Big media reporting season has just ended and the realization is that things are about to get worse before they get better.
Marketers are nervous when it comes to advertising. Media owners wonder if their company’s future will be less profitable. Even the seemingly invincible platforms are making cuts. If there were any doubts about the severity of the financial crisis at the time, they no longer exist today.
How heavy? Interest rates are rising, forcing central banks around the world to throttle the flow of money, meaning the economy is slowing. Add to this the Russian invasion of Ukraine and the repercussions it is having on supply chains and consumer sentiment. Oh, and the biggest single driver of global economic growth – China – is sputtering as its tough Covid stance wrestles with a ubiquitous virus spike and widespread lockdowns.
Worse, so much of what’s happening is beyond marketers’ control: public sentiment, government tax policies, and—perhaps the most complicated factor—the unexpected dislocations in the financial world. Predicting the future is obviously wrong. Not that senior marketers wouldn’t try. On the contrary, many are trying to forestall the coming economic storm.
Procter & Gamble took advertising money out of its pot for the first quarter and put it directly into its bottom line. Coca-Cola will do more advertising to try to justify price increases once they happen. Peloton has been holding back ad dollars so far this year. They’re not in a recession yet, but that hasn’t stopped marketers from preparing for that eventuality.
So much so, in conversations with ad execs at Advertising Week Europe and Upfronts this week, everything kept coming back to one word. Well, one word besides cutbacks and uncertainty – fear.
“Most of the first half of the year has been relatively strong from an economic standpoint and that has led to a significant level of advertising over the period,” said Chris Skinner, President of UM’s EMEA business. “The second half will be different as there is a good chance there will be a broader downturn as people become more cost conscious in a tighter economy.”
There is, of course, much that marketers can do to prepare.
In the short term, they may spend more on advertising to justify raising prices in an inflationary market. Perhaps they are creating more flexible business structures with their agencies to cope with any fluctuations in spending or increases in media inflation. And some may be thinking even further ahead of what bets made now could pay out when the rebound comes. All of these options and more are currently being considered by marketers, said Ryan Kangisser, Managing Partner for Strategy at MediaSense. No one wants to be caught off guard when this downturn turns into a flight.
Ad spend reflects this fear. Or at least it’s starting to happen as advertisers try to hold on to their media dollars for as long as possible.
“We’re not seeing any advertisers cutting budgets – it’s too early for that,” said Dave Mulrenan, Head of Investment at Zenith UK. “However, there is a caveat in many of the plans we are working on right now. Customers want to keep as much of their budget as possible while they wait and see what happens.”
Keyword many concerned media owners. After all, even in the best of times, media is an incredibly tough business. And it’s obvious that those days are over.
The glass half full of larger publishers at Ad Week Europe: Your business should at least expand. For them, macroeconomic disruption is accelerating change that creates new winners.
A more somber conclusion came from the upfronts’ media buyers in the US, who warned that the downturn would deprive broadcasters of much money. In fact, there is a growing realization that many of these macroeconomic headwinds will persist through Q2 and Q3, and potentially into 2023. As one media buyer explained, “I don’t think I’m going to find a whole bunch of money coming over the transom like I’ve done for the last four or five years.”
The more this happens – advertisers moderate or slow down their spending – the more their media mix will shift in importance. If anything, the volatile state of the economy affects where media money goes as much as how much is spent. That could mean good news for some companies and bad news for others. It all depends on where they are in the ecosystem and more broadly in the world. The state of TV advertising in the first quarter is a case in point. Overall it was fine. Locally, however, it was inconsistent.
Total linear TV ad impressions at top U.S. CPG advertisers increased 13% year over year in the first quarter, while total impressions at top U.S. auto advertisers declined 13%. Downy, the top US CPG advertiser, achieved a particularly high rise in impressions in the first quarter of 2022 by running both English and Spanish language ads.
In the UK, the trend reversed, with the CPG category down 19% and the automotive sector up 11%. Several luxury car advertisers supported the increases in the UK, including CUPRA, Lexus and Polestar, although the number one advertiser, Hyundai, posted the largest increase.
“Q1 was a bit mixed in terms of linear TV advertising in both the US and UK,” said Dallas Lawrence, head of brand at Samba TV, which analyzes viewership data from millions of smart TVs. “Supply chain problems and rising interest rates have brought US auto sales to their knees and a decline in auto advertising spending. And in the UK, rising prices have stalled consumer demand for packaged goods, resulting in a nearly 20% decline in CPG ad spend in the first quarter.”
Bottom Line: Nobody knows what’s going to happen – least of all marketers.
Rajeev Goel, CEO of publicly traded ad tech provider PubMatic, pointed to the state of the US economy to make the point: “It contracted in the first quarter. So people wondered if it was an aberration or a sign of the new normal.”
Marketers know in their guts and in their brains that they can’t afford to cut spending entirely — not if people are still tolerant of high prices amid rampant inflation. However, they may be more cautious and choose to slow or even delay spending as they balance the need to convince consumers not to switch to cheaper competitors with the need to offset some of their own higher costs or increase profitability. In other words, inflation adds to advertising as a whole until it isn’t. And there’s the kicker. No one can pinpoint the exact trigger for the likely outbreak across the economy.
“Marketers will be concerned if they see signs that consumers are switching to cheaper alternatives, such as store brands, or are not buying at all. The other big signal would be a significant slowdown in the currently red-hot job market,” says Chris Vollmer, Managing Director of the strategic consulting firm MediaLink.
It is clear that more pain is to come. But there is always a setback. Right? The world’s largest economies are still fundamentally strong: people are still spending – apart from the lowest income levels – the biggest advertisers seem poised to have strong balance sheets, and there were some encouraging prospects for the last earnings season the grim prophecy. Until there is a rebound, Agecny holdings are relying on the diversifications they have been making of late to see it through.
“In short, 31.5% of consolidated revenue and 36.5% of Dentsu International revenue now comes from customer transformation and technology — a structural growth area that’s much less cyclical than media and creative industries,” said a Dentsu spokeswoman. “As the proportion of this business grows, we gain more visibility and confidence in our full-year guidance.”
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