After the shock, ad industry grimly prepares for a prolonged downturn

The lead image shows a depiction of a fireball with a mask on.

As advertisers get over the initial shock of the rapid rise of the coronavirus, there’s an unexpected sting in the pandemic’s tail – the economy is sliding into another recession.

The dizzying number of suspended events, postponed launches and disrupted travel over the last week doubled as a series of epiphany moments for many advertisers. Initially, advertisers thought the coronavirus would have a short, sharp shock to economy whereas now they’re braced for its effects to linger for months. The economic tea leaves of a recession were there in the global stock markets last week when listed companies on the Dow Jones, S&P, Nasdaq and FTSE 100 stock exchanges were hit by steep daily falls in value as investors feared the coronavirus would stunt economic growth. For most advertising execs, the coronavirus pandemic now means normal business is on hold indefinitely.

One ad exec said that three new business pitches worth approximately $2 billion in total media billings had been recently postponed until the coronavirus stabilizes. Subsequently, agencies will win fewer media dollars during a time of unprecedented uncertainty, said the exec.

While it’s too early to predict the ultimate economic impact of the outbreak, economists like the IAB Europe’s Daniel Knapp warn it could be comparable to the 2008 recession. But whereas that recession was driven by problems in the financial system, the coronavirus is causing a collapse in aggregate consumer demand across a multitude of industries that are freezing the wheels of economic activity around the world.

“I’ve had some clients asking me whether the agency can not bill them for April because they’ve got no stock to sell, which could have a knock-on effect on our business if more of our clients ask the same,” said the CEO of a digital agency on condition of anonymity.

The grim economic effects of the coronavirus pandemic are beginning to sink in across the advertising and media landscape.

“We are facing unprecedented market conditions and many advertisers have sensibly focused on protecting key business and commercial requirements,” said David Indo, CEO of ID Comms. “A significant number of pitch plans are being paused and placed on hold until the situation clarifies. The result could be an avalanche of reviews through the second half of the year or perhaps a delay until the beginning of 2021.”

Some advertisers like Adidas and AB InBev are already pulling ad dollars in certain markets like China because the coronavirus has upended their ability to sell to people, while others like streaming services are wary of buying more ads in case it looks like they’re trying to profit from people being forced to stay at home, according to agency execs interviewed for this article.

“There’s no point in spending marketing in the last four weeks in China because everything was closed,” Adidas CEO Kasper Rorsted told analysts on the company’s earnings call last week.

He did say, however, that the business would continue to buy media where it made sense. The problem is, though, that with the outbreak threatening to wipe away major sports events from the annual calendar, there could be fewer places for a sportswear manufacturer to spend its ad dollars.

“If you cancel an event, for instance, for the sake of this conversation of course, then you’re not going to have any marketing spends associated with that,” Rorsted told analysts.

Canceled events and travel restrictions have meant people aren’t traveling as much. And if people aren’t traveling as much then business metrics like return on advertising spend are in freefall for travel companies.

“There are specific verticals like travel where businesses are trying to cut every last possible outgoing, including advertising,” said Gareth Owen, md of independent agency network TiPi Group.

Travel clients for the network aren’t bidding on certain keywords that usually drive sales as part of wider cuts to pay-per-click strategies that have also stopped display budgets and anything non-brand related, said Owen.

Christian Gladwell, Global CEO, M&C Saatchi Performance expanded on the point: “The virus is bad news for performance marketing budgets if they are only employed at a low stage of the funnel that’s acquiring the media within a narrow cost per action range.”

The struggles of travel companies and event organizers are fast becoming the struggles for the rest of the ad industry too.

Some influencers, for example, are seeing lucrative projects with advertisers get suspended or canceled as a result of either not being able to travel or canceled events.

“I was due to fly overseas with some of our creators who were going to take part in the promotion of an up and coming film, one has been canceled and the other postponed,” said Laura Edwards, co-founder of influencer talent agency Viral Talent.

Nevertheless, only a few travel and tourism campaigns have been affected by the outbreak so far, said Edwards. If the situation gets worse, however, and companies cancel their scheduled and brand-sponsored campaigns then Edwards believes it will “seriously” affect the income of their influencers.

Whenever there’s talk of campaigns being either canceled unexpectedly or media schedules postponed, production execs are left sweating on the outcome. The outbreak has already halted film shoots at various stages of production, with some having to be disbanded just three weeks away from the shoot said Michelle Hickey, head of TV at creative agency Fold7.

“Insurance is a big consideration for us right now because the outbreak would come under ‘force majeure ‘clauses in contracts, which are often not covered in any policies,” said Hickey.

One way of preserving productions is by live streaming them.

Should certain members of Hickey’s film crew be unable to fly out to a film shoot in Europe later this week they could still work on the shoot by giving directions to those execs on the set over a live stream of the production. For other upcoming productions, Hickey is considering filming in London to reduce travel or either repurposing older footage or investing in animation because neither requires organizing a shoot.

Despite the dire situation, there are opportunities for advertisers.

With CPCs so low for certain keywords some companies are pouncing on certain coronavirus terms in the belief they can drive traffic back to their site, which is what some travel insurance firms in Western Europe did prior to the crackdown on travel between countries, said TiPi Group’s Owen.

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