Key Takeaways
- The Trump administration’s latest memo directing HHS to take actions to address Pharma’s direct-to-consumer advertising. While unlikely, this may impact up to $14-$16B annually
- While other advertising formats exist, Q4 dollars are most at risk, with a potential impact of $4B conservatively
- Pricing premiums also at risk, with potential declines in CPMs for publishers and in-turn, impact on profitability
- Current pricing premiums are 35% higher for Pharma compared with streaming overall As one future scenario, Wellness / supplement advertising may fill the void on CTV (currently ad spend is ~$500m but 7% 3-year CAGR) (Guideline Core 2.0)
Last afternoon, the Trump administration released a memo directed to the Secretary of Health and Human Services to take action to address Pharmaceutical’s direct-to-consumer advertising, particularly in “broadcast advertising.” While the situation will continue to evolve, this would likely particularly impactful in Q4 tied to the immediate cease and desist letters that were announced yesterday tied to the memo. Under the current memo, this does not rule out Pharma advertising per se, but we estimate that 90% of Pharma’s video advertising today would be impacted by the DTC cease and desist letters. This would translate to roughly $14-$16B annually for all publishers, or ~15% of Guideline’s advertising pool (~4.2% estimated for total US advertising).
As an option, Pharma companies can transition to generic brand type ads or still advertise drugs without the push to consumers. However, both of these options are not necessarily viable in the near term as those creative assets are virtually non-existent and would take months to properly go from idea to video advertisement that can be aired.
For publishers, particularly in the CTV space, this represents two potential risks. The first and obvious one is ad spend itself as noted above. The second however is for pricing. Publisher’s have long enjoyed the premium on CPMs that Pharma ads bring. Two reasons are Pharma companies tend to buy more premium inventory (i.e. live sports, streaming exclusives, broadcast primetime); and have longer creative lengths (90s) in order to meet regulatory requirements to state all side effects of drugs, etc. Guideline’s data shows that digital pricing for Pharma clients is typically 35% higher than the average for all clients.
For the CTV space, using Guideline’s data as a baseline, Pharma is ~20% of total spend (18% if including just DTC ads) so not many options exist for publishers to backfill with scatter. However, as a potential scenario in the mid to long term, this current memo may have unintended consequences in creating a proliferation of potentially dubious advertising. Within DTC ads, part of the trade off was being able to advertise as long as potential consequences and adverse effects were listed. If that trade off is relaxed, the potential to see more wellness type advertising around supplements and similar products as a way to continue to generate ad revenue. Currently these brands represent $670M (projected for 2025). While growth is strong in our Guideline pool (+7% 3-year CAGR), it falls well short of the needs should Pharma ads need to be replaced or remade to fit new regulatory guidelines in the short term.
Lastly, not listed but also at risk to dollar cuts due to their niche nature are DeepIntent, Lasso, and Pulsepoint as some examples.
