Barclays predicts UK digital advertising spend to grow to £15bn in 2019

• New report explores the growth of adtech
• Double digit growth in digital advertising forecast this year
• Digital advances transforming traditional advertising, such as outdoor
• M&A activity buoyant with restructuring and private equity interest booming

A new report from Barclays Corporate Banking reveals the boom in digital marketing is set to continue this year, with double digit growth expected to push digital advertising spend in the UK above £15bn in 2019.

The Adtech Ascendancy report examines the future of the marketing services industry, assessing the disruption underway in the sector, with restructuring and continued evolution emerging from the shift to digital shaping the sector.

Barclays spoke to industry leaders across marketing services to gain insights into the future prospects for advertising agencies and consider how firms can adapt to the changes sweeping the market. Overall, there was a good degree of optimism, tempered by a healthy recognition that any slowdown in the wider economy would inevitably have a knock-on effect on the sector and potentially lead to further margin pressure for firms.

Relationships with FAANGs (Facebook, Apple, Amazon, Netflix and Google) are understandably crucial for many agencies, with Google and Facebook alone accounting for 58% of the $111bn global digital advertising market. However, some of the experts consulted did strike a note of caution around relationships with the tech giants, encouraging agencies to keep some distance and ensure they retain their objectivity and discretion.

The FAANGs have also been a major driver of the explosion in technology M&A over the past decade, as even accounting for the organically growing Netflix, the remaining four have completed over 400 M&A deals since 2007. Barclays believes that M&A activity will continue at pace in marketing services this year, with private equity firms maintaining their interest in the sector and restructuring at companies like WPP presenting a range of opportunities.

The report identifies a shift towards better transparency as a significant development in advertising. Charging for marketing services work is becoming less opaque as traditional retainers are increasingly replaced by project-based activity, with more open and straightforward pricing models becoming the norm.

Coupled with this, a preference for end-to-end solutions rather than engaging multiple agencies appears to be taking hold and is increasingly attractive for many clients. Others are opting to bring some marketing activities back in-house, presenting challenges for agencies looking to retain workflow but also opportunities for providers of niche or specialist services, such as data-driven creative and innovative digital out-of-home strategies.

Indeed, Barclays’ report selects out-of-home (OOH) advertising as an area with great potential. 2018 marked a tipping point, with digital OOH advertising surpassing traditional outdoor for the first time. The rapidly expanding availability of digital signage provides further opportunities for growth in OOH, with smart data helping companies employ highly personalised targeting tied to specific locations.

Looking further ahead, the report considers how the next generation of technology, such as artificial intelligence, augmented reality and machine learning could transform advertising. While recognising the potential for these advances to facilitate more creative and impactful content, Barclays cautions that commercial applications are still in the early stages and more work has to be done to bring them into the mainstream.

Sean Duffy, Head of TMT at Barclays Corporate Banking said: “Fintech grabs all the headlines, which is understandable given the number of fintechs doing amazing things and delivering spectacular results. It feels like adtech is slightly pushed to the sidelines, which is a mistake as it is transforming advertising and can be another real growth engine for the UK economy. Adtech is already helping UK businesses compete on the global stage and will continue to allow brands to market themselves more effectively as further technology advances are harnessed.”

“Our conversations with marketing leaders revealed significant optimism in the sector and a clear recognition of the need for agencies to evolve constantly to meet client needs. Brands today want to know what they’re paying for, understand who their campaigns are reaching and have access to credible performance data on campaign effectiveness.”

“A priority for agencies and their clients now is to balance the desire to exploit cost-effectively the opportunities presented from the rise of digital and the potential for data-driven targeting, with the growing consumer and regulatory demand to respect privacy and not let personalisation appear intrusive.”

Barclays Corporate Banking was the first UK bank to set up a dedicated media team in 1986. By drawing on the decades of industry expertise their specialist bankers possess, the team is able to identify new trends in the advertising industry and help clients access financing options to allow their businesses to adapt and grow.