Soaring demand for mobile devices, social media and online video has created new challenges for advertisers and the industries that depend on them. Advertisers have been forced to embrace new technologies and follow consumers to smartphones, tablets, Facebook and YouTube. Meanwhile, print publishers and television broadcasters are reshaping their businesses to tap into lucrative online and mobile advertising streams or reduce their reliance on volatile and cyclical advertising spend.
WPP (WPP) has stayed ahead of the pack by investing in budding technologies, industries and territories. The home of Kantar and GroupM expects to earn up to 45 per cent of revenues from digital offerings and emerging markets over the next five years. Moreover, it has acquired stakes in AppNexus to strengthen its presence in real-time online advertising exchanges and Rentrak to improve its measurement of digital audiences. The strategy fuelled an 11 per cent rise in underlying sales in its advertising division in the first quarter of 2015.
Storied ad agency M&C Saatchi (SAA) has also focused on overseas expansion. It has established joint ventures in China and India and acquired stakes in agencies in Israel, New York and Sao Paulo. And it continues to roll out services such as mobile, public relations and customer relationship management to its overseas offices.
Online advertising pioneer Google (US: GOOG) has struggled to navigate the shift from desktop to mobile. But that could change with its upcoming 'Now on Tap' feature, which allows users to search their Android smartphones for anything from text messages to Instagram photos to Yelp reviews. Industry shifts have also hit Marimedia (MARI); the Israeli advertising software group has ceased investing in its main display advertising business to focus entirely on mobile. It also plans to launch a platform that will not only let advertisers track and target users across all media and devices, but use data analytics and machine learning to secure the best price for publishers and the highest return for advertisers.
Similarly, Blinkx (BLNX) hopes to capture a greater share of every advertising dollar by launching a 'real-time bidding' platform. That will allow marketers and publishers to buy and sell ads in live auctions that occur in the seconds it takes for a webpage to load. The video advertising specialist strengthened its technology by acquiring Lyfe Mobile, which can tailor ads based on the viewer's location and the local weather. It has also licensed verification technology and partnered with Nielsen to crack down on automated web traffic or 'bots' - one of the major criticisms of the group.
Crossrider (CROS), meanwhile, uses 'big data' to enable marketers, publishers and ad networks to conduct targeted ad campaigns efficiently and cost effectively. Its mobile media platform, Ajillion, and its mobile ad network, DefinitiMedia, are attracting advertisers and publishers in droves. Digital communications group Next Fifteen Communications (NFC), whose clients include Twitter and Time Warner Cable, has also bought into the automated ad-trading trend by acquiring Encore, a programmatic advertising specialist. Similarly, social, video and interactive marketing group Matomy Media (MTMY), which recently partnered with French media giant Publicis, bought real-time bidding group MobFox in October.
Advertisers have faced a mixed market backdrop. Advertising and PR group Mission Marketing (TMMG) has suffered from tepid media spending by its property clients. In contrast, healthcare and consumer marketing specialist Cello (CLL) - whose clients include Pfizer and Shire - has benefited from improved advertising spending among large US pharmaceutical companies. Its signal division, which provides digital and tech-based marketing services, is gaining ground thanks to Pulsar, its social media analytics solution.
Marquee events can be a big boon. Sports marketer Chime Communications (CHW) delivered 29 projects during the FIFA World Cup, which helped boost average fee per client by 12 per cent to £111,000 last year. And it looks well-placed to prosper during this year's Rugby World Cup, where it will handle Land Rover's sponsorships and manage 82 players.
Television companies are keen to diversify away from unpredictable and cyclical advertising revenues. For example, ITV (ITV) expects net advertising revenue to fall at least 5 per cent in May and June compared with its outstanding World Cup performance. But the launch of its first pay-TV channel, improvements to ITV Player and soaring video consumption fuelled a 31 per cent rise in first-quarter online, pay and interactive revenue. Indeed, non-advertising revenue rose 13 per cent to £319m, or 48 per cent of external turnover. ITV is also driving growth in its production business by acquiring businesses such as The Voice producer Talpa Media.
Scottish broadcaster STV (STVG) hasn't shunned advertising revenues entirely: new TV channels focused on Glasgow and Edinburgh attracted more than 100 new advertisers last year. However, its fledgling production business is winning work with ITV and BBC. Meanwhile, Irish broadcaster UTV (UTV) reaped the rewards of talkSPORT's comprehensive coverage of the FIFA World Cup. The radio station's predominantly young, male audience remains a hit with advertisers.
Newspaper and magazine publishers have reshaped their businesses to combat declining print advertising revenues and online competition. Daily Mail & General Trust (DMGT) is driving good growth in MailOnline, its immensely popular news website, and recently bolstered its digital offerings by acquiring online news and entertainment group Elite Daily. But continued declines in print advertising meant underlying ad sales in its media segment fell 5 per cent in the seven weeks to 17 May.
Trinity Mirror (TNI) implemented a 'digital first' editorial structure to drive traffic to its desktop and mobile websites. But strong digital growth in the four months to April failed to offset a 14 per cent slump in underlying print advertising revenues at the Daily Mirror publisher. Similarly, regional newspaper publisher Johnston Press (JPR) has fuelled digital growth by improving its property, motoring and recruitment websites, but print weakness meant total ad revenues slid 4 per cent in the first eight weeks of 2015. But a new deal with Sky could lure advertisers; they can now target ad campaigns using the pay-TV giant's extensive household data.
Dual-listed Irish publisher Independent News & Media (INM) redesigned its independent.ie website to include video and photo galleries and social media integration. The resulting surge in digital ad sales offset a 2 per cent dip in newspaper ad revenue in 2014. Meanwhile, digital gains helped Marketing Week publisher Centaur Media (CAU) grow total ad revenue by 2 per cent in the four months to end-April, compared with a 9 per cent decline in 2014.
Online property portal Rightmove (RMV) has consistently performed. The group's advertising base grew by 5 per cent to about 19,300 in 2014, and strong customer demand for additional advertising products and packages drove average revenue per advertiser up 13 per cent to £684 a month. Offering premium products also enabled rival Zoopla (ZPLA) to increase average revenue per agent by 13 per cent to £340. But a good chunk of its agency members have decamped to Agents' Mutual-owned OnTheMarket.com, shrinking the group's total member base by 16 per cent.
Favourites:
InternetQ (INTQ) offers both mobile marketing and a digital music service. It has minimised competition by focusing on fast-growing, less competitive markets such as south-east Asia and Latin America. The strategy drove combined sales of Minimob and Akazoo up 11 per cent in the first quarter. Digital marketer XLMedia (XLM) funnels players to 888, Ladbrokes and other gambling websites in return for a cut of the operators' winnings. It has accelerated growth through acquisitions; it recently bought a US social marketer, a UK sports betting website and a Scandinavian website network.
Outsiders:
Investment bankers have cut back on running ads in Euromoney Institutional Investor's (ERM) eponymous publications since the financial crisis. Although the group's new Delphi content platform and other digital offerings look promising, headwinds remain in its primary end-market. And Digital Globe Services (DGS), which uses paid search, call centres, email and social media campaigns to drive customers to clients such as Comcast, Charter and Time Warner Cable, is enduring significant disruption due to merger activity in the US cable industry.
IC VIEW:
Advertising is infamously unpredictable, but we see clear opportunities to profit from the sector. Investors should favour innovative companies that are embracing mobile, online video and real-time bidding. Dominant, diversified businesses such as WPP, Google and ITV may be safer bets. We also see considerable value in the depressed shares of publishers that are making strong digital progress, such as Trinity Mirror and Independent News & Media.
