Power

US internet advertising is forecast to contract more than 3% this year

Video advertising will be flat, while subscription video will see massive growth, predicts PwC.

US internet advertising is forecast to contract more than 3% this year

Ad spending has become a bit of a wild card ever since the beginning of the pandemic.

Chart: Janko Roettgers and Datawrapper

The total amount of internet advertising revenue in the U.S. is expected to decline by 3.4% year-over-year in 2020, PwC is predicting in the latest edition of its Global Entertainment & Media Outlook. That's a massive decline when compared to last year, which saw ad dollars in the U.S. grow by nearly 16% year-over-year.

PwC is expecting the online ad market to return to growth in 2021, and ultimately arrive at a compound annual growth rate of 4% for the five years spanning from 2019 to 2024. The U.S. ad market will be hit harder than overseas markets, with PwC predicting that global 2020 online ad spending will be down around 2.5% year-over-year.

Ad spending has become a bit of a wild card ever since the beginning of the pandemic, with industries like hospitality, travel and theaters hit hard, while online shopping has done comparably well. As a result, many companies withdrew their guidance for this year. PwC Principal CJ Bangah told Protocol that the company usually releases its annual Entertainment & Media Outlook report in June, but that it decided to delay the publication this year to better account for the impact of the crisis.

"Advertising is extremely susceptible to the economic performance," Bangah said. "It also recovers very quickly."

As in previous years, PwC is predicting the move from desktop to mobile advertising to continue. And while mobile hasn't been immune to the decline of ad spending, video advertising actually seems to be the least affected, effectively staying flat year-over-year in 2020.

However, our collective pandemic binging didn't help ad-supported video services nearly as much as it did for the Netflixes of this world, with online video subscription revenue expected to grow 30% in the U.S. this year. Video subscription services' revenue will continue to increase with a compound annual growth rate of 12.65% until 2024, while video advertising revenue will only see a growth rate of 6%, according to PwC.

Bangah attributed some of that to changing consumer expectations, with especially younger viewers preferring ad-free environments over those with high ad loads. "They want fewer ads," she said.

Ultimately, the current environment requires tech and entertainment executives to remain vigilant and flexible, Bangah argued. "Consumer habits can take a lifetime to form," she said. In a crisis like this one, consumers may ditch them overnight.

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