As marketers and consumers begin to feel some relief from the economic uncertainty that ushered in the start of the year, agencies are reporting that media spending is holding steady in 2023. That is according to respondents to a recent survey Digiday conducted for this second-annual media agency report.
While some agency holding companies, like Omnicom Group, are even reporting revenue growth — Omnicom said in its Q2 2023 financial filing that organic revenue was up 3% in the second quarter — they’re also urging caution. “Current global economic challenges, including the war in Ukraine, high and sustained inflation, rising interest rates, supply chain disruptions, credit market deterioration, and other macroeconomic factors, could cause economic uncertainty and volatility,” according to Omnicom.
Added to that list of potential disruptors are the United Auto Workers (UAW) strike; the now resolved Writers Guild of America (WGA) strike and ongoing Screen Actors Guild – American Federation of Television and Radio Artists (SAG-AFTRA) strike; and the impending 2024 Olympics and political elections — all of which are expected to offer additional challenges heading into the new year, and potentially create a need to shift media spending and total ad budgets quickly and often.
Nevertheless, agencies are cautiously optimistic about client spending in 2024, with most respondents to Digiday’s survey expecting total budgets to slightly increase in 2024. At the same time, agency executives who participated in a Digiday focus group on the state of media are watchful going into 2024.
“The word I would continue to use is caution, said Katie Klein, chief investment officer at PHD. “Clients need to be able to pivot investments with their business, so caution and flexibility are the two key themes.”
Looking to the future, agencies are also cautiously experimenting with how to best use artificial intelligence, which has received heightened attention from all sectors this year with the releases of generative AI tools like ChatGPT and Bard. In particular, agencies are dabbling in generative AI, which can help with consumer-facing applications like idea and image generation.
Bearing all of this in mind, Digiday’s second annual media agency report examines the current and future state of media agencies, from the perspective of client spending (within media channels and by client categories) and agency use of AI.
To assess the current state of media planning and buying and to understand which channels clients are investing in now and where they will be spending in the future, Digiday+ Research collected responses from 111 agency participants in a survey fielded in August/September 2023.
For additional industry insight, Digiday hosted a focus group of eight senior media agency executives who oversee media investment at holding company-owned and independent media agencies to gather first-person accounts of client spending. Agencies and networks that participated in the focus group were:
- Assembly Global
- Horizon Media
- Omnicom Media Group
Due to a turbulent economy, much of clients’ 2023 spending remained at 2022 levels
In light of the recession and inflation worries that ushered in 2023 and have continued to linger through most of the year, media agency clients were relatively conservative with their ad spending in 2023, Digiday’s survey found.
Agencies were nearly equally divided on whether budgets have increased, decreased or remained the same in 2023, with slightly more respondents saying they have remained the same at 36% of respondents. An equal percentage of respondents said budgets have increased as said they have decreased, at slightly less than one-third of respondents (31%) respectively.
This likely reflects continued concerns around economic conditions, which have been in flux most of the year, and only seem to be somewhat decreasing at the start of the fourth quarter. “Our clients are still pretty cautious,” said PHD’s Klein. “There were a lot of requests for planning and replanning, and a lot of wanting to understand what options are available. Flexibility with reserved buys is still incredibly important. That’s not going away.”
Perhaps unsurprisingly in hindsight, 2023 actual media budget allocation thus far contrasts with survey predictions from Digiday’s year-ago media agency report, in which agencies were more optimistic about budget expectations for 2023. Almost half of year-ago respondents (49%) said budgets would increase in 2023. However, at the time of data collection in September and October 2022, agencies and their clients may have been feeling relatively upbeat about future spending, as the pandemic continued to wind down and newer economic concerns hadn’t fully taken hold yet.
In this year’s survey results, among respondents who said budgets have increased in 2023, the majority said budgets have increased by more than 20%, with more than half of respondents (56%) selecting this range. On average, those budget increases fell within the 20-29% range. Meanwhile, less than half of respondents (44%) said budgets have increased by less than 20%.
Similarly, among agency respondents who said they have seen client budgets decrease in 2023, the majority of respondents (58%) said budgets have decreased by more than 20%. On average the decreases fell within the 20-29% range, the same average range reported for increases. Likewise, less than half of respondents (42%) said budgets have decreased by less than 20%.
The reality may reflect a broader give and take in the sources of ad spending, resulting in swings that depend in their direction on where each agency sits and which client categories it serves, as noted by focus group executives who referenced recent forecasts by Brian Wieser, media analyst and author of the Madison and Wall newsletter. Wieser predicted ad spending for 2023 is expected to reach $360 billion in the U.S., a 5% increase from the previous year.
A large part of the bounce-back effect evidenced in Wieser’s findings can be attributed to the fact that a substantial amount of speculative money exited the market over the past year, especially in sectors like cryptocurrency and direct-to-consumer models, which tend to be volatile with strong swings. On the flip side, advertisers like consumer packaged goods companies have increased spending.
“It shouldn’t be surprising that we had a soft ad market on a year-on-year basis after so much frothy money evaporated,” Wieser said. ”But we’re still elevated way above where we would’ve been had it not been for the pandemic because there was a lot of new money that came in. Inflation helped too.”
Agencies show tempered optimism for 2024, with nearly half expecting budget increases
Despite clients’ caution around expanding media budgets in 2023, media agencies are about evenly split on whether they expect clients’ budgets to increase or to remain the same in 2024, but they’re slightly more optimistic than pessimistic. Almost half of respondents to Digiday’s survey (49%) expect budgets to increase in 2024 versus 43% who expect budgets to remain the same. Only 8% of respondents expect budgets to decrease in 2024.
Kendra Mazey, chief client officer at Assembly Global, said this tempered optimism reflects consumer spending trends. According to a recent report from the Commerce Department, retail sales rose more than expected, up 0.7% in July from June.
“Going into the fourth quarter of 2023, we are seeing a bit of a holding steady 2023 in the sense of [clients’] budgets not pulling back,” Mazey said. “But it’s really mirroring consumer confidence and the optimism that we’re seeing. … We’re looking at an uptick 1696399045 and going into 2024.”
While total survey respondents were generally optimistic that clients’ budgets will increase in 2024, among the agencies that said they expect increases, most felt they would be marginal.
Fifty-four percent of respondents said they expect budgets to increase less than 20% in 2024, while only 46% percent of respondents expect budgets to increase by more than 20%. On average, the expected rate of increase fell between 10% and 19%, which is more conservative than the 20-29% rate of increase seen this year among agencies that reported increases in 2023.
However, some focus group members said they have received client requests for even larger budget increases, especially from clients whose businesses have rebounded and then further stabilized in the wake of the Covid-19 pandemic.
“We have a number of clients asking us to do planning exercises of 25% or 30% increases,” said Rob Davis, president and CMO at Novus. “There’s definitely a feeling of bullishness. They’re asking their management teams, ‘Remember how you told us to cut all of the awareness building? It’s killing us. Can we put some of it back?’ At least in the initial planning phase, we’re looking at some pretty big increases in some cases.”
“Our travel clients are the ones asking, ‘Can you give me a budget scenario of plus 25 plus 15?,’” added Jade Watts, chief media officer at Mediahub. “We’re seeing some of that in financial services, too. They are the ones asking for the many-budget scenarios that are higher than where we’ve been.”
Digiday’s survey findings mirror Watts’ experience when it comes to travel clients, with more than one-third of respondents (35%) expecting travel and tourism clients to increase spending in 2024. However, less than one-fifth of survey respondents (19%) expect finance and insurance clients to do the same.
Assembly Global’s Mazey said she believes upcoming sports and political events are contributing to requests for budget increases. “We’re not seeing brands holding back,” Mazey said. “We’ve got the Olympics and the elections. … We’re anticipating roughly $12 billion to be spent from an overall election standpoint. … We are definitely seeing upticks across all categories, and all verticals — from health care to finance to homebuilding — it runs the gamut.”
Sports may be the winner – especially for video spending – as strikes and elections loom
Several recurrent and key themes came up during the course of Digiday’s focus group discussion with agency executives, namely that the writers’ strike (ongoing at the time, but now resolved) and the UAW strike, coupled with 2024 national and local elections and the summer Olympics, will affect industry-wide spending — and, in fact, are already doing so.
In mid-September, UAW workers went on strike, targeting one production plant for each of the top U.S. car manufacturers — Ford Motor Co., General Motors and Stellantis. The strike is expected to impact vehicle production in an industry that was just starting to rebound following a supply-chain-induced computer chip shortage. Without new cars to sell, automakers are almost certain to cut back on ad spending.
Likewise, the WGA strike began on May 2 and lasted almost five months. In late September, the WGA reached an agreement with the Alliance of Motion Picture and Television Producers to end the strike. However, while it was ongoing, TV and streaming production ground to a halt. And it’s going to take some time to ramp up again. Actors are still on strike as well, with talks between Hollywood studios and SAG-AFTRA resuming this week.
As agencies and their clients wait for new linear and streaming programming to be produced, they have less content against which to advertise. Even streaming services that air a significant amount of non-U.S. programming are feeling the pinch, according to focus group executives.
“It is going to be a very difficult year for linear,” said Christine Merrifield-Wehrle, head of investment at Crossmedia. “The strikes do impact CTV too. It’s not like there is an abundance of content. Everybody’s gone through their entire Netflix best shows, so it is going to be very challenging when you’ve got high demand coming from a source.”
The Olympics and seasonal sports are likely to be the big winners of ad dollars that would have been spent on newly released TV and streaming content, executives said during the focus group.
“It depends on the daypart or property, but at least through the fourth quarter, there’s not going to be a lot of new programming available, because none of the networks have been able to start filming,” said Marcy Greenberger, evp and managing partner at UM. “[Programming] like late night will rebound relatively quickly. But sports was already a really strong daypart, and it will continue to be, especially with a lack of other fresh content available.”
Samantha Rose, evp and strategic investment lead at Horizon Media, added that while linear TV sports programming has always been a large part of the upfront marketplace, even more money will move to streaming sports programming as spending on other linear TV content decreases.
“With streaming up and sports up, that’s obviously helping rebound video overall,” Rose said. “I don’t see a huge swing back into linear. I don’t think it’s going to rebound the way that it has historically, where a down marketplace came back significantly. [Spending] will probably go to other video areas and other channels, but there’s going to be a sellout in sports, and there’s only so much that we can put in there.”
Lastly, the highly contentious 2024 presidential election, along with local elections, which impact the national landscape, are other wildcards facing 2024 ad spending. Some focus group executives noted that brands are feeling pressure from younger audiences to take stands on political issues. But overall, most brands are remaining vigilant about where they’re placing ads and what content ads are running against.
“In the national space, we have clients that are exercising caution, just from a content standpoint,” said PHD’s Klein. “Clients that historically are more comfortable airing in cable news are worried about what the climate is going to be. We definitely want to make sure that there is a very thoughtful approach to that, because that audience is still very valuable for some clients, but the environment and the content is definitely a concern.”
Novus’ Davis added that local elections often cause large budget swings because of regional political issues. “Elections always create chaos in the local marketplace,” Davis said. “The midterms tend to be really nutso because you get crazy local races in certain pockets that drive up spending, but it definitely generally puts pressure on traditional spot TV and radio. So, it’s a similar trend [to national elections]. It’s just going to be more so in certain states than others.”
DTC and e-commerce clients shift spending the most, in both directions
Within client categories, the direct-to-consumer and e-commerce category topped the charts for having both the biggest increases and the decreases in client spending. Nearly half of respondents to Digiday’s survey (48%) said DTC and e-commerce clients increased budgets in 2023, and more than two-thirds of respondents (68%) expect the category to see increases next year. However, almost two-thirds of survey respondents (63%) also said DTC and e-commerce spending decreased in 2023.
The DTC and e-commerce category tends to be a generally volatile market because it includes multiple industries — everything from grocery stores to furniture makers. Seeing it as a top client category for increases and decreases is not surprising for that reason, as each agency could be referring to different underlying businesses.
Additionally, much of the discrepancy has to do with the age-old story of digital marketing. Early DTC brands Away and Warby Parker, for example, became consumer favorites by pioneering sleek millennial-loved branding and making that branding ubiquitous via cheap online advertising. But as the years went on, customer acquisition costs went up. This was best exemplified by Casper’s 2019 IPO, in which the bedding company spent $106 million on marketing in 2018 and brought in $357.9 million in revenue that same year.
A potential bursting of the DTC bubble was delayed by the pandemic, as brands grew revenue through an unprecedented rise in e-commerce sales. Now DTC is facing new challenges, thanks to the implementation of Apple’s iOS 14 — which made the precise targeting that platforms like Facebook previously offered to brands nearly impossible. Customer acquisition costs are still rising and brands are trying to figure out a margin profile and business model that lets them stay afloat — resulting in DTC and e-commerce clients moving money in and out of ad budgets.
Retail and consumer packaged goods came in as the second and third top client categories with increased spending in 2023. More than one-third of survey respondents (36%) said they’ve seen retailers increase spending this year, and 43% of respondents expect to see them increase spending in 2024. Likewise, almost one-third of agencies said CPG clients have increased in spending in 2023 and will increase spending in 2024, at 28% and 30% of respondents respectively for each year.
One reason for the increases is that the supply chain issues that plagued retailers and CPG companies throughout 2022 — both categories were tops for budget cuts in last year’s report — are finally diminishing in 2023. Focus group executives agreed that client categories that are rebounding from supply chain or pandemic setbacks have started to spend more this year, although for some categories, like retail, the executives are seeing more cautious spending than survey respondents.
“The categories where we are seeing the most growth are categories where they’ve seen a lot of business recovery, automotive and travel,” said Mediahub’s Watts. “Whereas, some of our retail clients are still a little bit on the softer side. Those clients are being a lot more conservative on taking bets on recovery.”
Interestingly, and similarly to DTC and e-commerce, CPG was also a top category experiencing spending decreases in 2023, according to survey respondents. It came in behind DTC and e-commerce at No. 2, with exactly one-third of survey respondents (33.33%) saying CPG clients have decreased spending this year.
While CPG is a relatively stable category in terms of sales — shoppers will always need staple products like soap or toothpaste — ad spending within the category can fluctuate greatly depending on economic conditions. During times of inflation when consumers are more likely to only buy essentials, marketers may not need to spend as heavily to advertise basic products, unless they happen to sell them at a higher price point. Conversely, when the economy is up and consumers have more leeway within their budgets to purchase luxury items, well-known, budget-friendly brands might advertise more to keep up with their higher-priced competitors.
One client category that may actually be feeling negative effects of a post-Covid consumer market is health care and pharmaceuticals. Among survey respondents who said that client budgets have decreased in 2023, health and pharmaceuticals came in as the No. 3 client category with decreased media spending. Exactly one-quarter (25%) of agencies selected this category.
With the CDC declaring in May that the Covid-19 public health emergency was over, and with many consumers having returned to their pre-Covid lifestyles well prior to that, consumer demand for items like hand sanitizers, disinfectant sprays and face masks has dropped. Global unit sales of masks dropped from a high of 402.1 billion units in 2021 to 147.5 billion units in 2022, for example, and that number is projected to drop again to just 22.7 billion units in 2023, according to Statista. Facing a dearth of demand for certain products, many companies may be spending less to advertise those health care items.
Likewise, Covid-19 vaccine makers may soon be pulling back on vaccine-related advertising as well, if they haven’t already. Moderna and Pfizer reported significant declines in Covid-19 vaccine sales and revenue in Q2 2023. Pfizer, which also manufactures the Covid-19 antiviral pill Paxlovid, saw losses for that product too. In an August earnings call, the company’s CFO David Denton said Pfizer is prepared to institute a cost-cutting program if Covid-19 revenues for 2023 are “less than what we assumed.”
Other notable client categories experiencing budget decreases in 2023 include entertainment and automotive. Although less than a fifth of survey respondents (17%) selected entertainment and only 13% selected automotive as client categories with budget cuts this year, focus group respondents were emphatic that those categories are seeing cuts. That’s due, again, to the writers’ strike, which halted production on everything from scripted series to talk shows, and the UAW strike which is affecting production at three U.S. auto plants.
“Entertainment is down heavily, and 2023 is pretty much written for the entertainment category, which is usually the largest category in spending,” said Crossmedia’s Merrifield-Wherle. “The market got hit pretty hard by the overall strikes, and I am starting to hear and see that even the auto money is getting hit because they haven’t settled their strikes too. … Advertising usually is a leading indicator [of market conditions], and we’re a leading indicator that early 2024 is going to be hurt pretty bad.”
Client spending is set to accelerate in social, search and display
On the other hand, agencies themselves are united in their thoughts about which media channels are receiving increased client funds in 2023 and 2024. Agencies selected the top three channels for increases in the same order, in both years of Digiday’s survey. Social media came in at No. 1 in 2023 at an overwhelming 88% of respondents, search marketing was second at almost half of respondents (48%) and digital display and website were third at more than one-third of respondents (36%). Projecting ahead to 2024, those percentages came in at 87% for an expected increase in social media spending, 57% for search marketing and 54% for digital display and website.
However, two of the top three channels that agencies said are receiving budget increases in 2023 are also two of the top channels that they said money has moved out of this year. Social media was first again, with more than half of respondents (54%) selecting this channel as one agencies said money is moving out of this year, and digital display and website advertising came in at No. 2 with exactly half of respondents (50%) selecting this channel.
While clients are undoubtedly moving more money into digital channels for their sheer market pervasiveness — social media had the highest marketer usage among media channels studied in Digiday’s recent CMO Strategies report, and display ads had the second highest — during periods of economic uncertainty, digital channels are also relatively easier to move money out of, and to otherwise reconfigure, than other channels. Linear TV ads, for example, are generally bought months in advance during the upfront buying cycle, making them less flexible — though that too may be changing.
Mediahub’s Watts said her agency is advising clients whose businesses are still recovering from recent economic uncertainty and the aftershocks of the pandemic to invest in digital advertising. “Some clients are still very gun shy to commit to big linear upfront budgets,” Watts said. “So, we are pushing them more toward the digital channels with a lot more flexibility, or even the CTVs.”
“But for some of our tried-and-true clients who have weathered all of the economic uncertainty, we feel most comfortable saying, ‘Yes, you’re in the upfronts. We’re committed and we feel good about this,’” she added. “But it really mirrors what the recovery looks like for each of the individual clients.”
Horizon Media’s Rose said three main components — consumer consumption of digital media, flexibility to shift budgets within digital channels and historical digital performance — all play into how client buys are currently changing. “Within audio, it’s the shift to podcast and streaming, and within video, it’s a shift to streaming and out of linear,” she said. “Consumption is a major factor, coupled with flexibility and historical performance.”
However, Rose noted that future digital spending is tougher to predict precisely because digital channels offer so much flexibility. “As we are shifting to digital media, it’s a bit harder to forecast where the 2024 budgets sit because those can be placed near term, or we can place those dollars and pull back as needed,” Rose added. “It’s different than historically where linear TV and upfront made up the lion’s share of the market and was pretty indicative of where things sat.”
Streaming video and retail media benefit from budget increases, as marketers give print a second look
On the heels of social media, search marketing and display ads, streaming video and CTV and retail media tied in fourth place among media channels with increased 2023 client spending. Almost one-quarter of respondents (24%) selected each category respectively. These two channels also came in as the fourth (retail media) and fifth (streaming and CTV) media channels with expected increases in 2024.
Focus group executives noted that higher viewership numbers for streaming services has encouraged many brands to place ads on the services. Streaming TV claimed the largest share of U.S. TV viewing in July, according to Nielsen, at 38.7% of total TV usage. However, as mentioned earlier, the writers’ strike halted production on programming, reducing ad dollars to streaming in the short term. Also noteworthy, ad-supported streaming was the least used marketing channel among the four channels considered in Digiday’s CMO Strategies series, with only 28% of marketer respondents saying they currently use the channel.
“Certainly there are going to be some [client] categories that are still very reliant on linear television,” UM’s Greenberger said. “[Then there are] others that definitely see the consumption patterns [with streaming], but haven’t quite seen the performance follow suit from an ROI standpoint. That’s where it’s both about leaning into streaming as much as leaning away from linear. Generally speaking, [we’re seeing] a lot of leaning into the digital components of certain channels — more streaming audio versus terrestrial radio and leaning further into podcasts.”
Focus group members said they’ve also noticed more client interest in retail media, which has grown to be marketers’ third most-used marketing channel, according to Digiday’s CMO Strategies series — over a third of marketers (38%) said they use retail media ads, putting the channel just behind display ads and social media as a leading marketing channel.
While CPG companies originally dominated the retail media ad space due to their focus on advertising within retail media networks, which often include in-store ads, other industries, such as home goods and electronics, have also started investing in the channel to take advantage of retailer attribution and data capabilities.
“When [retail media] first started exploding, we saw the obvious clients going for that data, like CPG,” said Ryan Eusanio, managing director of digital activation at Omnicom Media Group. “Now we’re seeing a much wider aperture of clients realizing the value of retail media data.”
“It’s not just about [a client saying], ‘Let me find a recent purchaser of the same category that I play in and use retail media data for that really specific trade budget,’” he added. “But rather, ‘I’m an insurance company and I want to find people that just moved into a house, so I can look at the items that people are purchasing.’ We’ve seen a big shift there in terms of the applicability of retail media data on our client side.”
After No. 1 social media, print media tied with digital display and website in second place as a media channel that has experienced client budget decreases in 2023. Exactly half of respondents (50%) selected both categories.
Although print media advertising has been on the decline for years, the economic uncertainty that accompanied the end of 2022 and the beginning of 2023 caused more marketers to give traditional advertising tactics a second look.
In December, General Electric took over The New York Times’ print advertising for a day throughout the news, business and arts sections. The campaign amounted to 22 full-page color ads and five partial pages in total. The ads were meant to not only get readers’ attention in print but also cultivate chatter on social media about the brand.
GE wasn’t alone in wanting to get more attention from newspaper ads. Other brands like Equinox and Take 5 Oil, as well as agencies like TBWA New York, have taken a similar approach, using offline newspaper ads to generate social media buzz in an ever-more cluttered digital environment.
Novus’ Davis said there is still a healthy market for print ads. “It doesn’t get talked about very much, but there’s still hundreds and hundreds of millions of dollars, particularly for physical retailers, in print — newspaper and flyers,” Davis said. “We still do a couple hundred million dollars in that space, believe it or not.”
However, Davis added that he has seen traditional print dollars moving into digital. “That has rapidly been shifting into digital, kind of a digitized version of those Sunday flyers,” Davis said. “They still need the traffic driving the immediacy of it, but obviously the consumption of the [print] medium is way down.”
When it comes to how clients are buying digital media placements rather than where, more brands are buying online display advertising programmatically than direct-sold in 2023, according to Digiday’s survey. Ninety-eight percent of respondents said clients purchase display ads programmatically versus 90% who said clients purchase direct-sold ads.
Focus group attendees said they’ve noticed a general shift toward programmatic ad buying, even beyond display ads, which they attributed to the scale, ease and low cost that accompanies programmatic buys. The downside, of course, being that advertisers don’t always know next to what type of content their ads will appear.
“Partners are opening up more inventory and providing more capabilities to transact [programmatically],” said UM’s Greenberger. “Some of it is also by definition of more money moving into digital, moving from terrestrial radio to streaming audio, for example, and the ability to transact that programmatically is driving that as well.”
Measurement improvements have also played a part. “A lot of clients for good reason gravitate towards the use of programmatic purchase for better stewardship of our buys,” said Horizon Media’s Rose. “If we can house it all within a DSP, we can have better frequency distribution, we can gain reach, and we have richer insights many times.”
Despite brand safety risks and ethical concerns, agencies see a future shaped by AI
While already in use for back-end applications like data analysis and programmatic ad buying, AI is by far the dominant technology that agencies expect will affect their businesses in the near future. More than three-quarters of respondents to Digiday’s survey (76%) said that AI will have the biggest impact on their business in the next few years, versus other emerging technologies like blockchain and virtual reality.
Within the larger AI banner, generative AI, as seen in tools such as ChatGPT, is the top form of AI that agencies use, with almost three-quarters of respondents (72%) selecting generative AI as the AI application their company is using currently. Generative AI is a newer form of AI technology, and it can be used to help the creative process — with everything from research to writing copy iterations to creating images and music.
“Think of it as a powerful jumping-off point that can spur ideas and help you narrow down the focus of what is possible,” Christina Garnett, principal marketing manager at software company Hubspot, said in an email. “Initial question prompts that can gradually be expanded upon give creative teams a strong starting point they can either further lean into or deviate from.”
Novus’ Davis said his agency is tapping into generative AI for its time-saving capabilities. “Somebody on my team is using the free, OpenAI ChatGPT every day,” Davis said. “We were in a brainstorm [meeting] around a name for a new audience segment, and [someone said], ‘Just get on ChatGPT.’ Sometimes it’s silly and as small as that, but it’s super practical for saving time — to give us a list of 50 ideas — and then we can go work from there.”
Although Davis did point out that AI already has been at work for some time in back-end software applications used for programmatic bidding. “AI, or machine learning, is built into almost every DSP in terms of things like bid shading,” Davis said. “We’re talking about it like it’s a new thing, but it’s literally been used.”
Agencies that use generative AI first and foremost use it for non-consumer-facing purposes, with 45% of respondents saying they use it for back-end or internal applications. However, an almost equal amount (42% of respondents) use it for a combination of back-end and consumer-facing applications.
Mediahub’s Watts said her agency is experimenting with customer-facing applications of generative AI, but is mainly focused on using other types of AI technology within its analytics group for internal data processing and finding data discrepancies. “We are tapping into AI quite significantly in those areas and have already seen a lot of efficiencies come from that,” Watts said. “We do use AI to generate some creative images, contexts, etcetera. But we’re really doubling within our analytics, and trying to find more efficient uses of AI for data processing.”
One reason agencies may be reluctant to fully embrace a future built by generative AI and all of its applications is that brands face new safety risks amid the generative AI boom. In particular, programmatically bought site ads run the risk of appearing on questionable, often AI-generated made-for-advertising websites. A June 2023 report from NewsGuard found nearly 400 ads for 141 major blue-chip brands across more than 50 low-quality sites, with content ranging from plagiarized versions of real news articles to click-bait headlines promoting unproven medical remedies.
“It’s not like these companies are directly saying, ‘Hey can I advertise on this AI-generated news site?’” said Jack Brewster, enterprise editor at news reliability rating service NewsGuard. “They just tell Google or another third party to advertise to people like you and me, and that creates other problems.”
The products of generative AI have also been widespread on social media, where profiles and videos feature AI-generated art and scripts — and even entirely virtual influencers. Despite the popularity of that content, agencies are cautious about ethical and privacy concerns alongside any impact of copyright. As more influencers turn to AI, greater risks could arise around transparency of the content and brand safety issues for those that utilize such influencers. Daria Belova, marketing and PR director of influencer agency HypeFactory, said creators need to be forthright about using AI.
“[Creators should ensure] they are not deceiving their audiences and are presenting exclusive content that is tailored to the audience and that has a creative pinch from the influencer,” said Belova. “Malicious usage of generative AI is one of the biggest current concerns.”
This is where human involvement will be important. In terms of working with brands, Belova contends that influencer marketing campaigns will still need to rely on content teams that know how to use generative AI and other tools. “Brands cannot place all their faith in AI-generated content to achieve top performance without having people operate behind the scenes,” Belova said.
While most agency focus group members told Digiday they’re mainly using AI from an internal data analytics perspective at the moment, it seems inevitable that agencies will continue to cautiously experiment with generative AI for image, copy and idea generation going forward.
As agencies enter the fourth quarter of 2023 and look forward to 2024, they’re feeling cautiously optimistic about client spending as they bid farewell to a year that started off economically rocky and head into what they hope will be a steadier immediate future.
Some inflationary concerns still linger, however, and agencies expect to continue to see clients shift spending to digital channels — particularly social media, search marketing and display advertising — as they remain the easiest categories to quickly move funds in and out of during periods of economic uncertainty. Likewise, agencies expect digital-first DTC and e-commerce clients to be the top client categories to increase spending in 2024, continuing a trend agencies have already seen in 2023.
Other spending trends are harder to predict, even for the most experienced agency leaders. The future effects of the writers’ and UAW strikes, along with the upcoming 2024 Olympics and elections, are all great unknowns. However, as the writers’ strike concludes, most focus groups executives said they believe the entertainment industry will rebound quickly — with a further impact on TV and streaming video spending.
“The entertainment category is going to have some hard times, but once they’re back, they’ll be extremely strong,” said Crossmedia’s Merrifield-Wehrle. “This is the yin and yang of 2024. Once [entertainment] gets up and rolling … going into the Olympics and 2025, that category will be heavily spending.”
Overall, agency executives are aware that current and future client spending could turn on a moment’s notice. “Flexibility is key, right?” said Mediahub’s Watts. “We’ve had a lot of clients who are going into upfronts, and then asking for the money right back. [They’re saying,] ‘Oh, I thought I could do this. But no, I’ve got to pull out.’ So, really flexible deal terms is something we’re hearing across the board from all of our clients.”
As agencies look to the future, they’re also cautiously experimenting with AI tools. Although generative AI is the leading type of AI used by survey respondents, it brings with it a range of ethical and brand safety concerns. But broader AI usage and experimentation by agencies will continue, particularly, as noted by focus group executives, when it comes to non-consumer facing applications like data analytics.
Here are some key takeaways from Digiday’s annual Agency Report on the state and future of the media agency in 2023:
- Agencies were nearly equally divided on whether budgets increased, decreased or remained the same in 2023, with slightly more respondents saying they remained the same at 36% of respondents.
- Agencies are more optimistic than pessimistic about client spending in 2024. Almost half of respondents to Digiday’s survey (49%) expect budgets to increase in 2024 versus 43% who expect budgets to remain the same.
- The Olympics and seasonal sports are likely to be the big winners of ad dollars that would have been spent on newly released TV and streaming content. Auto ad spend may decrease as well, if production of new cars remains halted due to the UAW strike.
- DTC and e-commerce topped the charts as the client category most expected to increase and to decrease ad spending in 2023 and 2024. This category includes a wide range of retailers and it faces challenges with customer acquisition costs, making it volatile.
- Digital media channels are the top channels expected to have increases and decreases in ad spending in 2023 and 2024. Digital channels offer flexibility during times of economic uncertainty because funds can be funneled into or out of them more rapidly than traditional channels, like linear TV.
- AI is the dominant technology that agencies expect will affect their businesses in the near future, and generative AI is the top form of AI tech agencies use, according to 72% of survey respondents. However, focus group executives said they’re mostly using AI for back-end applications like data analysis.