Traditional advertising took the biggest hit in the pandemic, further accelerating the shift to digital. It will likely be 2023 before we see a return to normalcy in advertising, Siddharth Gopalkrishnan, partner at McKinsey & Company, told INMA members in a Webinar on Thursday.

Gopalkrishnan and Nikhil Vyas, associate partner, shared some of the major global trends McKinsey has identified:

• 11% CAGR increase in digital ad spend globally over the past five years, expected to grow at 8% CAGR over the next five years.
• 37% CAGR  increase in digital video ad spend globally between 2014 and 2019, expected to grow at 11% CAGR over the next five years.
• 10.3% CAGR projected growth rate of mobile ad spend in 2019-2024, which is less than the 34.7% CAGR seen in 2014-2019. This indicates that the transition from desktop to mobile will be slower.
• 20% CAGR increase in digital subscriptions in 2020, fuelled by the COVID-19 pandemic. By late 2021, that growth is expected to fall to single digits as the subscription market normalises.

In addition, there are also several key trends within India:

• An expected increase to 44% spend in digital advertising (out of all advertising) in 2022 — up from the current 33%.
• The average Indian is expected to spend an average of 338 minutes on overall media exposure daily in 2022.
• 100 of those minutes will be spent on digital media.

Overall, media consumption is mostly up, accelerated by the crisis. And the key question is: Where will it land when the lockdown recedes?

“Some of the new behaviours we are seeing that weren’t actually visible earlier is a lot more around livestreaming, video game usage, and consumer time spent on entertainment at home.”

In putting together its biannual Global Media Report, McKinsey found that online video and gaming are two trends that are here to stay and present big opportunities. The challenge for media companies is to figure out how to implement them into their audience strategies.

Digital advertising continues to grow

Digital advertising is expected to grow even further as media consumers spend more time online and online advertising offers sharper targeting and attribution tools than traditional media.

“Advertisers are looking for a lot more targeted nature of advertising, marketing, and also a lot more lead and response-based spend because money has come to a premium,” he said. “Their pockets are shrinking, therefore attribution has gone up quite significantly.

This is skewed by the rapid shift to mobile, which has fuelled the rise of ad spend on social and video formats. In McKinsey’s perspective:

• Search will remain the dominant format. But the spend is expected to move from search engines like Google to vertical specialists — for example, Amazon for commerce, Zomato for food, and CarDekho for auto.
• Video is expected to be the fastest-growing sector, mainly thanks to the rise of snackable content and short video platforms.
• Social will close the gap to search further thanks to its unique fit to mobile devices and attractiveness amongst younger demographics.
• Display will migrate further to dynamic creatives and performance-driven spend, but its dependence on desktop traffic will limit its growth potential.

“Most advertisers have become very clear on what they want,” Gopalkrishnan said. “They see these platforms as routes to a sharper customer segment tool and targeting, and also these platforms are far more innovative in terms of their propositions to advertisers in terms of their cost-per-click. That trend is here to stay, I think it is something for news publishing houses to compete with.”

Indian consumers are spending more time with digital media, driving the shift in advertising spend from traditional media to digital.           

“One of the trends we are seeing very clearly is the use of branded content,” Gopalkrishnan said. “While a lot of advertisers continue to use mass media for awareness, the importance that branded content has gained as part of the marketing budget has risen quite extensively.”

He attributed this to the fact that branded content is more contextual, provides tools for sharp audience targeting, and offers first-party data collection.

The response of global media houses to these trends

Gopalkrishnan shared three big shifts McKinsey has identified that media organisations have made in response to these trends:

• Customer-centred content.
• Creation of D2C platforms.
• Leveraging real-time analytics to drive user experience.

Vyas dove deeper into these three shifts.

“Firstly, I think one of the biggest trends we are seeing is the use of advanced analytics and automation for a multiplicity of use cases,” Vyas said. The one McKinsey has seen the most is for audience segmentation and micro-targeting.

“The general trend within advertising is to create advertiser-relevant segments, whether it be affinity-based segments or behaviour-based segments. The core questions that advertisers come with are around: Can you target someone who is already interested in my product? Will you actually deliver me a true ROI?”

More publishers are leveraging automation and expanding across the full ad tech stack, which allows for retention of a higher portion of ad spend.

“Daily news is something that’s available across the Internet,” Vyas said. “So what’s becoming really meaningful and important is, do you have vertical platforms that are serving specific consumer needs? And also being able to serve specific types of advertisers.”

Globally, McKinsey sees certain verticals emerging for segments such as auto, tech, cooking, etc. Catering to a specific audience also allows a publisher to cater to advertisers who want to reach that audience.

“The Googles and Facebooks of the world deliver deep data around the campaigns they are delivering,” he said. “They obviously have multiple attribution models, which give advertisers a very clear view of what traffic and what value is delivered for a campaign.”

This creates an expectation from advertisers for publishers to deliver similar performance metrics.

Vyas also identified the ways in which publishers are using technology to create content as a big shift, through things such as AI automation and audio processing.

In India, where news media revenue is not going to be subscription-based for some time, publishers must look to ways in which they can drive their ad traffic and engagement on their own platforms, Gopalkrishnan said. Getting first-party customer data and leveraging AI should be the two most important priorities in terms of achieving this.

“The ability to personalise the content you are sending to people, I think this is something publishing houses can absolutely do and should invest behind,” he advised.

Strategies media companies can implement

The McKinsey team identified several specific tools and strategies news publishers can use to take advantage of the opportunities presented by these trends:

• Use advanced analytics to identify customer segments and create curated audiences. These analytics can identify meaningful variables most predictive of a propensity to subscribe.
• Develop data pools and ad targeting capabilities for the growing demand for personalised marketing. Publishers can progress along the steps from broadcast, which offers no personalisation and shows the same content to everyone, through macro and micro segmentation, to finally achieve personalisation and even dynamic personalisation.
• Offer digital advertising — but this requires a set of compelling sources to be effective. Having inventory is not enough; the value of data, particularly first-party data, is crucial. Without meaningful first-party data, developing a successful digital advertising offering is difficult.

Digital advertising has remained a crowded space, and the tech players are getting much of the ad spend.

“You may have ad inventory, but unless you have data to go along with it and you have the tech capabilities, you will not be able to monetise or get the full value for your platform,” Vyas said.

With the rise of targeted ads, marketers are moving their focus to the lower part of the funnel: capturing the audience. This is driven by a shift in consumption from traditional media to digital, along with digital enabling sophisticated data-driven advertising.

Direct-to-consumer (D2C) platforms           

When building new D2C platforms, multiple capabilities need to be built.

“It’s a completely different business and requires a completely different mindset,” Vyas said. “While you might have your generic news media platforms, it is increasingly important to bring in these vertical platforms, which are very consumer-centric.”

Publishers must have a very clear digital-first proposition for attracting consumers to their Web site. Attracting very specific audience segments to niche verticals requires certain capabilities. Publishers must consider not only the content but the user journey that happens.

Gopalkrishnan pointed out that this also involves hiring a team of talented digital developers and designers — a whole different breed from traditional media.

“There are a lot of tech choices which drive agility, but that doesn’t come naturally to media houses. There are a bunch of things in terms of capabilities that your team needs.”

Six capabilities needed to unlock growth in the “new normal”

Gopalkrishnan outlined the six capabilities news media publishers need to have to grow in the digital landscape and emerging trends.

1. Strategic partnerships. Identify and formalise long-term partnerships and commit serious resources to scale impact.
2. Customer insights engine. Segmentation and profiling, lead enrichment and prioritisation, journey analytics to drive conversion, building first-party data via innovative products.
3. Real-time personalisation and campaign management. Omni-channel digital marketing, database marketing, real-time curated content, and an integrated martech stack.
4. Customer and user experience cell. Simplified customer experience on digital platforms and seamless journeys across platforms.
5. Digital command centre. Real-time granular analytics and metrics, tool adoption and effectiveness.
6. Responsive and scalable technology architecture. Multi-speed scalable architecture, modern content management system and delivery networks, cyber-security, and software engineers in the newsroom.

“These are a few of the capabilities that we find to be important to really succeed in the digital-first environment,” Gopalkrishnan concluded.

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