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Advertising Agencies in the US October 2019   7WWW.IBISWORLD.COM Industry PerformancePositive demandThe Advertising Agencies industrycomprises establishments primarilyengaged in creating advertisingcampaigns and placing suchadvertising in periodicals,newspapers, radio and TV and othermedia. Services include advice,creative services, accountmanagement, production ofadvertising material and mediaplanning and buying. Demand forindustry services has increased overthe five years to 2019 due to increasesin consumer spending and per capitadisposable income, despite a declinein corporate profit. IBISWorldestimates industry revenue to increaseat an annualized rate of 3.9% duringthe period to 53.9 billion, includinggrowth of 2.6% in 2019 alone.Over the five years to 2019, consumerspending and per capita disposableincome increased at annualized ratesof 2.9% and 2.4%, respectively. Due tothese increases, businesses expandedtheir marketing budgets, hoping tocapture a portion of increasedconsumption. Industry demand hasgrown despite an annualized decline incorporate profit, which is estimated todecrease 1.7% over the five years to2019. Typically, corporate profitgrowth contributes to industry demandsince companies are more likely toinvest in advertising services duringperiods of higher corporate profit.Nonetheless, despite this decline totaladvertising expenditure has trendedupward. IBISWorld estimates thattotal advertising expenditure hasincreased an annualized 2.6% duringthe period.A growing economy and favorableconsumer spending patterns haveenabled industry companies to expandoperations and motivated more nicheagencies to enter the industry. Over thefive years to 2019, IBISWorld estimatesthat the number of industry enterpriseshas increased at an annualized rate of1.8% to 69,764 companies. The industry’sexpansion has also resulted in anincrease in the number of industryemployees and total wage expenditure.Industry wages are anticipated toincrease an annualized 1.8% during theperiod to 20.3 billion in 2019. Despitehigh revenue growth, profit has declinedover the past five years to 7.8% in 2019,down from 8.7% in 2014.The fragmentation of the mediaDigital media andintegrated campaigns landscape has expanded the mediumsand methods by which consumersinteract with brands. Most notably,digital advertising on a variety ofIndustry revenue108% changeCurrentPerformance6420-2Year 1113151719212325SOURCE: WWW.IBISWORLD.COMplatforms has constituted an increasingshare of total advertising spending. Overthe past five years, advertisingexpenditure for traditional media, suchas magazines, newspapers and networkProvided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   8WWW.IBISWORLD.COM Industry PerformanceDigital media andintegrated campaignscontinuedTV, has exhibited a general decline. Incontrast, internet ad spending has risensteadily over the past decade. Accordingto the Interactive Advertising Bureau, in2017, digital ad revenue overtook TV adspending for the first time ever. Theinternet typically provides a morecost-effective method of advertising andit improves a company’s ability to directlytarget specific consumer groups andmeasure results.Growing client demand for digitaladvertising and marketing campaigns hasforced established companies to adapt;evidenced by a growing strategic focus onenhancing digital capabilities. It has alsospurred increased demand for integratedmarketing campaigns, blurring the linesbetween traditional advertising, publicrelations and marketing service providers.Broadly, integrated marketing campaignsstrive to create a unified and seamlessexperience for consumers to interact with abrand. It attempts to leverage all aspects ofmarketing communication, such asadvertising, sales promotion, publicrelations, direct marketing and socialPricing andcompensationSome advertisers have moved away fromtraditional cost-per-medium/thousandimpressions, where advertisers purchaseadvertising space based on impressions,and toward formats that incite moreconsumer engagement. For example, manyadvertisers use cost-per-click advertising,which causes advertisers to charge theirclients a fixed fee each time theiradvertisement is clicked by internet users.Moreover, cost-per-completion advertising,whereby advertisers’ clients incur feeswhen the advertisement is actually viewedby the user, has become a pricing modelthat advertisers have increasingly used toattract engaged consumers.Over the five years to 2019, interactivevideo advertisements have spread acrossmedia, through their respective media sothat all reinforce each other. Although theconcept of integrated marketing campaignsis not new, the advent of digital media hasmade it all the more necessary whencrafting a well-rounded brand developmentstrategy given the growing number ofadvertising channels. According to theDigital Marketing Institute, 72.0% ofcustomers want to connect with brands viaintegrated campaigns.Both the growing demand for digitaladvertising expertise and integratedcampaigns have driven new companies toenter the industry and established companiesto pursue strategic acquisition activity. Forexample, the largest players in this industryare integrated agencies. Major playersOmnicom Group Inc., Publicis Groupe SA.and the Interpublic Group of Companies Inc.are all large integrated marketing andcommunication companies that provideadvertising, marketing, public relations andcommunication services. Integrated agenciescan provide a range of expertise and servicesto clients who are seeking to reduce thenumber of agencies they work with. Some advertisers havemoved away from costper-medium/thousandimpressionsdigital mediums, as advertisers haveaimed to develop two-way communicationbetween advertisers and audiences. Inparticular, industry clientele, such as theautomotive and electronic sectors, havetaken advantage of interactiveadvertisements to provide detailedinformation about products, whereasother sectors, such as entertainment, haveprimarily focused on interactivity.Provided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   9WWW.IBISWORLD.COM Industry PerformanceIndustryOutlookOver the five years to 2024, theAdvertising Agencies industry is expectedto continue growing, as the proliferationof digital mediums, such as tablets andsmartphones, provide new revenuestreams. For example, many digitaladvertising tactics have yet to be fullyused, such as mobile and location-basedadvertising. Furthermore, manycompanies are incorporating advertisingby design into new technologicalproducts and across social media. Overthe next five years, many companies willuse advertising services to lower theirtechnology product pricing.Emerging trendsThe meteoric rise of digital media,coupled with more TV options, meanscompanies are having to contend withincreasingly fragmented audiences.Although it may present a hurdle atfirst, this fragmentation is ultimatelyanticipated to pose an opportunity forthe industry moving forward. Growingaudience fragmentation will requireclients to purchase advertising spaceon an increasing number and type ofplatform to achieve a wide-reachingmessage. This is anticipated to driverevenue growth through an increasedreliance on media planning andbuying services. In addition, it willcontinue to drive growth for nicheagencies specializing in digitaladvertising. Viral marketingcampaigns are expected to becomemore prominent due to their low-costnature and accessibility to users withsmartphones and tablets.Over the five years to 2024, the numberof mobile internet connections is expectedto increase at an annualized rate of 1.0%,growing to an estimated 345.2 millionconnections. As mobile advertisingbecomes more prevalent, large agenciesDuring the outlook period, totaladvertising expenditure is expected togrow at an annualized rate of 2.7%,spurring industry revenue growth.Growth will also be driven by an increasein demand for value-added in-houseservices, such as marketing and publicrelations, which helps industry clientsdevelop a unified brand message bothdomestically and globally. IBISWorldanticipates revenue will rise at anannualized rate of 2.2% to 60.0 billionover the five years to 2024. Profit is alsoexpected to increase slightly during theoutlook period. Advertisingagencies thatfail to adapt to changes willlose market sharewill increasingly require niche operatorswith technology that measures consumerdemographics and analyzes howadvertising influences consumer demand.Therefore, IBISWorld anticipates thatmerger and acquisition activity among theindustry’s major players will continue. Inaddition, demand for digital advertisingcapabilities will continue to motivate morecompanies to enter the industry. Over thefive years to 2024, the number of industryenterprises is anticipated to grow anannualized 2.1% to 77,320 agencies.While digital media presents apotential opportunity for the industry,advertising agencies that fail to adapt tochanges will lose market share. Agenciesthat offer digital services will be able tomeasure tangible results more efficiently,thus ensuring a return on its clients’investments. Developing tools to measurecross-platform advertising campaignswill be vital.Provided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   10WWW.IBISWORLD.COM Industry PerformanceViral marketingViral marketing has become possiblethrough increasing social media use andpopularity. Viral marketing is differentfrom traditional media in that people opt toconsume and share content. Typically, viralmarketing is effective because there is noadditional cost to the advertiser once theadvertisement has been produced andplaced online. Unlike most onlineadvertisements, which charge clients basedon the number of consumer clicks, viraladvertisements are passed from user touser via e-mail or social networking sites.In the future, viral campaigns willbecome more targeted, especially becausemany products are now made with theintention of being virally marketed. Moreinvestment and planning will be requiredfor the placement of viral campaigns,with paid placement becoming morecommon. For example, clients will investin viral campaigns that not only receiveconsumer views, but are also sharedthrough social media. Also, viraladvertisements will likely continue Inthe future, viralcampaigns will becomemore targetedmoving away from the agencycommission pricing model, whichcharges clients a flat rate for advertisingservices, to incentive-based campaigns,which offer consumers incentives towatch an advertisement, often producingfavorable consumer purchase results.Therefore, agencies will require a morecreative and skilled workforce to producethese targeted campaigns. Over the fiveyears to 2024, the number of industryemployees is expected to grow at anannualized rate of 2.1% to 285,773workers. In the future, as manycompanies demand more in-houseservices and advertising campaigns fortheir global market presence, theindustry will require more employees toproduce creative work.Provided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   11WWW.IBISWORLD.COM Industry PerformanceLife Cycle StageIVA is anticipated to grow at a slightly faster ratethan US GDP over the 10 years to 2024Major agencies are engaging in significantmerger and acquisition activityThe number of industry enterprises has grown dueto demand for specialized digital agenciesThe services provided by this industry are becomingintegrated with other marketing functionsProvided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   12WWW.IBISWORLD.COM Industry PerformanceIndustry Life Cycle Thisindustryis M ature The Advertising Agencies industry is inthe mature phase of its life cycle.However, the emergence of digital mediahas provided an opportunity for vibrantgrowth. IBISWorld expects industryvalue-added (IVA), a measure of theindustry’s contribution to the overalleconomy, to increase at an annualizedrate of 2.0% over the 10 years to 2024.Comparatively, US GDP is forecast togrow at an annualized rate of 2.1% duringthe same period. IVA growth in line withGDP growth is considered characteristicof a mature industry.The industry has been marked bysubstantial merger and acquisitionactivity, which is also characteristic of anindustry in its mature life cycle phase.High and growing demand for integratedservices and digital capabilities havemotivated larger companies to pursuestrategic acquisitions. For example,major player WPP PLC made 52acquisitions in 2014 and another 40 in2015. Despite such high M&A activityhowever, the rapid growth in digitaladvertising has motivated morecompanies to enter the industry andprevented significant marketconcentration. Over the 10 years to 2024,the number of industry enterprises isanticipated to grow at an annualized rateof 2.0%.While advertising agencies areexperiencing growth in digital media,traditional media is currently in a state ofdecline. Despite this, most agencies stillrely on revenue streams from traditionalmedia. Likewise, many advertisers relyon traditional media formats, such as TV,newspapers and radio, to reach a broadaudience. Overall, while the industry isexperiencing some growth and change,the longevity and market acceptance ofthis industry puts it in the mature phaseof its industry life cycle.Provided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   13WWW.IBISWORLD.COM Products & MarketsSupply Chain Products and Services Demand DeterminantsMajor Markets International Trade Business LocationsSupply ChainKEY BUYING INDUSTRIES31212Breweries in the USThis industry demands liquor advertising.44-45Retail Trade in the USThis industry needs retail advertising.44111New Car Dealers in the USThis industry requires automobile advertising.48111bDomestic Airlines in the USThis industry requires airline advertising.51Information in the USThis industry demands computer and telecommunications advertising.51721Wireless Telecommunications Carriers in the USCell phone companies demand advertising from agencies.52Finance and Insurance in the USAgencies advertise finance and insurance products.72Accommodation and Food Services in the USThis industry requires restaurant and accommodation advertising.KEY SELLING INDUSTRIESProducts and Services51111Newspaper Publishing in the USNewspaper publishers provide ad space for advertisements.51112Magazine & Periodical Publishing in the USMagazines provide ad space for advertisements.51211aMovie & Video Production in the USProduction companies supply services and expertise for the production of TV advertisements.51224Audio Production Studios in the USStudios in this industry provide sound recordings for advertisements.51511Radio Broadcasting in the USRadio stations provide airtime for radio advertisements.51512Television Broadcasting in the USTV broadcasters provide airtime for TV advertisements.54143Graphic Designers in the USGraphic designers provide artwork for advertising firms.54191Market Research in the USMarket research firms help agencies find target audiences and demographics.The Advertising Agencies industry offersa broad range of services, includingmedia planning, market research, graphicdesign, media buying and public relationsservices. Advertising agencies alsoprovide client services such as direct mailmarketing and webpage design.Additionally, agencies offer servicesacross a variety of media, includingdigital and print advertising, thatconsumers can access with tablets,computers, newspapers, billboards andother media forms. Over the past fiveyears, internet advertising has increasedand newspaper advertising has declined,as evidenced by print advertisingexpenditure declining at an annualizedrate of 4.5% over the five years to 2019.Overall, general categories of advertisingservices listed below remain steady as allProvided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   14WWW.IBISWORLD.COM Products & MarketsProducts and ServicescontinuedProducts and services segmentation (2019)0.9%10.6%3.3%All other servicesPublic relations servicesMedia buying and planning services2.4%Sales promotion services19.3%Creative services63.5%Bundled creative andplacement servicesTotal 53.9bnare integral parts of campaign creation,monitoring and completion.Bundled creative and placement servicesBundled creative and placement servicesare estimated to account for 63.5% oftotal industry revenue in 2019. Industryoperators collaborate with clients tounderstand their vision, create acampaign strategy and concept and thencreate a finished product that conveysthis message to the intended audience.Depending on the size and scope of thecampaign, a creative team might produceseveral different ads in a variety ofmediums but maintain a common theme.Industry operators also provide mediaplanning, buying and placement services.Media planning and buying involvenegotiating, strategizing and purchasingad placements. When doing this, industryoperators must consider the productsthat are being advertised, the targetaudience and the campaign goals.Creative servicesNot all clients demand full service. Manyclients need only a particular functioncompleted. For example, a businessoperating within a defined industry mightonly have a handful of media outlets inwhich to advertise. Companies operatingSOURCE: WWW.IBISWORLD.COMwithin the industry are less likely to needmedia planning because they will knoweach of the publications; however, they arelikely to need creative work to develop anadvertisement, which is expected to makeup 19.3% of industry revenue in 2019.Creative work is the conception of ideasfor an advertising campaign andrepresents the second-largest source ofindustry revenue. IBISWorld expects thatcreative work will increase as a portion ofindustry revenue with the rise ofalternative forms of marketing, includingviral advertising, over the next five years.Media buying and planning servicesSome businesses create their owncreative content but still require mediaplanning and buying services fromindustry operators. Advertising agenciesoften have contracts with media outletsand can get a better price for media spacethan a business could get themselves.Thus, many business operators hireagencies to plan and represent them inthe field without creative services. Thisservice segment is estimated to represent10.6% of industry revenue in 2019.Other servicesAs global advertising agencies becomemore prevalent, offering a large numberProvided to: Seattle Pacific University (2134504200) 16 December 2019

Advertising Agencies in the US October 2019   15WWW.IBISWORLD.COM Products & MarketsProducts and Servicescontinuedof services has become critical to success.While many niche operators do not havethe capacity to provide all marketing andadvertising services in-house, theindustry is dominated by global one-stopshop advertising agencies such asOmnicom Group Inc., the InterpublicGroup of Companies Inc. and WPP PLC.These companies offer integratedmarketing services including publicrelations and corporate communicationsin addition to traditional advertisingservices. Conversely, many smallagencies have developed a market nicheby specializing in particular types ofadvertising. For example, an agencymight specialize in providing services toclients in healthcare, digital advertising,luxury brands, business-to-businessadvertising, employment advertising oradvertising to a particular demographic.All other services are estimated torepresent 6.6% of total industry revenuein 2019.DemandDeterminantsThe Advertising Agencies industry’smajor players are influenced by economicfactors affecting advertising expenditure,in addition to the price of media space.Demand for industry services is alsorelated to client’s advertising budgets.past five years, has a positive effect onconsumer discretionary spending. As aresult, businesses have increased theiradvertising spending to attract a widercustomer base. With improved consumerand business sentiment,

WWW.IBISWORLD.COM Advertising Agencies in the US October 2019 2 Advertising agencies create advertising campaigns for periodicals, newspapers, radio, TV and other media. Through in-house capabilities or subcontracting, ad agencies provide advice, creative services, account management, production of advertising material and media planning