Ad spend decline for TV, radio highlights need for digital growth

TLDR version: Slower economic growth is eroding ad revenues for traditional media, along with one-off factors like the end of Government COVID advertising. In the background, technology change is also eroding traditional revenue.  This highlights the need for traditional media to accelerate its transition to digital – especially radio.

Advertising spend in decline for TV, radio

SMI yesterday published its agency ad spend figures for March 2023, highlighting the pressure on TV and radio ad revenues.

TV revenues were down 9.5% overall YoY for the month of March, but down 7.6% if Government spend was taken out. To underline this, Seven West Media stated at the 2023 Macquarie Conference this week that Total TV ad revenues for 3Q23 were down around 11% YoY, and that similar result was expected for Q4.

However, the difference between broadcast and digital TV was stark, falling 9.4% and rising 20.8% respectively. Part of the reason is eyeballs shifting from broadcast to Internet connections, but we’ve also pointed to higher yields in digital media that offer better long-term prospects to the TV industry.

Radio was similar in many ways, but importantly different too. Its broadcast decline was a whopping 14.0%, but only down 3.5% if Government spending was taken out – cold comfort. But the figures for digital were -0.2% and 3.9% respectively. Once again this suggests that digital is doing much better, and for much the same reasons as for television. Both industries need more digital revenue.

But one important difference between the two industries is the level of digital maturity. We estimate that in CY22 the digital share of TV industry revenue was around 12%. In contrast, the digital share of radio industry revenue was only around 3%. TV is way ahead of radio in its digital transition.

Why does this matter?

Radio did not enjoy the COVID boom that TV did. In fact, it has not recovered pre-COVID revenue levels. Despite this, we think that radio has big digital opportunities ahead of it. Takeup of its online apps has been growing fast, and we are seeing successful radio industry podcasts that are attracting significant audiences.

But the path forward for radio is less clear than for TV. Audio is a more diverse market with lower barriers to entry for content creators. The result is a less predictable market with a higher premium on creativity and innovation, and one where monetisation strategies are more complex.

There are now signs of a clear industry-level strategy to accelerate digital ad growth. The recent collaboration between IAB Australia and Commercial Radio & Audio (CRA, formerly Commercial Radio Australia) to quantify the market for audio advertising Australia has provided the radio industry with a clear yardstick for success.

This has been accompanied by CRA’s partnership with Nielsen to offer a free Audio Planning Tool which measures the incremental reach of commercial radio, radio streaming, podcasting and on demand music. This is designed to help the ad agencies to a promote the effectiveness of buying both radio and audio. Behind these scenes, the revamped CRA is working with the ad industry to develop business practice and technology knowledge to expand digital advertising opportunities. And not a moment too late. There is some catching up to do.