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Media Inflation – 2019 Annual Forecast for Canada

For several years, Forde & Semple Mediaworks has conducted an inflation forecast survey across all the top

media agencies in Canada to provide an industry forecast view of the media inflation for the upcoming year.

This effort, along with our industry-leading media auditing services, is geared to helping advertisers to

understand how their media activity is impacted by the evolving changes in the greater media marketplace.

Following is an aggregate of our findings and a brief overview of some of the factors that may be driving the

forecasts.

Solid Economic Forecast, but Uncertainties Lie Ahead

Canada’s economic statisticians are expecting to see GDP growth of 2.1% for both 2018 and 2019. While

that’s a reduction from the 3.0% of 2017, it’s seen as a more sustainable pace and still places us among the

top performing countries in the world, though our neighbours to the south are forecast to deliver GDP growth

of 2.8 and 2.4 in 2018 and 2019 respectively. The US trailed Canada in 2017 with 2.2% growth.

Despite the overall solid forecast for Canada, there remain several major factors which could impact our

economic performance – the NAFTA talks, which are now tentatively resolved but still to be ratified by all

parties; the Alberta/BC oil pipeline; the steel / aluminum tariffs; a 2019 federal election looming, but not yet

confirmed; the current, highly volatile stock market, possibly shifting to bear market, both here and in the

US, etc.

As we noted last year, not all media are equal beneficiaries of the strong economy in which we find ourselves.

Following is a run-down of the key media inflation forecasts for 2019:

Television cost in 2019 is forecast to rise by +7.1% vs. 2018 – the highest of all measured media. That

increase follows an abnormally high increase in 2018 – at +5%, a number we expect will hold up once fall

2018 data has been analyzed. So what’s driving these high cost increases? TWO major factors: (1) audience

erosion due to fragmentation and tuning lost to OTT / streaming options, and other diversions – while it’s

been slow to occur, it’s real and it is impacting efficiencies – unit costs go up (in line with CPI), while audiences

go down – we see a doubling of the impact on CPMs and CPRs; AND (2) There’s less ‘bonus’ or discretionary

weight available – typically, larger advertisers could expect 2-5% of their weight to be no-charge, unsold

weight that the broadcasters offer up to their top agencies / advertisers. With audiences coming in below

estimates on post-buys, any unsold inventory is being used as compensation, so there’s been little ‘no-

charge’ weight to be had.

2013 2014 2015 2016 2017 2018 2019

% % % % % % %

TV +2.0 +1.5 +2.5 +2.9 +3.2 +5.0 +7.1

Radio +3.0 +2.0 +2.0 +2.1 +2.1 +1.9 +2.1

Magazines +1.5 +1.0 +1.0 +1.3 +1.4 +1.2 +0.9

Media Inflation Projections

Radio inflation is forecast at +2.1% – very much in line with the inflation figures we’ve seen over the past

several years for Radio. This really is a story of solid continued performance for the medium and likely little

change in its use by its listenership and its advertiser base. While there are myriad players offering music

streaming services (MSS) – Spotify, Apple Music, Google Play, Amazon / Alexa Music, Tidal, etc – they are

heavily reliant on GenZ and student segments, for whom the smartphone is a cornerstone device. For now

however, it appears that Radio is not feeling the pinch in terms of ad pricing, tuning or cost pressure.

Magazine inflation is forecast at a historical low +0.9%. Over the past 3-4 years, Canada’s magazine industry

has seen significant contraction in titles (closing), frequency of publication (reducing), and staff reductions in

both editorial and production, with some titles moving to ‘digital only’ availability, and others closing

altogether. Currently Rogers is looking to sell its entire stable of consumer titles. Journalism is under

pressure, but it needs financial support from readers and advertisers to remain healthy. Concern is whether

those entering the workforce now have become too accustomed to receiving their news and entertainment

digitally and ‘free’, to establish a new habit of paying for it – and without new paid readers, the magazine

industry will continue to founder.

Newspaper inflation is forecast at only +0.5% cost increase, and even that may prove to be high in this

environment. That’s the lowest increase of all media, but they are working hard to bolster their revenues

with online and other offerings – the Toronto Star, Canada’s largest circulation daily just announced a second

attempt at a ‘paywall’ for online access – the first proved unpopular with readers, was replaced by a tablet

app which has since been canceled. The Globe & Mail has had a paywall in place since Oct 2012, but there’s

little published on its digital-only subscriber base and for the most part, paywall revenue is not seen as

substantial enough to replace the revenue lost from major advertisers that have moved much of their spend

away from newspapers. Postmedia recently announced a 10% revenue drop for Q4 2018, with print revenue

down 17%, offset in part by a +13% increase in digital revenue. To bolster revenue Postmedia launched two

cannabis-related properties – TheGrowthOP.com and Cannabis Post newsletter, in effort to cash in on the

‘budding’ economy.

While all newspaper titles have had to make major adjustments to reduce editorial, distribution and printing

costs, those efforts are still not compensating for the losses incurred in ad revenue.

Outdoor, with a 3.3% inflation estimate, continues to show remarkable resilience to the digital onslaught,

by migrating to digital video boards, place-based digital, and high-impact channels, many of which command

premium dollars and are confined to major urban markets, where the demand lies. They’ve also embraced

technologies like beacons, near-field communications and programmatic sales, which positions it well within

the digital consideration set for video and static messaging distribution. The inflation forecast for OOH places

it at #4 for 2018 increases in measured media.

This is the second year for our expanded media forecast list

which now includes Newspapers, OOH and Online media.

At right are the past two years’ forecasts. As with the other

media, we see a large divergence between the ‘haves’ and

the ‘have-nots’.

2018 2019

% %

Newspaper +0.8 +0.5

Outdoor +3.1 +3.3

Search +1.4 +4.8

Online Display +2.0 +2.3

Online Video +5.5 +6.8

New Additions To

The Analysis

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Online media overall should see a 3-7% inflationary rise in Canada, but the elements that make up the

whole, are outlined below. Online continues to dominate the media press and the consciousness of

agencies and advertisers alike. Tremendous growth and change has come with big issues around

transparency, brand safety, visibility, fraud, and data management to name a few. The Facebook /

Cambridge Analytica scandal, concerns about phone and home device ‘listening’, the institution of GDPR

in Europe, and possible similar legislation in North America, make privacy a concern that is bigger than

ever for many. That said, it continues to flourish, while efforts to rein in the buying and ‘supply chain’

issues continue. However, Online is many things – our forecasts are based on Search, Online Display and

Online Video.

Search is forecast to increase by +4.8% in 2019. This is a fairly large increase, suggesting that there is

reason to believe that there will be increased competition for search terms, since that’s a large

determinant of pricing in a dynamic, (bid-based) pricing environment. We would expect that select

categories will see more pronounced increases, while other, less intensively supported categories will see

significantly lower increases.

Online Display growth has flattened somewhat, with increased focus from advertisers on video ad

message distribution. Despite this, Display inflation is forecast for a +2.3% increase, which aligns closely

to the current forecast for overall Consumer Price Index (household inflation) for Canada. While display

is still a significant part of the overall online activity base, the growth is really coming from Video.

Online Video represents the second highest inflation forecast for all media in 2019 at +6.8%, and is very

much in lock-step with that ‘other’ major Video purveyor - Television (at 7.2%). This is a reflection of more

premium, direct buying to secure ‘safer’, high reach placements, and importantly, an emphasis by the

publisher side of the industry to maximize their revenue opportunities by filling a premium-priced video

need, and application of ‘header bidding’ (or pre-bidding) in programmatic buying process to drive up unit

costs. Ad viewability is also being more aggressively tracked, which will also press costs up as lower

viewable sites / positions are discarded in favour of more trustworthy and measurable vendors. The

continued rise of mobile and flattening of desktop as the primary online ‘device’ also weighs in on cost,

due to the ubiquity of smartphones. While demand for premium video has outstripped availabilities in

the past – and may remain so in the near term, the industry is forging ahead with more premium video

opportunities to serve growing industry needs for safe, high-quality video placements. This range of

factors all contribute to driving up the inflation rate for online video.

If you’d like to learn more about how your firm’s advertising activity is faring in an ever-evolving media

world, please contact us. We have the expertise, the tools, the team and the processes to assist you in

better managing your media costs in this era of increased inflationary impact.