For those of us in the media industry, these days of
coronavirus uncertainties in personal health and finances also include concerns
about the future of the media business, specifically the impact of the pandemic
on advertising revenue. The ARF
has been offering Virtual Town Halls on the subject with the most recent one on
Global Advertising held on March 26. What are the long term impacts and best
practices that we can adopt to plan for the future?
Hosted by ARF President and CEO, Scott McDonald this Town
Hall polled three industry experts on the subject – Laura Martin, Entertainment
and Media Analyst, Needham & Co, Brian Wieser, Global President Business
Intelligence,
GroupM
and Christian Polman, Chief Strategy Officer, Ebiquity.
A Look at the Market by Laura Martin
Challenges in Predicting - For Laura
Martin, past predictions of the market were not prescient. Back in December
2019, both Zenith and WPP were predicting global ad spend increases of over 4%
year to year. But by April, she anticipates that huge losses will result in the
GDP cratering as unemployment claims skyrocket. “Economies are shutting down,”
she stated and noted that it is not easy for professional forecasters look
ahead with any certainty regarding GDP. Challenges abound. First they must be able
to predict when the infection rate will peak in every country. Then, after
peaking, they need to see how long it will take for consumer demand to return. Following
that, they would need to know what percentage of small businesses will fail
before consumer demand returns. “Because small businesses are a large part of
overall advertising,” she explained.
But the U.S. is in Better Shape than Other
Countries - Martin uses the stock market as a predictive indicator and
currently, with its huge declines and high volatility, “the market is telling
you (to expect) a negative $6 trillion forecast. But how much of that decline
is (consumer) sentiment and how much of it is actual fundamental
deterioration?” But there is cause for some optimism, even if only relative to
other countries. The U.S. stock market represents 44% of the market
capitalization of the world, 20% of all listed companies and has more highly
valued companies on average. This means that the U.S. is better prepared to
become more dominant over time compared to the rest of the world, “because the
rest of world businesses are all a third the size.” So while we may be worried
about small businesses in the U.S., “the rest of the world is actually in worse
shape.” Another factor in our favor is that the U.S. is more productive than
most other economies. But now may not be the time to buy, she warned. We don’t
know how long it will take for the virus to dissipate and consumer sentiment is
currently “anti-exuberance,” meaning depressed and cautious.
Uneven Impact on Global Advertising – Martin
used the Travel category as an
example of how the global advertising market could be negatively impacted. Travel
and Hospitality, which has effectively shut down, was projected to edge out CPG
in 2020 as the fifth largest digital advertising category representing 8.6% of
ad spend. Because half of all Travel spending is on digital media, Martin
posited that the impact from Travel advertising shutting down is three times
worse on digital than it is on offline media. Further, Google Search represents
70% of Travel digital ad spend. The takeaway is that,” when travel silos turn
off, different media is affected in different ways.” In addition, she noted
that because 50-70% of TV inventory is bought in the prior May and is
contractually obligated, TV is in better shape than digital (which is bought in
scatter and by auction and can be cancelled immediately) to withstand market
volatility.
A Cause for Optimism by Brian Wieser
Optimism with a Caveat - Brian Wieser
is seeing some hope for optimism in the virus trends. He has been monitoring
China where the latest reports show a slowing of the spread. “China has turned
a corner,” he explained, it is, “a baseline to think about how this plays out
in different countries.” But, he noted, there are three different kinds of
countries and each type needs to be taken into account when projecting the
impact on global ad spending. For Wieser, countries divide into, “those who
were hit with the crisis and immediately took appropriate aggressive steps to
address the matter, among those Japan, Singapore and South Korea. There are
those countries that messed up for a month and then took aggressive steps and
China is probably the best example. And then there are countries that messed up
for a month. Messed up for another month and are hopefully taking the right
steps. Italy is pretty clearly in that category. It remains to be seen how
exactly different countries will follow.”
Small Businesses Have Severe Risks - However,
Wieser believes that small businesses are the most immediately impacted and
often “have the fewest resources to see them through a crisis such as this one
with a limited ability to tap into the financial systems” for help.
Unfortunately, “a lot of the support we’ve seen to date has not been focused on
those companies and this is where the most severe risks are. Small businesses
are being hit first and fast.” Lessons from the past financial crisis are not
always the same lessons for today. Countries with a solid safety net provide
some relief for small businesses but this not ubiquitous worldwide.
Supply Chain Considerations – Because
China is getting back to business, Wieser is less concerned about and lost
output that could disrupt the supply
chain, which at the time of the initial outbreak, seemed inevitable. But,
“the bigger threat is that other countries around the world don’t take the
right actions and then become the risk for China if demand doesn’t reemerge.
The bigger point is that we can actually make this worse.” Specific public
policies and actions by citizens and by individual countries will drive much of
the outcome which at this point is an unknown.
What Should Brands Do? – In this time
of uncertainty, brands should focus on ways to stay relevant and be helpful to
consumers. Some companies are pivoting in ways that change their business in
socially positive ways. Take, for example, “companies with alcohol products are
finding ways to convert their production lines to hand sanitizer manufacturing.
Anyone with a capacity to produce heavy metal based hardware can produce
ventilators,” he explained. “But even brands that have nothing to do with the
physical needs of emergency professionals
are finding ways to be helpful,” by altering their creative messaging
such as C O C
A C O
L A to encourage social
distancing.
A Pragmatic View By Christian Polman
No Surprise - Any pandemic outbreak
shouldn’t come as a surprise because, Polman asserted, if you go into the
archives, policy health experts have been talking about this for a long time. A
perfect storm has been created, he suggested, by Poor Planetary Health which
risks the spread of infection, an Interconnected Global Supply Chain that is
unsustainable, particularly the food supply chain, the rise of Nationalism and
Unilateralism, “coming into mainstream politics which divides populations at a
time when we need cooperation” and the Low Levels of Trust in Institutions,
“which is getting worse and worse, at a time when trusted information is
critical to inform the public and to guide policy making.”
Long Term and Short Term – Polman
believes that a long term need is finding a sustainable food chain, “and one
that needs to be affordable.” In the short term, pressing needs include,
“having a vaccine, a preventative treatment as well as long term testing.” He
noted that, “consumer confidence is key here.” But this will be problematic as
the latest studies show that confidence is in free fall. Yet the long term
trend for GDP growth and ad expenditures, “is yo yo’d over a long period of
time and quite consistently over the economic cycles. The rule of thumb is to
expect a downturn every ten years. We were due one but I don’t think anyone
foresaw how this one would be happening.”
But, he added, we always bounce back so those who can afford it should
start to plan for the recovery.
Success Factors – The reasons for this
economic downturn are different from previous ones. Brand Relevance has never
mattered as much as now. Take for example hand sanitizers which are, according
to Polman, counter-cyclical. But, “Media is a more normal example,” he stated. “Media
consumption has been going up dramatically as it typically does in a down cycle
as a function of more people who are unemployed. In this case, people unemployed
and people stuck at home.” Agility is another success factor where making
decisions fast is a big differentiator. Risk Taking is another; “It’s not just
making decisions quickly but being able to take risks to take advantage of any
opportunities,” he added. Long Term Orientation, “matters a lot. The companies that
are long term oriented are the ones that are going to win.” And, “Consumer
Trust has never mattered more. It will be critical,” he added. He advised that brands, depending on the
category, should maintain their market share of voice, “which you can do even
with a lower budget… It could take three
years for brands to see the full impact of their investment. That’s why it’s
such a key long term game.”
In a parting
word of advice, Polman offered the following, “Every one of us has a role to
play when it comes to leading and driving corporations. A lasting message from
all of this is in any crisis, the rate of change will accelerate.” I wonder, can
we handle any greater rate of change?
