being cautious. … What’s happening in the economy is different for different verticals, but our solution for that is nuanced.”
“And it depends on partner capabilities to deliver against our objectives, whether that is more performance-driven, or whether clients still have bigger moments and brand building they want to achieve,” Klein added. “What’s paramount for us is partners that have a diverse portfolio and capability set and then [having] the flexibility to pivot as our clients’ needs change.”
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Brands hit by supply chain and economic instability cut spending in 2022 — automotive, CPG, financial services
Marketers depend not only on agencies to meet their media investment needs, but also on consumer economic confidence and supply chain flow to create and meet demand for their products. When one or both of those things falters, brands’ media investments shift as well.
Perhaps predictably, the top client categories that decreased media spending thus far in 2022 were all industries either faced with supply chain disruptions or affected by recession and inflation worries — automotive, financial services/insurance, retailers and consumer packaged goods (CPG).
Automotive clients lead the other client categories in budget cuts, with 41% percent of agency respondents who said clients cut overall spending in 2022 saying automotive clients decreased spending this year. The auto industry is facing a bevy of problems, including a shortage of microchips thanks to supply chain issues, record-high vehicle prices and personnel dislocations, according to a study by J.D. Power. Add to that inflation fears, and it’s no wonder auto makers have pulled back spending.
In February 2022, when economic concerns became more pronounced, the top 10 automotive advertisers steeply cut spending on linear ad impressions in the U.S. compared to the previous month. Spending was down by nearly a fifth (16%), per data tracked by television insights and analytics firm Samba TV.
“Supply chain issues and increasing interest rates have dampened auto sales in the U.S., which has had a direct impact driving an overall decrease in automotive ad spend compared to this time one year ago,” said Dallas Lawrence, svp at Samba TV.
Crossmedia’s Merrifield-Wherle said automotive clients’ troubles are likely to continue for the foreseeable future. “Whether it’s supply, the economy, an EV versus a non-EV, autos is going to continue to have a challenge in 2023,” she said. “Even if they get the supply chain right, the economy is not right. They’re just getting slammed from all sides.”
The CPG and retailers categories also faced supply chain problems in 2022, which aren’t expected to end by 2023. Both categories also cut spending. Of the survey respondents who said clients cut overall spending this year, 22% said CPG clients dropped spending in 2022 and 26% reported the same of retailers.
Stacey Stewart, U.S. chief marketplace officer at UM, said keeping products on shelves is a very real concern for CPG clients. “Particularly in the packaged goods category, it’s been a huge challenge,” she said. “The increase in costs, just for raw package materials and fuel and all of that is impacting all of our clients’ abilities and [putting] a lot more pressure on our media spend to move the needle faster.”
Luxury retail is somewhat of an anomaly in the supply chain struggle. It is having trouble keeping goods in stock, but otherwise it’s doing well, according to Assembly Global’s Davis. That results in ad budget cuts, despite brands having the money to spend.
“It’s very interesting because they’re up greater than many of our clients,” Davis said. “But they’re actually in some cases pulling back because they can’t keep up with demand, and in some cases it’s the supply chain. They’re doing so well that they don’t need to spend, which is fascinating to me. So, I guess it’s a great place to be.”
Interestingly, survey respondents indicated the financial services/insurance industry was one of the top client categories with increased spending in 2022, while also being a top category for decreased spending in the same year, as seen in the chart above. Of respondents who said overall client spending increased this year, 46% said financial services/insurance client spending increased; and of respondents who said overall client spending decreased, 37% said financial services/insurance client spending decreased.
Because the financial services/insurance industry is closely affected by economic factors, including recession predictions, inflation and market volatility, spending decisions tend to be tied to economic trends, likely resulting in the wide range of agency responses.
Crossmedia’s Merrifield-Wehrle said financial clients, in particular, need to be nimble when it comes to media budgeting. “A lot of our financial clients lean into the market,” she said. “The market does well, they do well. The market does not do well, they do not do well. This is a category that has deep pockets but at the same time needs a tremendous amount of flexibility, because the leading indicator is the market.”
But while spending by financial services/insurance clients might be down in one quarter, it’s just as likely to bounce back the next. Assembly Global’s Davis said her agency is already advising financial clients to increase spending in 2023.
“Financial services is the one vertical that we have seen cut down going into Q4 because of the recession-based activity, and it’s one that we’re actually suggesting that they increase spend in the coming year because of the branding aspects and the competitive nature, as well as the disruptors in the market,” Davis said.
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Big spenders of 2023 are hard to predict thanks to lingering pandemic effects
Retailers, on the other hand, are consistently expected to spend more in 2023. Of survey respondents who expect clients to increase overall spending next year, 54% expect retailers to increase budgets, making retail the top client category for increased future spending. That is despite supply chain issues and a potential tightening of consumer purse strings should a recession take hold.
Novus’ DeJarnatt said consumers are still venturing back to stores at varied rates, giving retailers more opportunities to advertise and sell to them over time. “A lot of people are still trending back into a new normal,” DeJarnatt said. “There are still some growth trends available in driving in-person visitation to client storefronts. There’s a little bit of a positive hangover, if you have a physical brick-and-mortar location, to be captured.”
Financial services/insurance (51%) follows closely behind retailers for increased 2023 spending among survey respondents who expect overall budgets to increase next year. Direct-to-consumer/e-commerce (46%) and entertainment (including movies, TV, streaming at 44%) round out the top categories.
Crossmedia’s Merrifield-Wehrle said it’s hard to predict entertainment spending for 2023. Movie theaters are still struggling, with AMC on the verge of bankruptcy in late 2020 and British multiplex chain Cineworld filing for U.S. bankruptcy in September 2022. Meanwhile, streaming services, which consumers increasingly turned to during pandemic lockdowns, are thriving, though streaming services may experience temporary subscription cuts as consumers tighten spending habits in preparation for a recession.
“I don’t see entertainment up as much, as they’re being more cautious because the theater business is just hanging on by a thread,” Merrifield-Wehrle said. “It’s the streaming business as far as entertainment [goes] and again, it’s a nuanced entertainment conversation.”
When it came to spending expectations for other client categories, particularly those affected — positively or negatively — by the pandemic, focus group participants parted ways with agency survey respondents.
Although not selected by survey respondents as a leading client category for future spending increases, Crossmedia’s Merrifield-Wehrle said she expects pharmaceutical clients will consistently buy media in 2023. “It’s an area that has big, deep pockets, announcing new rounds of vaccinations — whether it’s old timers, new discoveries, [products] they’re trying to get the word out for,” she said. “People are still very conscious of Covid. If there’s another round of vaccinations, they’re ready and have the deep pockets to [spend].”
Similarly, Assembly Global’s Davis believes the quick service restaurant (QSR) category will increase spending in 2023, despite restaurants being one of the lowest expected category increases according to survey respondents (17%). “For QSRs, we’ve definitely seen restaurants’ spend go up, versus where we were in the pandemic,” she said. “We will continue to see that trend because there is a need and the performance has been good. People have been wanting to get back and have a normal life.” That parallels the appeal of the “return to normal” feeling brick-and-mortar stores offer, as noted by Novus’ DeJarnatt above.
But, Davis said she expects QSR spending to be distributed in varied channels going forward. “How [restaurants] spend is very different from how they used to spend,” Davis added. “Covid forced some transformation for our clients both in retail and in the QSR space — lots of apps were created and leveraged — so the way we’re advertising and where we’re driving people is very different from where we were pre-pandemic.”
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Programmatic buying makes gains on direct as even traditional channels are automated
While clients have recently had to adjust spending habits based on pandemic and supply chain considerations, programmatic media buying has also received increased client investments of late, likely due in part to recession concerns. 43% of agency respondents said clients have mostly increased programmatic media buying in 2022, while direct media buying has either remained the same (38%) or decreased (35%).
Because programmatic media buying typically increases during a recession, a client shift in spending toward programmatic may indicate underlying concerns about the economy. That’s despite overall survey findings that showed a certain cautious optimism toward the future, with two-thirds of agency respondents saying clients either increased their total media budgets (34%) or kept them the same (31%) in 2022.
When asked specifically how a recession would impact client spending on programmatic media buying, about 35% of respondents said clients would spend somewhat more than usual on programmatic media buying if the U.S. enters a recession, and 23% said they would spend as usual. 33% said they would somewhat cut programmatic media buying altogether.
Another possibility is that the 2022 increase in programmatic media buying may simply underscore the larger shift to digital spending mentioned earlier in this report. In 2022, more than 90% of all digital display ad dollars will transact programmatically, according to Insider Intelligence and eMarketer. And, as Crossmedia’s Merrifield-Wehrle noted during our focus group conversation, whether advertising is done through linear or digital media, programmatic is all-pervasive, as even traditional channels are becoming automated.
“Automation is really the conversation … because even our traditional guys are getting more automated,” Merrifield-Wherle said. “We’ve seen now at The Trade Desk and Disney, they are going full [steam] ahead with automating even their linear sector. … At the end of the day, we will be talking about automation, and how to get ROI and performance media faster and more reliable and more predictable as we move forward.”
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Agencies and clients are curious but cautious about Web3 investments
Speaking of digital, when it comes to Web3 technologies, agencies and their clients are the most eager to invest in the building blocks of the metaverse, including gaming and augmented and virtual environments. 68% of agency respondents currently offer metaverse planning and buying services and 70% plan to offer them in 2023.
The metaverse is defined as a “successor state” to the modern internet that will allow users — and marketers — to generate and own content and assets. These can be distributed freely across the touchpoints and platforms that will compose a widely accessible and connected digital world. Many of the nodes composing this digital world will be virtual — or at least that’s the current plan.
The pandemic fueled brand interest in the already burgeoning augmented reality (AR) market, particularly for virtual try-on technology, when shoppers couldn’t visit stores in person. In 2022, virtual try-on (55%) and real-world overlay (54%) were the second and third most popular marketer uses of AR, according to Digiday’s recent research report, “Ahead of a functional metaverse: How brands and retailers are actually using AR and VR.” (The top use was social media filters/camera apps.)
Mediahub’s Watts noticed more client interest in AR when brick-and-mortar stores were forced to temporarily close. “A few of our retail clients leaned harder into AR technology when stores were shuttered and nobody could go in, but they were still launching new products,” Watts said. “It was a really good way to show the product to the consumers and make it feel like a more real experience by showing it on their bodies, whether it was sneakers, makeup. That’s where we saw AR really have a slight uptick for us.”
Executives who participated in Digiday’s focus group said clients have expressed interest in learning about Web3 ad placements, but most marketers are biding their time before investing in the technologies. That’s because widespread consumer adoption of AR and VR hasn’t caught on yet and the technologies still face obstacles like headset cost and lack of technological advancement.
“There’s a lot of curiosity on behalf of our clients, but they’re really looking for the utility of it,” said Novus’ DeJarnatt. “[They’re asking] ‘Is it this nascent, cool thing? … Some big experimental brands are doing it. Should we be doing it?’”
“We’re getting a lot [of questions about] whether the cost benefit analysis is there yet and whether the operations are there to make it easy,” he added. “[Clients are asking] ‘Do I have to invest in a very expensive specialized team to make this work?’ There’s a lot of curiosity, but there’s also a lot of let’s wait and see how this manifests.”
In Digigday’s recent research report series on emerging technologies, marketer respondents who are not currently using AR and VR cited lack of business relevance as the biggest reason not to invest in AR (60%) and VR (62%).
For those that do invest in metaverse-adjacent environments, placements are still mainly used to create buzz around products and engage audiences, rather than directly affect product sales.
Digiday focus group executives noted that larger brands that don’t require a positive financial outcome can afford to invest in the metaverse frontier, but brands with smaller budgets may be wise to shy away for now.
Assembly Global’s Davis said she wouldn’t recommend metaverse placements for mainstream clients, but rather those targeting younger audiences, in particular gamers. “[Those audiences] are very interested in what’s going to happen with the metaverse,” she said. “If you’re going after the younger audience, we are finding that having a partnership with Roblox and creating a gamified experience in the metaverse is a huge brand moment for some of our clients as it relates to their audience, getting brand recognition and some loyalty or engagement.”
While agencies and some clients are cautiously experimenting within AR and VR environments, another Web3 technology, blockchain (including NFTs), has had significantly less agency and client activity. Only 28% of agency respondents currently offer blockchain planning and buying services, and only 20% plan to in 2023.
A main obstacle to implementation is that blockchain, a technology that securely logs transactions between buyers and sellers, doesn’t really offer an environment to “buy” within. NFTs offer more possibilities for brands because they, like gaming ad placements, can be used to generate consumer loyalty and engagement, and to target younger generations. But NFTs themselves, don’t offer a buying environment per se either.
However, some brands like Time are developing successful blockchain businesses. The publisher sold more than 20,000 individual NFTs netting a profit exceeding $10 million as of April 2022, according to Time’s president Keith Grossman. And NFTs have not been the only source of blockchain-related revenue for Time. Two advertisers, both of which are cryptocurrency investment firms, have paid in crypto since the option was first offered in April 2021. The combined total was equivalent to more than $1 million.
In June 2022, Outback, the Australian-themed steakhouse, released its first collection of NFTs, called “Bloomin’ Buds.” The original plan was to sell the NFTs, according to Outback CMO Danielle Vonabut, but the company decided to give them away and add “some value” to reward NFT holders if they visited an Outback location in an effort to reach younger diners.
While blockchain and metaverse technologies are still finding their footing, media agency executives agreed that agencies should prepare now for what could be important Web3 channels a decade from now. That includes educating clients about the technologies. Over the summer, Horizon Media launched a new unit dedicated to all things Web3, called Chapter & Verse, which aims to take a measured approach to teaching and connecting clients with Web3 technologies before activating executions for them.
Novus’ DeJarnatt likens emerging Web3 technologies to the burgeoning computer industry in the late 80s and early 90s. “You have to guide people into the future,” he said. “Certainly, the infrastructure outside of advertising is starting to be built, but it’s not there. The short-term versus long-term gain is that classic emerging tech challenge.”
“Our biggest challenge with clients is what they should be doing now,” he added. “Maybe it doesn’t drive sales today, but they need to invest, to get some level of capability for the future, even if it’s rudimentary, versus the clients who really want to play the long game. And they’re in it for the buzz now, so they can build the skills, so in 10 years they’re at the top of the heap in Web3.”
Crossmedia’s Merrifield-Wehrle urged caution when selecting business partnerships in the emerging landscape. “I think the jury’s out on the considered adoption,” she said. “What companies back [Web3 technologies] is also the conversation. Are the companies that we trust today the ones we will be trusting in 20 years?”
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Agencies add and educate staff in commerce and data practices to meet client needs
Although Web3 technologies are mainly being discussed at a conceptual level by agencies and brands, agencies have been more concretely building out other practice areas where there is a more immediate need for planning and buying services, such as e-commerce, streaming video/CTV and retail media.
Of the five practice areas Digiday asked about in its survey — e-commerce, streaming video/CTV, Web3, retail media and AI/machine learning — agencies saw the most potential in e-commerce, with 29% of survey respondents adding staff to that discipline in 2022.
Omnicom Group, for example, made its interest in e-commerce abundantly clear last summer at the Cannes Lions award festival in France, where it announced a series of e-commerce investments, including: a partnership between Omnicom Media Group (OMG) and Walmart Connect in which Omnicom agencies can execute cross-screen planning against Walmart audiences; a partnership with Amazon to share aggregated insights, tools and levels of talent training; and a strategic collaboration with Kroger Precision Marketing in which Kroger sends its stock-on-shelf data sets on a daily basis to Omni, Omnicom’s marketing orchestration platform that underpins all Omnicom agencies.
Following e-commerce, agencies said their next most significant practice areas in which to add staff expertise were streaming video/CTV and retail media. Those disciplines were nearly equally important, with 24% and 23% of respondents, respectively, adding staff in those areas in 2022. Streaming video/CTV was also the third most-popular media channel for client spending in 2022 and 2023, as noted earlier, making it logical that agencies would add staff to meet rising demand for buying and planning in that area.
Surprisingly, although retailers are building out more ad platforms to compete with the likes of Amazon, the retail media category, which includes websites, apps and digital displays, lacks specifically trained staff. 28% of agency respondents said they don’t currently have retail media expertise, although, as just mentioned, it is the third-most important area in which they plan to add staff in the future.
And the digital retail media market is growing fast, making it a prime practice in which to make investments to gain expertise. U.S. digital retail media ad spend is expected to reach $51.36 billion by the end of 2023 up from $40.81 billion in 2022, according to Insider Intelligence and eMarketer,
Lack of staff expertise was the highest for Web3 technologies. More than half of agency respondents said they don’t have Web3 expertise, indicating it is still very much a theoretical environment in which to plan and buy media. Artificial intelligence/machine learning, which has encountered its own roadblocks to media agency implementation, also lacks current staff, with 40% of agency respondents saying they don’t have the expertise.
While agencies increased staff in some disciplines, overall, the majority of agency respondents kept staff size the same in the five practice areas covered in Digiday’s survey. Less than 1.5% of agencies made cuts in any given area. Therefore, it seems that agencies are in the same holding pattern when it comes to staffing as their clients are with spending – both closely watching any signals for next year’s market before they make a definitive move.
Indeed, Digiday’s executive focus group participants said rather than adding new employees, they’re teaching existing staff fresh skills in targeted areas, like automation and programmatic buying. And with 43% of agency respondents saying client spending on programmatic media buying has increased in 2022, agencies are likely feeling the need for increased proficiency in that arena.
“We’re in the process of training more of our current staff to stretch, especially into those automated areas,” said Crossmedia’s Merrifield-Wehrle. “Potentially search and social require more specific expertise, but for programmatic buying we’re stretching people.”
PHD’s Klein agreed that newer practice areas require progressive training. “In the video space too, there’s an aspect of workforce and business transformation,” she said. “You don’t want to lose the skill set and the knowledge of the video space, but you have to evolve it a bit.”
Assembly Global’s Davis added that continued education can introduce new ways of thinking about business. “It’s not about stretching our people as much as it is transforming to what’s next,” Davis said. “It’s good for [employees’] careers as well. We’re talking a lot about programmatic automation, but it’s the same thing with search. The amount of automation that is happening, and with Google pushing Performance Max, we’re really looking to transform our people and how they’re looking at media.”
With third-party cookie depreciation looming and increasing privacy regulations being put in place, Davis and other agency executives also said they’re adding data privacy leadership positions, either at the holding company or individual agency level. That tracks with survey results in which 35% of respondents said their agency had developed, partnered with or acquired a data collection firm in 2022.
Davis said the biggest area of staff investment for Assembly Global is a consultancy group devoted to data infrastructure and measurement. “It is really key, particularly when you’re thinking of what’s on the horizon tied to privacy and the cookieless world,” she said. “It’s very clear that we have to look for ways of building our own solutions based on our clients’ data directly. That’s a big growth area for us.”
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Conclusion
With an uncertain economic future and many marketers still experiencing supply chain issues and lingering pandemic after-effects, 2023 spending trends are hard to predict, even for the most experienced agency leaders. Added to that, the economy can shift rapidly and signs that currently point to a recession could reverse without much warning.
Overall, agency survey respondents believe the future is bright and client spending will increase, albeit at a conservative 10-19% rate, going into the new year. But focus group participants struggled to embrace such a rosy outlook, instead reminding readers that many marketers, particularly auto makers and CPG brands, are facing real product acquisition concerns.
“We still have clients with significant supply chain issues,” said Havas Media Group’s Ginsberg. “Obviously, they’re not going to want to spend money and advertise if there are no products to be had on the shelf.”
With the added threats of inflation and possible recession affecting other client categories, especially financial services/insurance, flat client spending or slightly up is a good enough goal for many in 2023. “With the looming recession, [clients] have the danger of overcorrecting and being overly conservative on marketing budgets, which can make them not realize some potential,” said Novus’ DeJarnatt. “But, the 2022 perspective holds true for 2023, which is flat to a marginal increase is probably the right amount.”
A recurring theme within Digiday’s executive discussion was that, whether due to supply chain issues or a full-blown recession, agencies and clients will need to be agile with spending plans and willing to pull back budgets or shift dollars within different media channels in 2023. “We hope to get products back on shelves, but if not, we need the flexibility to be able to move [spending] around,” said Havas Media Group’s Ginsberg. “Hopefully, that goes away over the next year or so, but it’s still very much real for us.”
Thanks in part to the ability to readily move spending in and out of digital channels during times of change, digital display/websites and social media are expected to continue being the top channels clients devote dollars to in 2023. Agencies themselves also see immediate potential in other digital practice areas like e-commerce, streaming video/CTV and retail media, adding staff to those practices at nearly equal percentage rates in 2022.
Adaptability within media plans has been key for 2022 and will continue to be going into 2023. That’s especially important as upcoming election cycles and the 2024 Olympic Games vie for spending dollars, in addition to a mix of other unknown economic and supply chain outcomes, according to industry executives.
“That need for flexibility is going to go into 2023,” said UM’s Stewart. “Where we end up at the end of 2023 may be very different from where we start out 2023. There’s going to be a bit of conservative [spending] going in and that need for flexibility and agility is going to be there.”
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Key Takeaways
Here are some key takeaways from Digiday’s Annual Report on the state and future of the media agency in 2022:
- Agencies said clients were nearly equally divided on whether they increased, decreased or kept budgets the same in 2022, with about one-third of agencies selecting each category. (Results trended slightly toward optimism, with 34% of agencies saying clients increased budgets and 31% saying budgets remained the same.)
- Nearly half (49%) of agencies said they expect client budgets to increase in 2023. Of those that expect increases, 44% expect the increases to be a conservative 10-19%.
- Client spending on programmatic media buying increased in 2022, according to 43% of agencies, while direct media buying either remained the same (38%) or decreased (35%). The shift toward programmatic may indicate underlying economic concerns, as programmatic spending typically increases during recessions.
- Digital display/websites and social media were the top media channels for spending increases in 2022. Digital channels offer flexibility during economic changes because funds can be funneled into or out of them more rapidly than traditional channels.
- Agencies are staffing up e-commerce, retail media and data practices as they anticipate continued digital spending and deprecation of the third-party cookie.
- Agencies are cautiously experimenting with Web3 technologies like augmented and virtual reality, placing ads within gaming environments to drive product awareness.
- Supply chain issues remain a significant concern for some client categories, particularly automotive, CPG and retail. More than 27% of agencies that expect decreased client spending in 2023 expect all three categories to cut spending next year.
- Clients are still feeling pandemic-related business effects, both positive and negative. Retailers and restaurants are slowly rebounding, with consumers returning at varying rates. Pharmaceutical clients are expected to be consistent spenders in 2023 as updated vaccines are rolled out.
- Flexibility to adjust budgets and media channel placements dependent on the economy, the supply chain and wild-cards like elections and Olympic Games will be key in 2023.
