The cancelation of major sporting events and the decimation of the luxury, entertainment and travel industries is delivering a hammer blow to a global advertising industry that was already reeling from years of tech-led turmoil.
What should have been a bumper year with UEFA Euro 2020, the Tokyo Olympics and US elections looks like it could be one of the worst for ad giants WPP PLC, Omnicom Group Inc, Publicis Groupe SA and IPG Inc as the economy shuts down.
Advertising executives told reporters that clients are pulling campaigns, photoshoots for glossy magazines are off and major brands are cutting budgets to conserve cash after the COVID-19 pandemic upended the way people go about their daily lives.
Photo: AP
“This is a very sudden, immediate and significant hit to people’s revenue and bottom line. A lot of people will go to the wall as a result of it,” London Advertising founder and chief executive Michael Moszynski said. “All the media agencies globally are being told by their clients to cancel their spend.”
The sudden withdrawal of a chunk of the US$600 billion of pure advertising money that goes via agencies onto media platforms such as Facebook Inc and Google, broadcasters, magazines and billboards would be felt far and wide.
While the industry has faced crises before, including the Sept. 11, 2001, terrorist attacks and the 2008 financial crash, the rapid spread of COVID-19 through every continent and every sector poses an unprecedented threat.
“You don’t advertise for flights that don’t exist,” said Brian Wieser, an executive at WPP’s Group M media buying arm. “If you can avoid it you will stop the spend.”
WPP, the world’s biggest advertising group with more than 130,000 employees, traditionally keeps its staffing levels in line with revenue growth.
It has already been through two years of pain as clients started placing ads directly on major tech platforms and others took some digital advertising in-house. Its shares have fallen 54 percent in the past three months, the worst hit of the four groups.
REVENUES SHRINK
The global fallout can be seen first in China, where the virus emerged. Its biggest search engine, Baidu Inc (百度), has predicted that sales from advertising could fall by up to 18 percent in the first quarter.
In the US, the New York Times has forecast a fall in quarterly total advertising revenue in the mid-teens due to a slowdown in international and domestic advertising bookings.
In Europe, broadcasters, such as Germany’s RTL and the UK’s ITV, have been hit by the departure of big advertisers such as cruise companies and airlines.
The postponement of James Bond: No Time to Die and the Euro 2020 championship would hit sponsorship, pure advertising and the dated 2020 merchandise that had already been made.
Around the world, outdoor advertising is being particularly hit as people stay at home. As luxury fashion sales plunge the companies are still paying for billboards in airports that are largely empty. Some glossy magazines could also fail.
William Eccleshare, the worldwide head of one of the biggest outdoor groups, Clear Channel Outdoor Holdings Inc, said that some advertisers had pulled out of the medium in countries that were shut down, while others delayed bookings.
They would negotiate cancelations with the landlords they rent the space from and the advertisers who pay to use it, he said.
“We show flexibility where appropriate but, it’s judged on a case-by-case basis,” he added.
The pain would also be felt early in the digital market dominated by Alphabet Inc’s Google and Facebook, where spending is more easily adjustable.
“What’s the first thing that you will turn down? It’s variable marketing spend,” said Johannes Reck, cofounder and chief executive of Softbank-backed Berlin travel start-up GetYourGuide.
“So those companies will really see I think, very, very, very crazy negative growth [in their] Q1 results. And that will be a first for them as well.”
A NEW NORMAL
ID Comms Ltd chief executive officer David Indo has worked with Coca-Cola Co and Nike Inc.
He said the outbreak would force a review of spend and delay media pitches where brands put contracts out to tender, limiting organic growth for ad groups.
Clients are asking how to respond.
“There isn’t a part of the industry that isn’t impacted,” he said.
After years of technological turmoil, the industry is also not in the strongest position to respond.
Martin Sorrell, the world’s most famous advertising owner who founded WPP, said it needed to retrench and accept that some things would change forever.
“Will people change their habits, will I travel as much? There’s nothing better than shaking hands if you can shake hands, but if you can’t?” he said.
However, a time would come when it makes sense to relaunch campaigns.
Already retailers are sending e-mails to customers conveying their concerns, offering discounts and pledging to do everything they can to get society back on its feet.
Moszynski, who was given the brief by the US government to restore confidence in flying after 9/11, said now was the time to take stock.
“It is all about confidence and perception, which is our industry,” he said. “We are actively working on something that will help one of our clients by being an industry leader and leading the way out of it.”
Additional reporting by Douglas Busvine
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