Media enters the realm of unknown unknowns

In conversations with several media executives in the past 10 days, we are now firmly in the grip of the known unknowns and unknown unknowns. The known knowns are many. This virus will disrupt business horribly — “9/11 plus the financial crisis, times two,” is how Publicis Groupe veteran Rishad Tobaccowala put it to our Lara O’Reilly — and stretch on for months. Some publishers are more exposed than others, but most I’ve spoken to are preparing for a 30% drop in forecasted revenue.

That will require painful cuts, possibly starting next week en masse. Many publishers, one CEO told me, are waiting for others to go first. “Nobody wants the bad headlines,” this exec said. But everyone has spent the past 10 days, if not more, doing scenario planning in grim spreadsheets. Media businesses are people businesses, and cash intensive ones at that. There are few “levers” to pull on reducing expenses that do not lead to payroll. Expect across the board pay cuts at many publishers, with top executives taking (ideally) the biggest whack. Kudos to BuzzFeed CEO Jonah Peretti for taking no salary while reducing most employees’ compensation. The just-passed stimulus package also includes a provision for furloughing workers that gives publishers a path to softening the blow to affected workers. The cuts will run deep at many publishers.

“I’d rather be too aggressive,” one CEO told me. “The recovery is going to take time. The first dollars to get cut are ad dollars and the last to come back are ad dollars.”

Another known known is this crisis, like all crises, will ruthlessly expose the weak. The “small is beautiful” mantra doesn’t hold up when you only have cash flow to stay in business for a couple of months. One large publisher executive expressed relief at being able to mostly wait out the downturn with painful cuts but without facing an existential crisis. Many aren’t so lucky. Media company balance sheets aren’t typically stuffed with cash and have high fixed costs. What’s more, onerous payment terms will make a comeback. If advertisers are paying after 70 days, that will balloon to 180 days, a CEO told me. Publishers stuffed with debt will struggle to keep up with payments. There will be companies that cease — and more quickly than might be imagined.

Beyond that are the known unknowns. The biggest of which is simply what course this dual crisis will take in the U.S. and western economies. The challenge here is twofold. We face a generational health crisis on top of a generational financial and business crisis. The idea of choosing to focus on one versus the other, no matter what the President says, is ludicrous. The executives I’ve spoken to know we don’t know the course this will take. The most hopeful case, which was laid out on a podcast I recorded earlier this week with GroupM forecaster Brian Wieser, is China’s course. It is showing signs of recovery on both fronts — health and business — that would have been unthinkable a month ago. “We’re even starting to see IOs [insertion orders] there,” a global publisher told me.

Of course, there is also a scenario of Italy, which has struggled to “flatten the curve” although it is showing some signs of progress. The Italian economy remains, for all intents and purposes, chiuso. “Europe is a shitshow,” an executive told me. Without a functioning economy, and even an inkling of knowing when we will have one, publishers need to accept the unknowns and plan for all possibilities. “The real unknown is how long it lasts and how long the bounceback takes,” a publisher said.

One last known unknown I have heard repeatedly: How younger managers and workers will handle this crisis. Leave aside the tired millennial stereotypes. Many of the managers navigating this challenge simply have never worked in a crisis. They didn’t experience the dislocation of 9/11 because they were in elementary school. During the financial crisis, they were in high school or college. For all the ennui over work, many of these younger workers haven’t felt the blows of a crisis. “Our front line managers are rookies at managing through hard times,” one exec told me. One CEO told me he’s mandated directors hold full video conference team meetings at the start of the end of day “just to be able to look at people and make sure they don’t fall apart.” Add on the added degree of difficulty of doing this all remotely.

Finally, there are the unknown unknowns. The past few weeks have been a crash course in these. For all the 2020 predictions posts, nobody wrote “A global pandemic will threaten to wipe out millions, shut much of the world in their homes and threaten another Great Depression.” (Who would have thought we’d all be doing webinars?) After the shock, there is a sense of vulnerability that comes from having your world turned upside down. I sense that in many of my conversations with top executives. The worst reaction would be apathy, but ideally, the best is the forced humility of recognizing there are larger forces you cannot possibly control or even influence but the resolve to adapt no matter what to fight another day.