The price of media placement and fulfillment services has been rising at an estimated annualized rate of 2.5% during the three years to 2017. The rate of price changes has varied among suppliers, with the advertising conglomerates at the top of the market instituting higher price increases than most other suppliers. This discrepancy reflects the growing dominance these top suppliers have over the market, which has allowed them to charge a premium for their services. In addition, advertising conglomerates’ collective experience in the market and greater networks have empowered them to negotiate more cost-effective and efficient media deals, providing them with further leeway to increase prices at a faster rate than other market firms.
Even so, all suppliers have increased prices, regardless of type. A rise in demand resulting from growth in total advertising expenditure has driven this price growth. As total advertising expenditure has increased, it has cultivated demand for media placement and fulfillment services, because media is needed to deliver advertisements to their intended audience. This trend has overshadowed stagnation in the growth of the number of cable TV subscriptions.
Rising input costs have also supported price growth in the market. The price of advertising has grown as the population has expanded, boosting the number of potential media consumers. This trend has led to greater media consumption and has increased the value of advertising. Suppliers have raised their prices in response.
To the benefit of buyers, price volatility for media placement and fulfillment services is inherently low because suppliers are reluctant to institute extreme price changes for fear of becoming uncompetitive. Low price volatility allows buyers to accurately budget for their media buying service orders. As a result, buyers need not enter into long-term contracts to hedge against potential price spikes.
Prices for media placement and fulfillment are forecast to grow at an estimated average of 2.8% annually during the three years to 2020. As the market consolidates, price gaps between advertising conglomerates and independent agencies will continue to widen. Rather than competing with independent agencies, advertising conglomerates compete primarily with each other, so price points vary based on supplier type. Advertising conglomerates are expected to increase their scope of services in an effort to justify price increases. These suppliers have more competencies than most independent agencies due to their wider scope and greater scale, which help them to make bulk media purchases at favorable prices.
Although advertising conglomerates will raise prices at a higher rate than independent agencies, both supplier types will raise prices in the coming years. Price growth will be driven primarily by demand increases. In particular, total advertising expenditure and corporate profit, which are key indicators of demand, will grow from 2017 to 2020. At the same time, the number of cable TV subscriptions is forecast to decline, tempering growth in demand for media placement services as the value of this popular type of media falls. Regardless, overall demand will continue to rise in the three years to 2020, which will drive price growth.
Rising input costs will continue to boost the price of market services as well. The price of advertising is expected to continue to grow in the three-year period with increasing population rates driving up viewership for most media and increasing the value of advertising through such media. Suppliers will pass rising costs on to buyers in the form of higher prices.
However, price volatility will remain low due to continued high competition among suppliers. Low price volatility will allow buyers to budget for services with greater certainty. However, prices will increase at a faster rate than in the previous three-year period, and buyers that wait too long will likely pay higher prices. As such, buyers should weigh this factor when making purchasing decisions.