While the industry is coming to terms with the seismic changes being caused by the coronavirus pandemic, there is still a measure of uncertainty around exactly how media and advertising will be affected.
VAN spoke with industry analysts to hear their views on the extent of the damage COVID-19 will cause, and which areas are liable to face the most difficulties.
Sarah Simon, Senior Analyst, Berenberg Bank
While there is no clear mathematical correlation that tells us how much advertising will fall relative to various economic measures, what we do know is that advertising spending is driven by consumption, consumer confidence and GDP. With all of those in decline, we expect advertising to fall significantly. Indeed we are already hearing from broadcasters, outdoor players, and even digital leaders like Facebook, that advertising demand has weakened.
We expect certain categories to fare much worse than others: the economy is bad for nearly all marketers, but clearly autos, physical retail, and travel will be hit exceptionally hard. Our base case for most broadcasters is for a mid-teens decline in advertising: worse, for some, than in the 2009 global financial crisis. As far as media groups are concerned, we note that TV consumption is rising because of the lockdown, but whether it can be monetised is a separate question. Outdoor obviously suffers hugely in the lockdown period, because of the significantly reduced footfall. Having been taking share of spend as a result of digitalisation, we expect outdoor to be hardest hit, with in-home media doing relatively better, but this is only relative, as we expect the whole ad market to suffer.
Richard Broughton, Research Director, Ampere Analysis
Following any initial short-term increase in media consumption and SVoD net additions (resulting from consumers self-isolating), further economic effects will begin to impinge on the market. The immediate impact of any global downturn will be a reduction in advertising expenditure as media buyers cut spending in anticipation of lower travel and retail footfall, followed by rising unemployment, stagnant wages, lower consumer disposable income and thus lower willingness to spend on products and services.
A clear correlation between economic growth and advertising revenue growth is demonstrated both in the online and the TV sectors. The 2008 financial crisis caused a sharp reduction in both TV advertising revenue growth and online advertising revenue growth, and caused a later hit to the pay TV market, as unemployment and wage contraction filtered through to in-home subscription spending.
For 2020, the exact economic impact is still uncertain. Mild full-year negative impacts to economic growth, of -0.5 percentage points below baseline GDP growth, or better, will result in a flat commercial broadcast industry and a marginally contracting global pay-TV market. However, our models suggest that any further impact to the global economy, resulting in worldwide economic growth of 2.4 percent year-on-year (1 percentage point below the IMF’s pre-crisis projections) or lower, which looks increasingly likely, will result in noticeable contractions in both subscription pay TV and commercial broadcasting revenue.
Steve Nason, Director, Research, Parks Associates
The easiest conclusion to come to when there’s an event like this and everyone is homebound is that video consumption will skyrocket, and demand for streaming content will be at an all time high.
The OTT services can benefit from more people being at home, and for SVOD services it could help drive more subscriptions. But on the flipside it could lead to more churn – as people try out different services and move from one service to another.
What’s really interesting to me is where the movie studios have announced they’re putting some brand new releases on TVOD (transactional video on-demand) services, with initial pricing of $20-24 for a two day rental. I think that’s going to be a boon for the TVODs.
For traditional pay-TV, we’ll see whether they can retain their current subscribers. Who knows, maybe those who’ve cut the cord or shaved the cord, or those who’ve never had traditional pay-TV, might be interested? But it’ll be difficult because this isn’t just a health crisis, it’s an economic crisis, and pay-TV packages can cost between $80-$100 here, that’s a lot. So it could lead to more cord cutting for those who are watching their expenses, or it could attract more users – I’d guess we’ll see more cord-cutting, with more people moving towards OTT.
Matt Cain, Head of Consulting, Oliver & Ohlbaum
With the virus outbreak already helping broadcasters achieve some of their largest audiences of the year, a casual observer could be forgiven for thinking that the sector will be well insulated from the impact of the outbreak. Of course, audience is one thing, but with consumers’ attention largely on ‘essentials’, many sectors will simply cut their advertising spending altogether. Those who continue to advertise could benefit from lower prices, due to the reduced demand.
With the exception of continuing dramas, the real impact on schedules may not be felt until later in the year but, by then, consumers may have already been persuaded to try SVOD services. With increased demand for in-home entertainment, the transition of viewing habits to on-demand services could be more rapid. And, with pressure on household budgets, pay TV could suffer; the removal of a Sky Sports or BT Sport subscription could pay for a lot of Netflix or Disney+, with money to spare.
In sport, it appears we are seeing postponements rather than cancellations. While there will still be significant disruption, postponements will reduce the financial implications. Broadcasters will get their events, at a later date, while sponsors and advertisers will also get their exposure – albeit in unplanned circumstances. The question remains whether events such as the Olympics and Euros will shorten their next cycles or retain the four-year spacing.
Nicole Perrin, Principal Analyst, eMarketer
With markets still in turmoil and no idea of when widespread social distancing will come to an end in the US, Europe and beyond, forecasting ad spending is tough. With developments happening on an hourly basis, it’s too soon to say with any certainty how the economy will perform this year, let alone the second-order effect on ad spending.
During the Great Recession of 2007-2009, digital was an attractive option. It promised marketers measurability, so those compelled by the circumstances to be conservative in their bets felt like digital was a relatively safe one. Advertisers are still likely to take refuge in a channel where they can track and measure the results of their spending.
That doesn’t necessarily mean a focus on direct response, though. When it comes to many products and services, people simply can’t buy right now. But brand-building efforts from trusted advertisers will serve as important reminders for consumers who are looking for leadership and a sense of normalcy during a crisis. In this respect, brands would be wise to look back past the Great Recession to lessons learned from advertising in the wake of the September 11 attacks.
