What a way to start 2020, right? The new decade started on a high note, the stock markets were at all-time highs, we were making significant strides in growing our digital revenue and account volume, team morale and participation was the highest I had seen since starting, and our teams were firing on all fronts from an execution standpoint. Then, it happened, the unforeseen COVID-19 virus rippled through the world, wreaking havoc on all fronts and not only crippling companies, but entire countries. Since then, COVID-19 has effectively controlled 99% of all thought and communication channels over the past two months in which I have noticed an undertow of fear across most these conversations…’the market is crashing, all my advertisers are cancelling, how are we going to get any new business, I am going to get laid-off, etc’. Naturally, all these fear undertones stem from the unknown consequences the virus will have two months from now and five years from now. I don’t want to completely dismiss the virus as it is very scary and in the short term (6m-2 years) we are most likely going to see even more stress, anxiety, and economic distress before it gets better. Most banks have already declared a global recession is imminent/already started, supply & demand imbalances within the ad market will likely drive ad revenue growth negative and unemployment will unfortunately continue (currently ~5%). These are consequences we can foresee during any market disruption/correction. Perhaps the more important question is, “how long will it last?” Unfortunately, nobody knows and anyone who tells you otherwise is lying or delusional. Ultimately, we must be cognitive of these outcomes but not dwell on things we can’t control. Furthermore, during this time of uncertainty and fear, I would like to pose an optimistic outlook… One that places COVID-19 at the epicenter, acting as a catalyst to changing audience behavior and opening the gate for advertisers and publishers alike to capitalize on the trends created during this down trend.
With that preface, I want to frame the opportunities present by dissecting the detailed analysis and insights our friends at Magna Global shared in their March report, BEYOND THE OUTBREAK: HOW COVID-19 WILL AFFECT THE GLOBAL ADVERTISING MARKET. To provide ethos on Magna, they are a highly respected investment subsidiary of IPG Global in which their main goal is to leverage the asset scale under IPG to provide data driven market insights and ultimately make smarter, more effective media investments for agencies and their clients alike.
Historical Ad Revenue
In the report, you will see an analysis of global Ad revenue as it is correlated to global GDP and as you can see in the below screenshot with slowing or negative GDP growth within the economy, Ad revenue always sees outsized declines. This is intuitive in my opinion and what Magna describes as the ‘amplification factor’, as business’s growth contracts so does their desire to spend on marketing efforts causing ad revenue growth declines that vastly out paces the declines in economic growth. On the contrary, and why I present this data, whenever we hit the bottom of the COVID-19 recession we can suspect the same phenomenon to take effect in which ad revenue growth can 2-3x the economic growth in a matter of a year once brands feel/see the economic sentiment turn positive. Look at the trends after the 2008 recession and the 9/11 attacks…massive ad revenue contractions and then massive ad revenue expansion swings in a matter of years. Given the unprecedented nature of COVID and it’s correlation on the market I think the numbers and projected % of decline are merely that, projection, and instead we should take note and focus on the historical trends presented. And ultimately, I provide this context to give hope that ad revenue growth is closer than it feels but more importantly to help showcase why now, more than ever, as a publication/agency, we should look at our clients and our business operations with a sense of efficiency…to limit the bleeding on the decline while setting up for a massive rally. Sounds simple enough, but how do we do so? We can infer some d direction through Magna’s report:
Effect on Media Channels
To the author’s point directly after the analysis of GDP:Growth, they admit that their regression model discussed above is based on an advertising market over the past 20 years in which the last 10 saw a massive change with the explosion of ad tech and substantially more ad revenue moving to digital channels. This lack of ability to include future variables on past data, provides two main opportunities for publishers and agencies to streamline their offerings to more cost effective ones while also taking note and closely monitoring emerging media channels & tech. I think the first opportunity is straightforward- if publishers can maintain advertiser performance while lowering overhead costs (data fees, mgmt fees, employee costs, etc.), they should, in theory, improve profit margins/per client and limit the bleeding during this contraction phase. The second opportunity is more of a ‘watch and wait’ one in which I would like to point your attention to the 2008 recession…and specifically to The Trade Desk. Would you be surprised to learn that The Trade Desk was founded in 2009 in the midst of the 2008 great recession? I was, and I think it validates the overall underlying thesis of this write up – during times of hardship, those who find opportunity are poised to reap the rewards. During the recession, a handful of companies in the ad tech space saw an opportunity to more effectively streamline digital ad buying through the open market and thus TTD was born. As advertisers re-entered the market to regain SOV they had lost during the contraction phase, they began testing these new ad tech offerings promising more effective digital ad buying with more advanced attribution reporting and ultimately, the rest is history – TTD went on to grow by nearly 7000% over the 2009 – 2013 ad revenue expansion period while TV revenue continued to decline into 2010. I don’t suspect DP to be the leader in creating the next big ‘ad tech’ boom coming out of the COIVD-19 bear market, but do truly believe someone will find opportunities in this market. If we can identify emerging mediums and tech trends that advertisers are flocking to, we can hop on the train and provide our local clients with these hypothetical opportunities before our competitive local agencies/publishers do. What’s that saying? ‘The early bird gets the worm’…seems fitting.
Changing Audience Behavior
The above discussion on media channels and the ability to find/adapt to opportunities in a bear market was mostly focused around what we (DP) need to do during this time from the perspective of running a business and/or setting up for the expansion phase. However, we still have an obligation to our current clients, especially those who have stuck with DP, to produce and execute the most efficient campaigns for their goals. While that should always be the goal, I think the campaigns we are running require extra attention in the coming months to not only increase trust amongst our advertisers, but also in part because COVID-19 has changed a lot of consumer behaviors that will ultimately alter the effectiveness of certain marketing strategies in the long term (to be seen). Most of the short term changes in audience behavior stem around the increased media consumption as a result of the stay at home quarantine, but Magna Global believes these social distancing policies will cause lasting effects:
“Meanwhile, the quarantine and social distancing policies are generating deep changes in attitudes, social norms (remote work, remote education), consumption (acceleration of e-commerce and online services), and media consumption (surge in TV viewing, OTT usage, and digital media). These shifts are likely to (at least partially) outlast the outbreak and change our society forever”
To expand in the short term Magna suggests the following trends by the varying media channels:
Social: Increased consumption (up to 10+%).
Search: No commentary on consumption but increased revenue moving to search given the boom expected in e-commerce.
Linear TV: 2-3% increased consumption with upwards of +10% increase for Cable TV. Could be lower after quarantine if sports don’t resume.
Connected TV: 8-10% additional consumption increase
Radio & OOH: no projected decline, but Magna suspects radio & OOH advertising to get hit the hardest given less social activity outside of the home.
Regarding Radio, I suspect while we will see a decline in traditional radio (am/fm) I am still very much bullish on audio and specifically digital podcast audio. I suspect Magna’s 9/2019 report on podcast audio will still hold weight even with COVID. 8% SOV of the audio ad spend by 2023 is still the projection. Read more HERE.
While these are very short term outcomes of the virus, it will be crucial to monitor and adjust our clients advertising strategies on how these short term consumer behavior changes manifest after the stay at home orders are lifted. Again, I see these behavior trends manifesting as an opportunity…agencies who can identify how they manifest in respect to the macro outlook of their clients goals will outperform the clients competitors when there are overlapping goals 10/10 times.
Recipe for Success?
Improve the efficiency of current client campaigns while also streamlining operational costs.
Continue to monitor, test, and implement emerging media mediums & ad tech. (i.e. how we moved from underperforming tech in the geo-fencing space to a more robust platform with superior targeting and reporting capabilities).
Closely monitor consumer behavior after COVID-19 and the effectiveness of advertising mediums in relation to changes in behavior and the advertisers respective vertical & goals.
Keep pushing and never stop fighting
As you may have noticed, nowhere during my commentary did I suggest a single path as to ‘what’s next’ as I truly don’t know and frankly I don’t think anyone does. Yet, I hoped to convey a mindset of opportunity. One that is a realist in the current state of what’s to come…more pain, but provides an outline based on lessons from the past to drive positive and opportunistic thinking in the wake of this pandemic. If we continue to elevate our expertise, do best by our clients, and be a leader in this space, we WILL succeed and reap the rewards when the tides turn.
Before I sign off, I want to provide you with a very powerful quote from VINCENT LETANG (EVP, Magna Global) that I hope you will share with your clients who are currently on the fence about pausing/canceling their advertising spend:
“Following 9/11, many brands cut their TV spend for weeks. But the brands that grew their national TV spending outperformed in business outcome over the next few months, as shown by their stock performance. In 2002, the S&P 500 was down by -22%; but some of the heavy TV ad spenders of 4Q 2001, saw massive stock growth, including Mattel (+12%), Nissan (+56%), and Bank of America (+14%). Whether or not consumers are in the right mindset to buy your products during a crisis, whether or not your product is even available in shops during that crisis, consumers like a brand that shares their will to resume normal life and normal business as soon as possible. Not only does advertising through a crisis make consumers feel positive and comforted by a brand’s commitment to its products and its clients (“Keep Calm And Carry On”), but it also keeps the brand top of mind in the eyes of the consumer, and better prepared when pent-up demand reemerges. Marketers willing to hold or increase share of voice during a crisis, while competitors withdraw, can win significant market share for a relatively low investment, as media costs typically slow down when demand dwindles.”
Stay safe & thank you for reading,