- The US digital ad market will surpass $300 billion by 2025, making up more than three-quarters of all media spending.
- Why are people gravitating toward ad-supported video services?
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These are boom times for digital advertising. The US digital ad market will surpass $300 billion by 2025, making up more than three-quarters of all media spending. While the pandemic decimated the economy, the job market, and consumer confidence, it seems to have done little to quash a bonanza in digital ad spending.
US Digital Ads Market in 2022
US digital ad spending will grow by nearly 50% in the next four years. By 2025, the digital ad market will top $300 billion—more than three-quarters of all media spending. Digital has eclipsed all other forms of advertising, but it has also outperformed our expectations several times in recent years.
Even the hardest hit industries, travel and auto, have rebounded. Those segments were the only ones to shrink in 2020 as much of the country shut down, but this year, they’ll be back in positive territory and stay there through at least 2023—albeit with travel not expected to return to pre-pandemic levels by 2023. Other location-sensitive sectors like entertainment and retail grew faster in 2021 than they did in 2020. This indicates they’ve mostly left the pandemic behind, despite lingering uncertainties over public health and disruptions to ad spending from changes in Apple’s privacy settings and supply chain issues.
In 2024, US digital advertisers will spend an extra $64.69 billion over our pre-pandemic forecast for that year. After lowering our estimates in mid-2020 in response to the pandemic, each time we updated our forecast, we raised it to incrementally higher levels. In 2025, digital ad spending will represent 77.5% of total media spending, up from 69.4% in 2021. This shift is partly the result of digital transformation across media, but it also reflects a vibrant, resilient ad market for buyers and sellers.
We predict that upper-funnel ads will drive digital ad spending gains. Although search remains a larger contributor to ad spending than video, the latter is where the budgets are shifting. This is true across a range of platforms and publishers, including CTV services, retailers, and even social networks, where video ads sit higher in the purchase funnel than other formats.
Programmatic display ads will dominate the US ad market
Programmatic makes up a large and growing share of display ad spending. In 2019, more than 86% of US display ad spending was transacted programmatically, and that percentage will exceed 91% in 2023. The dollar volume of programmatic display will more than double in that time, from just more than $61 billion to nearly $142 billion.
Walled gardens will drive gains in CTV, social platforms, and retail media networks. Ads within the triopoly—Google, Facebook, and Amazon—are programmatic by default, and their share of total US display ad spending is growing compared with non-triopoly publishers. This is happening largely because these tech giants dominate the spaces where digital ad budgets are going, such as CTV, social, and ecommerce.
Buyers are getting more comfortable with programmatic CTV. As CTV platforms improve fraud detection and raise the quality of their programmatic inventory, the programmatic share of CTV ad spending will grow dramatically. In 2023, more than 78% of US CTV video ad spending will be transacted programmatically, compared with less than 70% in 2021. That said, the programmatic guaranteed deals that dominate CTV environments don’t offer the same degree of addressability and measurability that some advertisers are used to in other programmatic display channels.
We predict CTV platforms will improve targeting and measurement capabilities in their programmatic channels. Advances in cross-channel identity and measurement, as well as improvements in technologies used to determine who within a household is watching a CTV at any given time, will drive growth in programmatic CTV ad spending.
AVOD services will grow in 2022
Time spent on AVOD (advertising-based video on demand) services grew dramatically in 2021. TVision reported that from May 2020 to May 2021, US time spent watching AVOD increased 200%. While the AVOD increase happened from a relatively small base, it compared with a 100% increase in time spent watching subscription VOD (SVOD) and a 13% decrease in TV time spent. It should be noted that TVision’s definition of AVOD includes YouTube and Twitch.
Despite their popularity, SVODs might be straining consumers’ wallets. A June 2021 Hub Research study found that more TV viewers surveyed preferred a free-with-ads model than an ad-free subscription model. And a study by Morning Consult and Adweek found that more respondents were interested in an ad-supported option for a lower price than an ad-free option for a higher price.
AVODs come in different flavors and sizes. They include free channels from CTV devices and smart-TV-makers like Amazon TV, Roku, and Samsung, and standalone services like Tubi and Pluto TV, owned by Fox and ViacomCBS, respectively. In addition, several services offer hybrid plans that range from low-priced ad supported tiers to more expensive ad-free levels. These include HBO Max, Hulu, Paramount+, Discovery+, and Peacock.
We predict that the AVOD market will expand with at least one new player in 2022. Demand for SVOD services is slowing down, according to Kantar, and this will likely lead to consolidation. Yet trends in the AVOD space continue to point to growing usage, increased time spent, and healthy demand.