Online formats took 78% of all UK ad spend in 2023: report

The latest Advertising Association/Warc Expenditure Report shows that spending on online ad formats in the UK grew by 11% to reach a total of £28.7bn in 2023, equivalent to 78.4% of all UK ad spend last year.

Other than online formats, out of home (+9.7%) was the only advertising medium to record growth in 2023.

The contrast with TV, down 8.9%, and direct mail, down 12.6%, is marked.

James McDonald, Director of Data, Intelligence & Forecasting at Warc described 2023 as “a challenging year for most, with few properties recording gains and spend instead further consolidating within search and online display formats – particularly social media.”

McDonald added that, “Combined, these digital staples are on course to account for almost four in five pounds spent on advertising in the UK next year, up from a share of 51% just five years ago.”

This growth in spending on digital formats brought the UK’s ad market as a whole to £36.6bn last year, up 6.1%. This was the 13^th annual expansion in the last 14 years, but equates to a 1.2% contraction in real terms after accounting for inflation. 

The context for these findings is, as McDonald highlights, 2023 as a challenging year for many. Marketers have talked often about doing more with less, but have in some cases been reluctant to pull back on performance marketing spend, given competition for sales.

Search spend up, as are CPCs

In the world of search (where UK spend was up nearly 12% to £14.7bn in 2023), the cost of ads can be seen to rise alongside overall spend. A US study last week by Tinuiti showed that cost-per-click prices (CPCs) on Google were up 13% year-on-year in the first quarter of 2024, with spend up 17%. And over the past five years in retail, CPCs are up a whopping 40-50%. As Search Engine Land puts it, “CPCs are increasing, while clicks are decreasing. This is bad news all around for advertisers.”

The AA/Warc figures have search advertising set to grow more modestly in 2024, at 8.9%.

Retail drives display ad spend increase

Retail is highlighted in the report as one of only two major product sectors to record rising display ad spend (i.e. excluding search and classified formats) last year. Investment in off-site targeting with retail media networks no doubt played its part here. Off-site retail media includes buying ads on social platforms in partnership with a retailer, who provides data for targeting. This media was responsible for $12.5bn spend in the US in 2023 and is expected to rise to $20bn in the US this year, according to a forecast by market intelligence firm Advertiser Perceptions.

Retail is also impacting search spending, with Emarketer’s H2 2023 ad spending forecast estimating that search formats on retail media (which includes Amazon) accounted for over half of all new search ad dollars in 2023 (with just 1 in 5 going to Google). The author writes that, “retail media and social networks continue to attract consumers’ queries and marketers’ search budgets.”

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More brand building in 2024?

The AA/Warc report suggests that “more favourable economic conditions should encourage advertisers to invest more in brand-building campaigns in 2024”, coupled with events such as the Men’s Euros and the Paris Olympics.

However, it looks like this sort of growth may have to wait for summer, as last week’s Quarterly IPA Bellwether report found the net balance in ‘main media budgets’ shrunk 0.7%, the first decline for three quarters, whilst sales promotions budgets grew 4.9%.

Budgets for main media advertising are though also expected to grow in 2024/25, with a net balance of 10.1% planning to increase investment. 

BVOD healthy as advertisers continue digital shift

Broadcaster video-on-demand (BVOD) has seen the most rapidly growing investment of any advertising medium, up 15.9% in 2023 and predicted to rise 14.1% in 2024. BVOD is the only medium predicted to see double digit growth through the next two years.

On the ongoing tilt to digital, Stephen Woodford, Chief Executive at the Advertising Association said: “The continued shift to online advertising formats reflects the changing shape of our economy, with people increasingly shopping online as well as on the high street, and businesses striving to provide the best customer experience in all scenarios”