Advertising, Marketing, and Media Industry Report

The multi-trillion-dollar advertising, marketing, and media industry is a rapidly evolving market with a significant emphasis on the digital marketing world. As digital advertising revenues increase, there is a global demand for more online content. Lead generation, advertising, search engine optimization, and affiliate partnerships are major drivers of income in the 21st-century marketing industry. This demand drives up the value of content-related businesses and digital marketing agencies in an era where everyone is constantly connected to their devices. All of this screen time has caused traditional advertisers (print, TV, outdoor, radio) to shift their largest spending to digital marketing tactics and mobile internet advertising, even outspending television ads.

Key Market Trends

Historic growth that has been seen in the advertising, marketing, and media industry is a result of several factors, including:

• Strong economic growth
• Emerging markets
• Developing technologies
• Growing Internet accessibility
• Self-service advertising platforms
• Government initiatives in developing economies
• Proliferation of e-commerce
• Increased availability of mobile devices
• Growing social media use

Future growth will be propelled by several factors, including:

• Record-level ad spending by end-use industries worldwide
• Increasing urbanization
• Growing adoption of 5G technology
• The Internet of Things (IoT)
• Generative Artificial Intelligence (AI)
• Traditional seasonal uplift

There is ongoing popularity of technologies that offer individualized features and more in-depth experiences. Brands are being pushed to invest and acquire these types of technologies, while post-sales marketing has become a more prominent element along the customer journey:

• The use of chatbots and personalized messaging to enhance customer experiences
• Audio queries by smart devices and digital assistants are driving voice search.
• Online video advertising
• AI analytics to better target marketing strategies based on real-time data. This data yields meaningful insights that are used to enhance customer interactions and optimize media budgets and marketing strategies.
• Social search to change e-commerce, product reviews, and recommendations

Large user-platform companies, such as Google and Facebook, provide free digital products and services, yet still manage to profit because they reach such massive audiences. The larger the platform, the more consumer data is collected. The more a consumer uses the platform, the more information is gleaned about them. With more data, the platform can better tailor the content consumers see and keep them on the platform longer. This results in improved customer experiences and increased advertising capacity, leading to a better understanding of consumers, enhanced influence, and higher revenue from targeted advertising.

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The segment of global branding agencies is growing at a rapid rate. Strong branding strategies and brand management can launch and support a company's long-term success, setting it apart from the competition. These aspects have always been valuable in the marketing world, but are being recognized for their importance more than ever during a time when companies need to build strong relationships with their customers by offering value-added services, innovative products, and high-quality.

Another trend is that today's publishers are seeking greater control, and that marketers are demanding high-value ad formats. It's all about high touch and high control. There is significant consolidation happening in the digital ad space, which is pushing publishers to adapt their monetization strategies. There is also a growing demand for better bidding, mediation, and programmatic controls. At the same time, marketers are willing to pay more for high-impact placements (such as video, splash, and deep-linking-enabled ads), as well as interactive formats (such as reward-based, playable, and shop-able ads).

Also, cord-cutting continues around the world. Over-the-top (OTT) and connected TV (CTV) are increasingly replacing traditional cable TV with on-demand and live streaming content. Ad-supported content enables viewers to watch shows without incurring the cost of expensive subscription packages.

First-party data is also a major trend, with a large focus on privacy. People now have a better understanding of how their personal data is collected and shared, and they are taking more control over their privacy. Local laws are being implemented to protect user privacy, and major players are adjusting their privacy policies accordingly. Reaching relevant users is more important than ever, and publisher-owned, first-party data, as well as contextual placements, can drive value while securing compliance with policies.

Other significant trends include:

• Personalization
• More advertising on streaming services
• Growing demand for interactive advertising
• More adoption of AI and augmented reality
• Rising storytelling concepts
• Adoption of conversational interfaces and chatbots
• Automated, personalized email marketing
• Generative engine optimization (GEO)
• Shifts in social media platform popularity
• Employee advocacy
• More focus on user-generated content vs. influencer content
• The evolution of Generation Alpha as early consumers
• Mergers, partnerships, and acquisitions for brand expansion

M&A

The robust growth, sheer size, and high fragmentation of the advertising and marketing sector have led to healthy mergers and acquisitions activity involving various agencies, including digital agencies. Everyone from traditional advertising agencies to private equity investors is seeking target companies that offer growth benefits.

The establishment of digital capabilities and relationships has become a major priority for traditional ad agencies and their large holding companies as they look to grow their digital revenue and expand their portfolios. As conventional media continues to be displaced by digital marketing, the percentage of media spend on digital marketing on behalf of traditional ad agencies will continue to grow. The industry is sure to see more and more future technologies that have yet to be developed, continuing to drive rapid change and growth, and creating opportunities for M&A.

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Affiliate partnerships use affiliate websites to promote products or services that belong to another company. The valuation of an affiliate website depends on the specific terms of the affiliate program. These factors include longevity, product category, seasonality, commission tiers, high-caliber content, and the link portfolio. Websites that fulfill these attributes often have better earnings, margins, and lifecycle, which are attractive to investors. For valuation purposes, advertising agencies are similar to affiliate businesses because they are dependent upon content and end-user action to produce revenue.

These types of partnerships that monetize content also apply to offline businesses that need new and better ways to generate access to audiences. Investors also tend to be drawn to this segment based on existing relationships that can be used to their advantage.

Some marketing agencies are being established with the goal of selling in mind. There are extremely low entry barriers when it comes to creating a digital marketing firm, but there are also limited benefits to growth. Some brands prefer not to work with a large firm. And low employee tenure means lower retained corporate knowledge in an industry where talent retention is already incredibly challenging.

An agency with strong historical growth and projected growth of more than 20% can lead to strong multiples. The purchase of smaller agencies presents opportunities for growth for large advertising agency groups and an easy way for the leadership of smaller agencies to cash out.

Global media and entertainment conglomerates and their subsidiaries distribute mass media to the public, such as television, gaming, radio, amusement parks, the Internet, and publications. It's in the nature of these types of companies—of all sizes—to continually pursue avenues for growth.

Key transaction areas for pursuing mergers and acquisitions in the global media industry include:

• Horizontal-scale deals: Companies consolidate within their own sector to increase earnings and improve operations.
• Cross-sector deals: Companies look outside their core sector to add products and services and integrate vertically across the supply chain.
• Cross-border deals: Companies target growth into different global markets that offer favorable long-term fundamentals.
• Portfolio optimizers: Companies use divestitures to streamline diversified asset bases and allocate capital to the most favorable opportunities.

It is common in the media sector for attractive opportunities to draw a great deal of competition for acquisition. The landscape is rapidly and constantly evolving as new technologies emerge, and key players are continually seeking ways to introduce the next big thing. Streaming services and cord-cutting have been the most significant drivers of change in recent years. Big tech firms continue to ramp up the pressure on the conventional stand-alone media model, bringing content consumption to the forefront and making the need for differentiation and integration more critical to strategies for media companies.

Integration has been proven to pose a unique challenge for M&A in the media industry. One cannot simply plug and play a typical M&A process that works for other sectors. To win out, leadership needs to carefully evaluate the possibilities for value creation through integration, as well as any risks. This requires fastidious due diligence and effective communication. There must be a set of clearly defined goals. Cost and revenue synergies need to be properly valued. And retention of management is often critical to a successful integration strategy. When there is awareness of the potential integration pitfalls in media M&A deals, a plan can be formulated to help guard against them.

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