Outlook 2022: The US Digital Advertising Ecosystem

1 Outlook 2022: The US Digital Advertising EcosystemOctober 2021 Industry leader insights to guide business planningTable of contentsMethodology and approach 3 Outlook 2022: Executive overview 4 Key insights at a glance 6 Insight 1: Consumer expectations 7 Insight 2: Regulatory reforms 13 Insight 3: Talent & DEI challenges 17M&A Spotlight 23 Appendix 24 Key changes since the March 2021 Outlook 25 Teams and working committees to help 27 Thank you to our sponsors 28 Let s connect 29 2 IAB and PwC Outlook 2022: The US Digital Advertising EcosystemMethodology and approachThis report follows a consistent methodology and approach to the first Outlook report (published March 2021) to provide a current, fresh perspective based on new information, trends and opinions by industry leaders across the Advertising Ecosystem . Key changes from the March 2021 report are summarized on page report was commissioned by the IAB and conducted by PwC.

2 The IAB and PwC led a series of candid and anonymous interviews with nearly 20 industry leaders across the Buy-and-Sell side of the Ecosystem to inform this report. Executives who were interviewed spanned a variety of functions and roles CMOs, CIOs, CROs, business-development executives representing agencies, brands, publishers, OEM manufacturers of digitally connected devices, retail and media, Advertising and marketing tech providers, telecommunications, and social media then embedded additional inputs from IAB Research, IAB Tech Lab and members of the IAB executive team. PwC further incorporated relevant insights from PwC s award-winning Consumer Intelligence Series, Entertainment and Media Outlook , and market-impact studies to further evolve the point of view on recommended focus areas for the industry. 3 IAB and PwC Outlook 2022: The US Digital Advertising EcosystemInternet Advertising in the USAs businesses, venues and schools closed due to the COVID-19 pandemic, consumers Digital lives accelerated.

3 At-home entertainment and media options have been growing at unprecedented rates. In 2020, US internet Advertising improved by , reaching $ billion in revenues. Looking ahead, continued growth is forecasted in the US Digital Advertising market, with over $200 billion in revenue estimated by 2025. Outlook 2022: Executive overviewThe US Digital Advertising industry defied expectations with yet another year of double digit growth, and in 2021, is expected to remain a bright spot in an otherwise tough year. Seismic changes are looming, however. Industry leaders urge us all to focus on changing consumer expectations, regulatory reforms and a clear and present talent crisis or risk not only growth, but relevancy. IAB and PwC have conducted interviews with approximately 20 thought leaders within the Digital Advertising Ecosystem who have provided consensus around three key areas to keep top of mind when strategizing for 2022 success:1. Waning consumer tolerance for (and expectations of) Digital Advertising is impacting the composition and size of audiences of ad-supported media and entertainment brands.

4 A consumer-centric evolution is upon us and should include the development of new ad formats/ Federal government attention, as well as keen focus from this industry, is required to reimagine and prepare for regulatory changes in privacy policies and additional actions by walled The steep competition and current sense of urgency to attract and grow talent must also be balanced by the need to foster new or elevated corporate DEI Advertising in US n Internet Advertising (US$ mn) Source: IAB and PwC 2020 Annual Revenue ReportSource: PwC Entertainment and Media Outlook50,000100,000150,000200,000202115 3 ,16 0202317 7, 3 0 02024188,8202025200,2502022165,470 4 IAB and PwC Outlook 2022: The US Digital Advertising EcosystemAs the Digital ad Ecosystem navigates this transformative period, leaders interviewed encourage this industry to strongly embrace a consumer-centric approach to marketing and offer ways to avoid missteps in execution: Take actionDevelop a consumer-first approach to every aspect of your business.

5 Ask: Would our consumer want this ad message and format from this brand embedded in this specific experience? Experiment across Advertising creative, formats and engagement capabilities. Example: ads that simplify and shorten the purchasing funnel, such as fast and seamless connections between advertisements and online commerce. Overhaul measurement and monetization models. Focus on consumer engagement and providing long-term that both you and your stakeholders are apprized of and involved in the evolution of the shifting regulatory environment. Diversify strategies to take advantage of the new portfolio of approaches to privacy and addressability. Rethink recruitment, training and develop a long-term strategy to ensure a competitive workplace that attracts, retains and grows the talk. Clearly communicate your organization s DEI policies to your team, colleagues, peers, and both professional and social circles. Trumpet your key initiatives through social media, and keep DEI growth front and center.

6 Lean into the work that trade organizations like IAB, ANA and 4A s are spearheading to fast-forward much needed Lift-and Shift approach to Advertising , it doesn t work. Example: Don t take a :30 linear TV spot, shorten it to six seconds and expect it to perform well on Digital vigilant about the connection between your brand purpose/values and your creative content . Younger consumers in particular are looking for authentic brand engagement and have limited appetite for disingenuous ads. Non-inclusive creative content can risk brand perception and potentially offend the very consumers you re trying to engage. What may be worse: creative content that is inauthentic in its DEI metrics that evaluate ad formats with the same barometer (including the same metrics for linear, Digital , short-form, long-form, engagement, impression, etc. ads). Irrelevant and intrusive Advertising that increases consumer adoption of ad-blocking capabilities and ad-free environments.

7 5 IAB and PwC Outlook 2022: The US Digital Advertising EcosystemKey insights at a glanceThis report examines the focus areas industry leaders have prioritized, from passionate innovators to more cautious risk managers. There are three major insights expected to drive outsized incremental impact in the coming planning cycle:Insight 2: Regulatory reformsNegative and/or confused consumer perceptions of the personal collection of data and its uses by advertisers have been escalating as US lawmakers continue to debate how best to protect online privacy. Marketers must prepare for regulatory change. The industry should be educating consumers about what their information is being used for and how it s being used, allowing them to make the choices they deem best for them. This should be the responsibility not only of advertisers, because they re the ones using that information, but also data providers, whose business models include tracking consumers Digital behavior, particularly shopping and spending habits, collecting and storing information.

8 Agency leaderInsight 3: Talent & DEI challengesToday s employee seeks out organizations that have shifted or are shifting corporate culture to embrace the emerging, post-COVID, DEI-inspired values upon which they place a high premium. As long as a person has certain universal intangibles, such as grit, a hard-working attitude and eagerness to learn a range of skills, degrees in marketing, Advertising and related disciplines may not be relevant in the future workplace. Publisher leaderInsight 1: Consumer expectations If everyone could ask what s right for the consumer, [the industry] would be better. We ve over-complicated the model versus setting industry standards as we build. Brand marketing leader 6 IAB and PwC Outlook 2022: The US Digital Advertising EcosystemInsight 1: Consumer expectations If everyone could ask what s right for the consumer, [the industry] would be better. We ve over-complicated the model versus setting industry standards as we build.

9 Brand marketing leader 7 IAB and PwC Outlook 2022: The US Digital Advertising EcosystemToday s modern consumer is fleeing bad ad-supported media experiences. For both Buy-and-Sell side marketers, the consumer migration to ad-light and ad-free content offerings indicates an expectation that Advertising delivers a useful and contextually relevant experience, and providing ways to easily and quickly engage ( , explore/transact) is demanded. Leave the rest of the creative on the cutting-room floor. IMMEDIATE DEGREE OF RISK ModerateLimitedSignificantBuy-and-Sell side consequences Without immediate reassessment and innovation, prepare to lose access/attention of high-value target and their consumer migration to ad-free and ad-light media platforms and content is a result of the unprecedented innovation and consumer choices in tech, telecommunications, media and entertainment. Advertisers now find themselves at a crossroads: Continue down the path where legacy models deliver expected ad content and loads, or pave a trail of innovation toward personalized content delivered on the consumer s and challengeThe elimination of third-party cookies (though delayed until mid-2023) and mobile identifier changes are creating a tectonic shift for many industry players who must reimagine strategic planning and budgeting for future brand growth.

10 The consumer value exchange in light of the impending changes has never been more leaders summarizedInterviewed leaders across the Ecosystem voice concern that the industry is not moving fast enough to meet consumers where they are, in the way they want, with Advertising embedded in an authentic consumer-connection strategy. Many flag the need for stronger partnerships between the buy and sell sides to unlock a new consumer-focused lens. Several call for the industry to put forward fair standards that set a strong foundation for future industry models to embrace modern consumer behaviors and ongoing evolution in technologies in order to keep pace. Further, thought leaders recognize that the collaboration and coordination across the value chain is required to upend the current model, including: strategic selection of critical partnerships; highly customized advertisements delivered in the right context and with scale; new formats that allow the consumer to explore and transact; and the identification and measurement of relevant KPIs.