An exploration of how the global coronavirus outbreak is impacting ad spend across paid media channels.
Takeaways
- The impact of COVID-19 on the global media ecosystem is clear, forcing a rethink of campaign planning, media trading strategies, media processes and talent management.
- Many advertisers have pushed the ‘pause’ button, cancelling activity or re-allocating investment while they consider strategic options.
- A recent study suggests media will absorb only 28% of total marketing cost reductions, with the most significant cuts hitting trade promotion, OOH, direct mail and experiential marketing.
- The situation for many brands is complex: consumer buying habits for many categories are dramatically changing, production and retail supply chains are in flux, meaning that agile media planning, scheduling and content selection is essential in this new environment.
- The consensus is for many markets (especially European) to experience ad revenue collapse of between 25%-35% in Q2, and at least a 10% reduction for the full-year, eclipsing the impact of the 2008 global financial crisis.
- There will be dramatic deflation in most TV markets as a result of increases in audience supply and a slump in revenue demand, and brands can expect to receive highly attractive offers to make short term investments from sales houses.
- The impact on digital advertising will be significant but less severe, with some segments like e-commerce, influencer marketing and programmatic potentially holding firm.
- The short-term impact on OOH advertising could be significant, given its reliance on categories most hit by COVID and the collapse in footfall in retail locations and road traffic due to government restrictions.
- When the crisis subsides, there are multiple factors converging which could create a huge spike in advertiser demand and less audience supply, meaning the return of media inflation in the recovery months.
Media Ecosystem Impact
The coronavirus’s impact on the global media ecosystem is now clear, forcing a rethink of campaign planning and implementation, media processes and talent management across the industry. Confidence – in the short term at least – has dropped: WPP’s share price has fallen by 25% in the last month, and ITV is predicting a 10% fall in ad bookings for April. Major agency and media corporations have withdrawn financial guidance for the year, and some media owners in Australia have already closed down. Many advertisers have already pushed the pause button, cancelled activity altogether or deferred investment while they consider their strategic options.
The situation for brands is complex: consumer buying habits for many categories are dramatically changing, production and retail supply chains are in flux, meaning that agile planning, scheduling and content selection is essential in this new environment. Brands are taking decisions on which messages to communicate and in what tone of voice; whether to shift investment in or out of short-term sales activation into or out of long-term branding activity; and thinking carefully about editorial environments and media choice.
In the short term, faced with a lack of supply or a lack of stock, many brands are deciding whether to pause or continue media spending. A recent Myers Report suggests that media will absorb only 28% of total marketing cost reductions, with the most significant budget cuts to hit trade promotion, direct mail/email and experiential/event marketing.
Within the media ecosystem, digital channels are the first and easiest to switch off, having the shortest lead times. Media which are used tactically such as print, radio and the TV ‘scatter market’, sold with a shorter lead- time, will also see declines.
Media owners are actively encouraging brands to defer rather than cancel bookings, a difficult sell given the limited visibility around the longevity of the virus. Brands which decide to continue spending are facing the choice of reducing advertising pressure to sustain brand awareness at a lower intensity, or maintaining advertising pressure in a falling market, both of which mean shaving budgets lower.
With the UEFA Euro 2020 football championships and Olympics now cancelled, a significant layer of global brands will stop spending, which will lead to significant media deflation, enabling brands to scale back budgets further and still meet their communications objectives. This is a downward spiral that media vendors will be anxious to avoid.
Looking at the likely impact of changing consumer behaviours and changes in category spend on paid media, we believe OOH and print media will be most affected, with TV and paid social showing some resilience.
TV
Since TV attracts a high share of revenue from sectors which are likely to continue spending such as food, personal care and household products, it is likely to prove relatively resilient. Nevertheless, TV revenues look set to be depressed in Q2 as advertisers rein in spend generally.
Audiences to TV are proving to be buoyant, especially in off-peak time segments, with people venturing rarely out of the home and tuning into news and current affairs programmes more often. TV sales houses will react individually to a collapse in airtime prices, with some reducing minutage to maintain rates, others allocating excess airtime to government communications, and we are also seeing a complete relaxation in late booking ts and cs, with strong offers being made to carry short term investment.
In the UK we are anticipating widespread TV deflation, however brands should also bear in mind that this deflation will be most apparent to older audiences. Young, and particularly male audiences will be more likely to use streaming and VOD services in preference to linear TV.
We are already seeing the impact on screen. Many networks are announcing production cancellations and airing repeats as programming is in short supply. New formats are emerging – we are likely to see broadcasters embrace social media technology, re-purpose archives and create more content with animation in the next few months.
In Australia, Nine, one of the largest networks, has withdrawn its profit guidance for the year. Online video and streaming platforms are seeing large spikes in audience, even though commercial opportunities are limited in ANZ. In the US the upfront pricing is already fixed, so this won’t be immediately affected, but there will be significant opportunities within the scatter market (which was scheduled to be highly inflationary this year. However, with audiences rising campaigns will over-deliver ratings and CPMs are expected to fall.
The Russian TV market is experiencing tremendous deflation not only due to COVID-19 but also due to a drop in oil prices and local currency devaluations, which in combination are having a devastating impact on disposable income. In Germany viewership is also increasing on linear TV, with news and current affairs shows experiencing higher ratings and reach than normal. Italy has significant deflation due to the country being on lockdown. TV audiences are up 10-15%. and clearly the impact on the Italian economy of coronavirus is much more pronounced at this point. In France TV audiences for some programmes are nearly double vs the equivalent period last year. In Japan, we understand there has been less of an impact on the TV market, to date.
We are seeing different behavior adopted by the TV companies towards advertisers. In Central Europe, the UK and Russia media owners are levying up to 50% cancellation charges in a bid to keep budgets in the market. Many broadcasters are also concerned that when “normality” returns, they will not be able to meet their commitments in the Autumn as pent-up demand could outstrip dwindling supply. Many advertisers have agreed to spend budgets later in the year to avoid suffering cancellation charges, so their return could further drive up demand later in the year.
Digital
As digital buying is primarily done programmatically, and traditionally run by lean teams with tight deadlines, any global resourcing issues due to changes in working conditions and sickness could impact advertising opportunities. Programmatic activity appears to be relatively steady, and higher supply (more people online at home) is leading to cost efficiencies.
There are also likely to be fluctuations in digital pricing, for example with contextual buying using keywords and blacklists, as brands attempt to avoid association with negative content. This may differ by sector, with the highest impact likely around food, travel and retail. Due to the significant news coverage, this will impact the scale brands can achieve across leading publishers.
Cash Flow for Ad Tech will a significant issue as Ad Tech is at the end of the supply payment chain. Brands may also consider consolidation of spend into fewer platforms as budgets come under pressure. Most experts believe that Google, Facebook, and Amazon are likely to benefit if smaller DSPs / SSPs struggle or go bankrupt.
A recent report from Global Web Index found that predictably, 95% of consumers say they’re spending more time on in-home media consumption, over 50% are watching more streaming services, 45% are spending more time on messaging services, almost 45% are devoting more time to social media, and over 10% say they are creating or uploading videos.
Social content management processes have been in the press recently. It’s a historical problem for Facebook in particular, which altered practices following the Christchurch streaming incident. This may cause brands to consider how they advertise on social. It may be that they stay away from certain ad formats or offerings. The next few weeks will show how expendable paid social advertising is for brands – Twitter has already withdrawn financial guidance and Facebook has shared advertising demand dropping in markets where COVID-19 has taken a grip.
There may be other, less obvious changes in communications planning that emerge. In China, it appears there has been a shift of investment into e-commerce, live streaming and gaming. According to BCG, L’Oréal pulled offline advertising in China in February and reinvested it online. After Shanghai-based cosmetics brand Forest Cabin temporarily shut around half of its 337 stores in China, it used live streaming to engage with consumers. According to Alizila, Alibaba Group’s news hub, after initially falling by 90%, the brand’s sales went up 45% year on year.
OOH, Print, Radio and Cinema
All the media above are likely to experience severe audience declines as consumers stay at home. The OOH market is unfortunately entering a perfect storm in many markets. Entertainment is a category likely to be impacted by COVID-19, being twice as likely to invest in OOH media than average. Drinks brands also spend heavily outdoors and may opt to focus spend on in-home media channels for the time being. Restaurants will also scale back and are traditionally three times more likely to invest in outdoor than average.
The short-term impact on OOH advertising is already significant, and there will additional free of charge space available in an already undersold market. In the UK, the seriousness of the situation has become apparent with deferment charges waived. The outdoor market has ground to a halt, and some advertisers may even seek compensation for audience shortfalls. Others could benefit from overshow which is almost always considered to be free of charge.
In Australia, many contracts with Outdoor vendors do not offer cancellation opportunities so there are on-going discussions between advertisers, agencies and vendors on receiving fair and appropriate compensation.
Print remains an important channel for providing information-rich messages during events of national and global importance. Yet its heavy reliance on retail and travel advertising means there will be plenty of short-term availability. In the UK, print advertising volume is estimated to be down circa 30-40% and predicted to reduce further. Print is currently being supported by advertisers using national press to talk about their C-19 responses; banks and mortgage lenders addressing the crisis and retailers talking about NHS only hours.
Freesheets have been critically impacted – with City AM ceasing its print copy and Evening Standard with a greatly reduced print run. Paid-for circulation titles will start to question if it’s worthwhile printing if numbers fall further especially if they are a digitally fit for purpose. All newspaper groups have seen online traffic rise sharply and will need to be agile to monetise the short-term increased readership.
The outlook for cinema advertising remains very uncertain, as cinema attendance has been paused. Brands investing in cinema for reach and stature are very likely to switch investment into TV and VOD. In Germany, contractual targets have not been delivered due to cinema closures, leading to many campaign postponements.
For radio the outlook is very mixed. The short-term nature of the medium lends itself to short term sales messages, retail and travel sectors, so the revenue impact will be hard felt. Although in-car listening will drop, we expect radio listening overall will rise and the sense of community and loyalty that listeners have for their radio stations lends itself to behavioural change campaigns and could present an opportunity for many stations to re-engage with their audiences.
This situation is now affecting the advertising industry globally. While working practices will need modification over the coming months, most businesses and the people within in them will go about their lives as normally as possible. For brands and agencies alike, there is an opportunity to emerge from this crisis with more agile ways of working and an improved reputation.
A version of the above article first featured on WARC.