As 2022 draws to a close, advertising forecasters are tempering their predictions for ad spend growth in 2023. Notably, the pharma vertical may be one reason for the sentiment, with some erosion anticipated in drugmakers’ multi-billion-dollar TV ad buys.

Pharma’s linear TV ad spend dipped 11% during the first six months of the year, and will finish 2022 down 7%, predicted Michael Leszega, associate director of market intelligence at IPG’s Magna. 

The forecasting firm expects 2023 will play out in similar fashion. One reason: the transition to digital video.

“We didn’t really see a shift in pharma advertising to digital video for years,” said Leszega, who focuses on the U.S. market. “Pharma’s just catching up to where the rest of the verticals have been.”

Pharma had trouble breaking its linear TV habit due to the difficulty of translating onerous regulatory requirements from long-form commercials into digital video such as YouTube, he explained. Also, as cord-cutting accelerated, the average age of linear TV viewers skewed older.

“This isn’t necessarily bad for pharmaceutical manufacturers, right?” said Leszega. “Their target audience was on linear TV. Plus, the price point of many of these drugs was such that you could run a national campaign, not necessarily a local targeted effort, and still see profitability.”

Now, pharma is branching out to target audiences that don’t watch linear TV anymore, specifically younger viewers. That’s of a piece with the broader market.

A global ad forecast from Magna predicts media owners’ advertising revenues will grow by 5% to reach $833 billion in 2023. That’s 1.5 percentage points below Magna’s previous forecast, issued in June, due to what the firm sees as a deteriorating macroeconomic outlook. It also represents a slowdown from 2022, which is predicted to finish with growth of 7% and hit $795 billion, per Magna’s outlook.

Meanwhile, a separate forecast from WPP’s GroupM calls for global growth of 5.9% in 2023, versus its 6.4% estimate in June. It’s also a shade below GroupM’s prediction for 2022 global ad revenue – 6.5%, excluding political advertising, down from a June forecast of 8.4%. 

Pharma historically has been a bellwether presence on TV, especially in the U.S. Given expected sluggishness in the U.S. economy, Magna predicts ad sales of traditional media owners will shrink, such as publishing and TV, by -3% and -4%, respectively. 

In the period immediately preceding the COVID-19 pandemic, pharma’s TV spending plateaued. However, traditional media was something of a bright spot during the pandemic, as drugmakers leaned more on radio and TV, and less on out-of-home (OOH) and cinema. Since then, pharma ad spending has stayed essentially flat

Additionally, Magna counts pharma, along with consumer packaged goods and finance, as key industry verticals that could moderate their TV outlays in 2023. That’s as opposed to verticals like entertainment, travel and betting, whose overall ad spending will continue to be driven by post-COVID recovery and regulatory relaxation, the firm predicts. 

TV has been suffering from ongoing erosion of linear reach and live viewing. Time spent and ratings have been decreasing between 5% to 15% per year, Magna observed. That decline has only been partially offset by growing audiences and ad sales on non-traditional platforms or formats. 

Cross-platform TV ad revenues grew by 1.7% in 2022 to $172 billion but will decrease by 4% in 2023, per Magna’s report. That said, TV companies can count on a few things, including strong growth for non-conventional ad sales like ad-based video on demand (AVOD) on streaming platforms, as well as pricing power. 

For its part, pharma has been trying out new ad formats, like six-second unbranded ads that can be utilized without the lengthy regulatory requirements typically heard at the end of longer spots, Leszega points out. 

Two other factors limiting drugmakers’ linear TV spend, he added: key brands, like megablockbuster Humira, coming to the end of their patent life this year, and fewer products being approved by the Food and Drug Administration. 

That said, pharma still over-indexes on national TV spending versus other verticals, devoting 15% to 20% of its total media mix, and it will remain an integral component of the pharma ad mix. One thing Magna doesn’t see hampering the industry’s advertising in 2023 – at least not as much as for CPG brands – is the general deterioration of the economy. 

“Pharma is a sticky vertical,” said Leszega. “People need to take their prescription drugs, whether the economy is good or bad.”

Moreover, with brand safety concerns prompting marketers – including those in pharma – to shift priorities, some brands may slow down their digital diversification, Magna said.

One bright spot in Magna’s report was its forecast of stability in audio advertising (+1%). The company also said OOH will grow by 6% to nearly $32 billion, just ahead of where it was pre-COVID. The forecasting firm pegs digital ad growth at 8% for next year, reaching $557 billion, driven by such factors as ecommerce and shifts in media consumption. 

As for the fastest-growing ad format, it’s video (+11%), followed by search (+10%) and social (+7%). 

In terms of where Leszega sees pharma brands parking their digital investments, think streaming video platforms – like Netflix, Hulu, Paramount Plus, Peacock and Discovery Plus – all of which host the kind of content against which said brands can run longer-form ads. 

“Without a doubt, these environments are the perfect landing spots for dollars that have shifted away from linear,” he said.

This story has been updated with comments and pharma ad-spend figures from Magna.