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Based on a mixed bag of disappointing results, but record selling periods in the fourth quarter of last year, digital media could start off 2023 less optimistic than it’s been for decades.
An analysis of fourth-quarter activity by independent performance marketing agency Tinuiti shows most corners of digital media saw a less than stellar financial results, including streaming video, paid social, paid search and e-commerce.
But as Andy Taylor, Tinuiti’s vp of research explained, any digital channel that leans toward the performance side of marketing had a bit more reason to be upbeat. “Those channels and platforms that have really been proven drivers of performance — really tried and true campaign types in terms of driving that return on ad spend — those still grew pretty meaningfully,” said Taylor. “And I think we’re probably going to continue to see that focus in the early months of 2023, where a lot of marketers are focusing on channels and platforms that they feel confident will deliver them results.”
Tinuiti’s Q4 Digital Ads Benchmark Report bases its findings on anonymized analysis of the $3 billion or so in media spend it handles for clients across what it dubs the “Triopoly,” consisting of Google, Meta and Amazon, along with spending on streaming video.
One of the highlights of Q4 was how strongly virtual sales registers rang during the Cyber Five — the time between Thanksgiving and Cyber Monday. “Consumers have been conditioned over many years to expect the best prices and discounts to occur around Black Friday and Cyber Monday,” read the report. “Thus, it’s no surprise that shoppers took advantage of these key days when making purchases in a year when inflation stood to impact many buying decisions.”
But that’s largely where the unequivocal good news ended in the report. Here’s a breakdown of the report’s main sectors and their findings.
Streaming Video
The Q4 scatter market for video, including streamers, was quite soft, which enabled advertisers to access more premium inventory than they historically could afford, noted Tinuiti’s Taylor. While this premium inventory was 86% more expensive than inventory purchased through real-time bidding in Q4 2021, that gap fell to just 62% in Q4 2022. Hulu CPMs, for example, were down 22% in Q4 compared to Q4 ‘21, but total streaming CPMs fell just 4% as advertisers shifted budgets from RTB inventory to more traditionally purchased inventory. Given that demand remains weak, streaming video advertisers can expect to keep the bargains going in early 2023 since the market hasn’t really tightened up.
“A lot of the brands we work with are starting to shift into that more expensive inventory because they’re getting it at these unprecedented discounts,” said Taylor. “The reason why that stuff is offered at a discount is because so many folks are getting out of their their obligations for that premium inventory. For the advertisers who are looking to pick that stuff up, it’s actually a really good opportunity to get into these spaces.”
Paid Social
The average CPM for Meta’s varied inventories declined 22% year over year in Q4, the second straight quarter to drop — which was good news for advertisers. That said, despite the year-over-year drop, Facebook’s Q4 2022 CPM remained 26% higher than in Q4 2020, while Instagram’s CPM was 15% higher. The main saving grace for the company is the continued success of its Reels product, which aims to compete with red-hot TikTok. Impressions across Meta properties grew 9%, the strongest growth since 2020, thanks largely to inventory from Reels, which accounted for 8.3% of Instagram ad impressions in Q4 2022, up from just 4.7% in Q3.
Meta is “innovating and trying to give advertisers the best tools possible to drive that performance, which is going to be a really important part of how much advertisers spend this year,” said Taylor.
Paid Search
While Google search ad click growth didn’t fluctuate much over the last year and a half, weakening pricing growth saw Google’s text and shopping ads slow their growth patterns. In total, Google search spending in the U.S. rose 10% in Q4 over Q4 ’21 (clicks grew 8%), but cost per clicks (CPCs) rose just 2%. With economic challenges of high inflation, rising interest rates and the possibility of a recession instead of a soft landing, Google’s text and shopping ads’ growth levels over 2021 are getting smaller.
Marketplaces
Amazon Sponsored Products’ spend grew 17% year over year in Q4, slower than the 24% growth of Q3, as CPC for the format fell in aggregate for the first time since 2020. Sponsored products’ CPC fell in 10 major product categories, the most significant drops seen in beauty, baby products and pet supplies.
Walmart sponsored products clicks, meanwhile, skyrocketed 98% in Q4 compared to Q4 ‘21, while the average CPC dropped 59%, the report found. Its return on ad spend ROAS was at least twice as high in every month of Q4, “peaking in November at more than three times what was observed in April 2022.”
Although his job is to solve omnichannel media solutions for local media companies — which is more digital than ever — Oliver Jacob, CEO of media software firm Frequence, agreed with Tinuiti’s conclusions that “digital is going to remain the main driver of revenue.” Jacob added, however, that “we will continue to see pressure to reduce operations costs.”
Whatever influence media agencies lost thanks to programmatic is on the resurgence once again.
All it took to happen was a dose of reality on the future of the open, convoluted marketplace of programmatic inventory.
The reality here is that it’s stuck in a rut: The buy-side of these deals want fewer auctions to listen to because doing so costs money, while the sell-side wants to run as many of them as possible because doing so makes money.
If only there were ways for advertisers to curate ad tech sellers, pools of inventory and sites into a safer sandbox — one that’s bereft of the low quality, sometimes duplicitous, inventory that tends to be a direct consequence of what makes the programmatic marketplace so open.
Enter media agencies.
They’re trying to bring order to the chaos. To be fair, they’ve been trying for a while. The emergence of trusted marketplaces, supply-path optimization and custom bidding algorithms are proof of this. But they only worked up to a point. Agencies have only been able to aggregate so much buying power around programmatic, after all. That’s changing — slowly but surely.
The change is happening slowly, because it’s a change that started years ago when agencies began consolidating their ad dollars into fewer ad tech vendors, or programmatic marketplaces known as supply-side platforms. It’s also happening surely, because this sort of consolidation was never going to give agencies the control over programmatic inventory they craved. Not when those deals were really about agencies using their buying power to negotiate volume-based discounts.
“There are still agencies trying to consolidate the number of SSPs they buy from, but many of them have moved on from this and are now looking at how they curate programmatic inventory using SSP tools,” said Kyle Dozeman, Chief Revenue Officer of ad tech vendor PubMatic’s Americas business.
That is to say the big media agencies are asking the likes of PubMatic to create tools they can use themselves to separate the wheat from the chaff in the open auction. This means the ad tech vendor would have no involvement in the curation, activation or management of those marketplaces. They would just provide the tools to do it all across a broad set of inventory the agencies want. In short, the days of SSPs trying to create programmatic marketplaces that the account teams at the largest media agencies find valuable are fading.
“We’ve been able to support agencies in building their own marketplace solutions that help them empower that service layer, improving performance and reducing manual work for the advertisers, while also supporting clean, and more direct supply paths,” said Phil Acton, country manager at ad tech vendor Adform. “This allows for agencies to build a service layer that adds transparency and allows them to optimize for their specific client’s needs in an active vs. reactive way.”
It’s still early innings, of course. Even so, it’s already clear that agencies have a lot riding on these deals. Success or failure could mean the difference between a differentiated programmatic strategy in an otherwise already crowded and commoditized ecosystem or further disintermediation. This is no mean feat given how hard it is to show value to a client in an industry like programmatic, where success tends to come from following the easiest route to digestible metrics and plausible results.
Still, agencies are nothing if not adaptable.
“There is a place for someone with enough market intel to step in and perform curation on the supply-side and then package that inventory up for the demand-side to purchase,” said Ryan Eusanio, managing director of digital activation at Omnicom Media Group. “Agencies have been stepping into that space recently because we’re so close to the actual end client who wants to buy the inventory. We’re curating with their goals in mind.”
Curation at this scale is tricky. Agencies aren’t just trying to curate another supply-side platform’s inventory anymore. They’re also creating their own supply pipelines of curated inventory. That requires a certain blend of data science smarts, product engineering nous, artificial intelligence and machine learning bidding algorithms to make it stick. Otherwise, these efforts do more harm than good, causing the wrong data to be collected in the wrong ways for the wrong outcomes.
It’s no wonder agencies like Omnicom have been working on nailing these auction packages of sorts for several years already. It’s a massive undertaking with many moving parts.
For instance, the agency has to have a set of guardrails around what inventory it wants to curate on behalf of its clients. But it can’t really do that unless it has the expertise and tech to vet, gather and process the data needed to fulfill that philosophical view. Even then, this only makes sense if the agency has the commercial clout to drive down the costs of running such a vast and complicated operation. All told, there are prerequisites to doing this sort of thing.
“We see over 1,400 different ways to buy a 300 by 250 [ad unit] on one site alone through our inventory graph — and that’s just in the month of January,” said Eusanio. “If you don’t have all those prerequisites in place and you try and do this curation then the risk is you make optimizations for the short term that are not beneficial in the long run.”
If it’s not already clear, SSPs are key to these plans. They have more data on inventory than demand-side platforms. More data means better curation, which means marketers have less of a need to buy from the open auction. This won’t happen overnight, obviously. It will, however, be given a boost from the need for more transparency and richer data sans third-party cookies. Different as these trends are, both are predicated on agencies getting closer to the supply-side of programmatic advertising.
For example, Horizon chose the sell-side platform OpenX as its first programmatic partner to directly integrate its Blu.ID identifier so the agency’s marketers could leverage proprietary data segments through deals.
“This is definitely a shift in the marketplace but shows that advertisers are looking to the supply-side for publisher-adjacent targeting capabilities so they can achieve greater control, transparency and performance,” said Matt Sattel, svp of sales at OpenX. “The supply-side is meeting buyers’ desire for control through deeper integrations with their first-party data and preferred identifiers moving the industry away from cherry picking and towards data-driven deals which has always been the promise of programmatic.”
Electronic Arts’ Q3 2023 earnings call on Tuesday was a mixed bag for the gaming giant — but “The Sims” was a bright point. As marketing dollars flood into platforms such as Roblox and Fortnite, EA sees its popular simulation game as its way to secure a piece of the metaversal pie.
Gaming platforms are currently the closest thing to a truly immersive and persistent digital world, and brands have taken note. As games like Fortnite, Roblox and Minecraft transform into full-service metaverse platforms, marketers have spent millions of dollars partnering with in-game creators to build bespoke virtual brand experiences inside them.
EA didn’t use the word “metaverse” a single time during its Q3 2023 earnings call — but the game developer has clearly taken note of the revenue-generating potential of virtual platforms powered by user-generated content, or UGC.
“There’s no doubt in my mind that ‘The Sims’ will be [as big as Fortnite and Roblox] at some point,” said Samantha Ryan, an svp and general manager at EA who oversees studios including Maxis, the developer of ‘The Sims.’ To learn more about EA’s plans to crank up the UGC capabilities of its games, Digiday spoke to Ryan for this annotated Q&A, supported by observations from EA’s Q3 2023 earnings call.
This conversation has been edited and condensed for length and clarity.
“For my studios, I have Maxis, which is the guardian of the ‘Sims’ franchise, and Full Circle, which is the guardian of the ‘Skate’ franchise, and those studios are both working on future projects that are very ‘game-out.’
Game-out is about making sure that the game elements and features that people know and love are respected, and are delivering everything that they would want to keep them highly, deeply engaged. And then around that we put a layer of in-game tools that our players can use directly in the game, merging and using them with outside tools as well, so it’s easy to take things from the ‘out’ and put them into the game. It’s not a surprising strategy, because it is similar to what some of these other companies are doing.”
— Ryan
It’s no surprise that Ryan zeroed in on “The Sims” in her answer to this question. It’s one of EA’s most popular series — if not the most popular — and “The Sims 4” boasted a total player count of 33 million in October 2022, six years after its initial release. (33 million, while a relatively high player count for any game, is still dwarfed by the 173 million and 400 million users respectively enjoyed by “Minecraft and “Fortnite.”)
“The Sims” is a series that is based on the construction of virtual worlds and virtual people to populate them, much like Roblox and Minecraft. Still, as it currently stands, “The Sims” is more of a simulation game — not a true metaverse platform. While users can share their creations with each other, they cannot co-create simultaneously. In Roblox and Minecraft, socializing with other players in-game is practically necessary to keep things entertaining; in “The Sims,” the core gameplay loops are mostly single-player.
“We are working on the next ‘Sims’ game — ‘Project Rene’ is its code name right now — and we did an apartment customization test where they were testing how multiple players would build together. Historically, in ‘The Sims,’ you have not been able to do that. But it is something that our players have asked for. They actually hack it in there — there are mods out there where two people can build an apartment together. So if the modders are already doing it, and it’s really hacky and hard to use, then of course we should be putting it in a future game.”
— Ryan
The planned changes to “The Sims” outlined above by Ryan show how the game’s developers at Maxis are well aware of the inherently social nature of today’s leading metaverse platforms. Taking cues from game modders is also important for EA to ensure that the final product lines up with the community’s expectations, and EA has recently started to test prototype versions of its games with select group of players, sometimes under NDA, before rolling out the final release.
Another key change that EA has made to bring “The Sims” closer to its metaversal competitors is the series’ recent switch to a free-to-play, live service model. “The Sims is also evolving and growing as a live service,” said EA CEO Andrew Wilson on Tuesday’s earnings call. “In Q3, we took the base game free-to-enter and welcomed over 10 million new players into the community.”
“The great thing about EA is that Maxis, and to some extent ‘Skate,’ have already been working in this space. The ‘Sims’ franchise is 23 years old, and user-generated content has been in that franchise since the very beginnings. ‘The Sims 4,’ which we operate right now, has over 88 million total uploads into the ‘Sims 4’ gallery — I mean, that’s a lot of content, and we do about 200,000 downloads daily from that same gallery.
We also just announced a partnership with Overwolf to create a destination to download mods and custom content, to ensure it’s a bit more moderated and curated. That is one of the challenges with this type of content: that people are often afraid to access it. So that’s ‘The Sims 4’ today, and most of those mods that are out there, they’re creating them with in-game tools, but it’s not super easy to access them. So in the future, we hope to make it even easier for people to create and even easier for people to access.”
— Ryan
EA’s partnership with Overwolf is another reason to believe that the company views Minecraft as a serious competitor. Overwolf owns CurseForge, the largest online game-mod-sharing platform. Millions of users visit CurseForge every month to download Minecraft mods — and now they are also served “Sims” mods whenever they navigate to the CurseForge home page.
“We believe that UGC is the future of gaming. Gamers get more content, mod authors are recognized and rewarded for their creations and publishers can outsource content creation in a way that is safe, while fostering engagement,” said Overwolf CEO Uri Marchand. “Overwolf’s partnership with ‘The Sims 4’ marked a significant step toward unleashing the community’s creativity and making UGC more accessible to the entire ecosystem.”
“We have already done branded packs with ‘The Sims 4.’ We’ve done clothing brands, we’ve done big brands, we’ve done community collaborations. We will do more over time — we’re just dipping our toes in now.
‘The Sims 4’ is going on 10-plus years, so if we have that same kind of thread, then yes, the genius of our players will inspire new things to be created. And then we, as a development studio, can decide, ‘hey, do we want to professionalize that? Do we want to allow them to become sort of semi-pro modders, as others have done in the Minecraft and Roblox communities?’ There’s a lot of things we can do to really keep these games humming along for many years, with players at the center. It’s a self-sustaining wheel that goes around, and players are driving it — and when we see something that we can support, we’ll jump in and we’ll do that.”
— Ryan
Platforms like Fortnite and Roblox are full of branded experiences created by independent creator studios without any involvement on the part of the platforms’ developers. In contrast, most brand activations in “The Sims 4” are the result of direct partnerships between EA and the brands. If EA truly wants to compete with today’s leading metaverse platforms, it will have to support the development of a more robust creator economy that allows brands to activate inside the game with minimal involvement from EA itself.
“The future of entertainment is interactive,” said Wilson on Tuesday’s earning call. By pushing titles like “The Sims” and “Skate” into the metaverse using a game-out approaching, EA is betting big on the continued rise of interactive, immersive and virtual media.
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The economy will plague both the media and marketing industries in 2023 — this is something that is already starting to play out. But the hit will be uneven between publishers and agencies.
This is according to a Digiday+ Research survey of 139 publisher and agency professionals.
Digiday’s survey found that publishers and agencies agree that the economy will be a major hurdle this year. Both groups identified economic trends as the No. 1 challenge their industries will face in 2023. This isn’t necessarily surprising, but it is a big change from last year, when the economy wasn’t even included on Digiday’s list of challenges for either industry (cookie deprecation was the top challenge for the media industry last year, while agencies were most concerned about the Great Resignation).
For publishers, the foreboding feeling regarding the economy was clear in the survey results. More than three-quarters of publisher pros (77%) told Digiday that economic trends will be the biggest challenge the media industry faces this year.
Agencies also made it clear that economic challenges are on their mind in 2023, although to a lesser degree. Fifty-nine percent of agency pros told Digiday that economic trends will be the agency industry’s biggest challenge this year.
This isn’t the first time concern about the economy has surfaced in our research reporting: Last month we reported that 59% of publishers agree the economy will hurt their companies’ performance this year, and that only 35% of publisher pros are optimistic about the media industry overall. Meanwhile, 56% of agencies agree the economy will hurt their 2023 performance.
Looking at each industry’s concerns, the picture of how big a challenge the economy will be this year becomes clearer — mostly because it turns out that economic trends beat out other potential challenges in both the media and agency industries by quite a wide margin.
Publishers are concerned about the economy far more than other obstacles they might encounter this year. After the 77% of publisher pros who told Digiday economic trends will be the industry’s biggest challenge this year, the next largest group was a mere 11% who said the supply chain’s impact on ad spend will be the biggest challenge to the media industry in 2023.
No other potential challenge even hit double-digit percentages: Cookie deprecation came in at 6%, followed by staffing turnover at 3%, and walled gardens and video ad measurement and attribution, which each came in at 2%.
The economy will also be the biggest challenge for agencies this year, but it didn’t come out as far ahead of other potential challenges as it did for publishers, according to Digiday’s survey.
Following economic trends, which 59% of agency pros said would be their industry’s biggest challenge in 2023, 16% of respondents to Digiday’s survey said staffing turnover will be agencies’ biggest challenge this year. Eleven percent of agency pros said video ad measurement and attribution will be the biggest challenge, 5% chose both cookie deprication and walled gardens, and the supply chain’s impact on ad spend brought up the rear at 3%.
Increased spending in retail media is bringing tremendous growth, but it also means more challenges — both old and new — in data standardization, competition and partnerships.
WARC’s Marketer’s Toolkit 2023 listed retail media as the fourth-largest advertising medium with an ad forecast of $121.9 billion globally in 2023, up 10.1% from the previous year. In the U.S., eMarketer projects digital retail media ad spending will grow 25.8% to reach $51.36 billion this year and $61.15 billion in 2024. But with greater fragmentation and competition, not all stakeholders will succeed in retail media.
“The rise of retail media mirrors in many ways the rise of digital in the late 90s,” said Brian Gleason, chief revenue officer of commerce media platform Criteo. In January, Criteo and Magnite partnered to extend retail audiences into CTV advertising.
“Many have a split revenue model where they offer inventory to outside partners to monetize and sell, and after a massive amount of fragmentation in the beginning — with different technology, measurement, and sales partners — only a few emerged in each category,” Gleason explained.
The global pandemic contributed to an acceleration in retail and an explosion of shopping channels. Some growth in retail is also spurred by privacy changes to third-party cookies. Yet in a new Association of National Advertisers retail media report in January, marketers expressed having “mixed feelings” and concerns with RMNs despite the continued spending.
Some of those concerns have been present across the industry, particularly in measurement. In a survey of 138 ANA members (of which 80 say they use RMNs), advertisers said their RMN activations were not fully optimized to deliver expected KPIs. However, 73% of respondents said they expect to be spending somewhat or significantly more on RMNs in the future compared to their current level of spending. As the ANA report notes, “RMNs are here to stay.”
With retailers and non-retailers building their own retail media platforms, greater fragmentation is inevitable. Even Uber and DoorDash have their own traffic and purchase data, and retail giants from CVS to Target are turning their websites into ad platforms.
This is similarly happening in CTV, said Hunter Terry, vp solutions consulting and CTV commercial lead of Lotame. Every streamer is creating its own unique platform like RMNs, simply because “networks are the ones with the data,” Terry said. “Anyone who has customer data is going to package it and sell it.”
Based on ANA’s research, most advertisers use between five and nine different RMNs in their overall marketing programs — resulting in a “lack of standardization across platforms,” respondents said. The survey found 57% of marketers said this was a big challenge in managing RMNs due to the lack of quality and consistency in data and reporting from each RMN and different retailer offerings. This makes it difficult to compare results cross-platform.
Jacob Harrison, director of e-commerce investment strategy at CMI Media Group, a WPP-owned agency, said this competition in the marketplace will increase rapidly. From QR codes and voice assistant capabilities to TV commercials and augmented reality, Harrison believes there is “an entirely new landscape” in which retail media platforms have to compete.
“Competition within these platforms looks at three things: efficiency of use, availability of goods, and fast shipping,” Harrison said. “While this seems like an out of touch concept that we knew many years ago, major retailers continue to strive for better ways to execute on these three points.”
Criteo’s Gleason also noted the growing challenges with more ad tech companies offering retail media as an “add-on,” leading to further fragmentation in the market. Adding to the complexity, he said, different retailers are at different stages of maturity with their media, so what works on one may not yet be fully functional on another.
As WARC notes in its Marketer’s Toolkit, analytics is going to emerge as the new battleground in retail media. In this “third wave” of commerce, turning shopper data into actionable insights will become the focus. But measurement and standardization problems are certainly not unique to RMNs — the same is true with CTV lacking a common set of metrics.
“Speed is the currency of digital commerce. A big part of the value of retail media networks is the access they provide to first-party data,” said Gregory Grudzinski, head of content at WARC Digital Commerce.
For advertisers and their agencies, this lack of standards creates difficulty in properly evaluating their RMN investments. When ANA asked its members how they compare the measurement capability of RMNs with others in the marketing mix, 47% said it was “significantly weaker” and 20% said it was about the same. As retail media is still a relatively new category, the association notes that more studies are needed to understand its effectiveness and encourages advertisers to use industry standards for media and ad measurement, such as Media Rating Council accreditation audits.
ANA also found that nearly half of advertisers in the study were managing their holistic measurement across RMN in-house, with another 38% working with an external agency. Another 29% use a third-party resource, while 11% were not managing measurement holistically at all. This shows that data responsibilities are shared across organizations.
And as targeting becomes limited by increasing privacy regulations such as GDPR and CCPA, CMI Media’s Harrison said marketers will have to focus more on the upper funnel to find their audience. He advises: Look for spend shifts from search to display and put more emphasis on retargeting.
“The marketing side of retail media really hinders the ability for a brand to be able to target properly,” Harrison told Digiday.
“Ten years ago, we could pick Jane directly out of the back end of a retail platform and serve Jane a message with the last few items she purchased online and the complimentary products she needed next. Now we don’t know Jane, we don’t know the specific products Jane purchased, and we don’t have the ability to directly influence Jane on her next purchase based on that history.”
Even as retail media presents obstacles, there may still be a bright side here for media agencies. Grudzinski believes they will thrive as this space develops – especially when it comes to analytics and operations departments. Brands that can turn consumer behavioral data into insights and use it in their strategy will come out ahead in digital commerce, and that means hiring an agency with expertise to execute on that.
“One of the quickest paths forward is to hire a team of media and analytic experts,” Grudzinski said. “Even brands with robust internal analytic capabilities can use agencies as a force multiplier.”