‘Never let a good crisis go to waste’: Publishers set for a second wave of layoffs
State intervention and government prop-ups have led some media companies to approach job cuts by stage. The initial cuts were often less than the declines in ad revenue these companies faced. In the U.S., the overall unemployment rate surprisingly fell in May, thanks in large part to government loans to employers as well as hiring of part-time workers for essential services.
But as that money runs out, and fears of a second coronavirus spike in the fall bubble up, media companies look set to face hard choices, particularly as the downturn in ad revenue moves from a second-quarter issue to a full year slide. Few CROs see a “V-shaped recovery” for ads this year.
In Germany, where restaurants and schools are opening, most major media companies received subsidies covering up to 67% of employee wages to avoid making large scale redundancies. This has meant that the unemployment rate in April was 3.5%, up from 3.1% from April 2019, according to Eurostat.
“The question is, when will this [funding] stop?” said digital consultant Oliver von Wersch. “You could say this was postponing rather than solving the problem, pushing it to later on in the year. On the other hand, when the economy is down and you have this helpful instrument, employees are still getting paid, it’s the basis for rebooting and restarting parts of the economy.” Boosting economic confidence and morale is partly behind the country’s quicker control of the virus.
Most German companies expect to return to offices in the fall when the situation is clearer. But in Germany, the ad market is still shrinking: advertising decline for the year is estimated between 10% and 20%. Digital advertising will rebound but it is unlikely print will return to the same level as pre-coronavirus. “That is a heavy task inside publisher organizations,” said von Wersch. In some organizations, there is just less to trim.
Meanwhile, fears of a second spike are driving major economies into further debt. The rates of U.S. company fundraising have reached record peaks — borrowing $1 trillion this year, twice as much as 2019 — as companies shore up balance sheets now in case times get tough later on, according to Bloomberg data.
“The key driver will be what can we do to save costs,” said independent media consultant Ian Whittaker. “The impact of a recession means business models collapse, companies cannot afford to employ as many people. A lot of firms will fall back on that adage, ‘never let a good crisis go to waste.'”
People, paper and property make up the bulk of news publisher costs. For one of the U.K.’s largest newspaper groups, Reach, 44% of its operating costs of £551 million ($700 million) in 2019 went on employee costs, its highest outgoing. Agencies fare worse, nearly 75% of Omnicom’s net revenues are employee costs, according to Whittaker.
“I can guarantee pretty much every single publisher will announce pretty material job cuts,” said independent media consultant Alex DeGroote, noting that the U.K. government’s subsidies paying 80% of wages will taper away.
While there’s scant clear evidence media companies use a crisis to trim the fat, it’s expected through any recession and economic downturn. That’s also the cyclical nature of media. “You make short-term cuts, you rightsize the teams and then you build it back up, but that’s what we’ve been doing for years,” said one global magazine publisher executive.
Physical events teams at publishers like The Atlantic and The Economist have been cut. Elsewhere, the number of sales executives have thinned to match lower demand. BuzzFeed closed its U.K. and Australian news desks which weren’t driving much profit. Microsoft, which combined with Apple has a value capitalization worth more than the whole German listed market, has laid off 27 journalists who maintained the news on Microsoft’s MSN website and its Edge browser, figuring that artificial intelligence can do the job.
Coronavirus has fast-tracked digital transformation to the point where it necessitates survival. WPP CEO Mark Read said there has been a 60-fold increase in Microsoft Teams in the last month, despite previous reluctance to use it. Goldman Sachs’ COO John Waldron said the crisis has removed the need for “human intervention” in areas where humans were previously considered imperative, said Whittaker.
It’s not novel to say that for most media companies, organizations on the other side will have less of a focus on print and more on digital. Print’s key route to market has been destroyed. Magazine sales, previously buoyed by people browsing at the checkout, suffer as visiting the grocery store is more of a gauntlet run than a humdrum chore. Automation in companies has been underway for years in programmatic ad trading, machine learning to tailor content and services, artificial intelligence tech to create more functional reporting. An ad-market bottoming out has led to a rush in building reader-revenues models.
“The volume [in audiences] is there for subscriptions, but commercializing it is the problem,” said Adam Hiller, partner at executive search firm SRI. “There’s a real race for reader revenue. There will be demand in skills for pricing strategies and retention modelling, how technical capability underpins digital strategy and infrastructure as companies seek hyper-personalization to drive reader revenue. It’s a good opportunity for companies and people to reset.”
The talent agenda on the other side changes for publishers, and with other firms making people redundant, or employee aversion to the new reality of their roles, there will be opportunities for those who are in a more stable space. And some publishers are making tentative plans.
“There will be talent in the back half of the year, so we’re thinking about what we need from people,” said a commercial publishing executive who’s starting to see the light at the other side. “Perhaps we increase our bench strength with more telesales people or people with deep contacts who can work remotely. We’re looking at the top and the bottom of the spectrum.”
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