After Coronavirus Pandemic, Economic Downturn Awaits Ad Industry

Hello! At first, hope you all are safe, healthy, and isolated in these trying times. 

Last week due to the rapid rise of coronavirus, all events and big announcements in the ad tech industry were cancelled and companies shifted to work remotely. However, there is an unexpected sting in the tail – the economy is slipping into recession.

Initially, the advertisers thought the impact of coronavirus would be short but now they are preparing for its effects to stay for months. With the economists warning that a global recession is underway, the global markets witnessed a sharp fall. On the other hand,  the investors feared coronavirus would stunt the economic growth resulting in a market crash of 3000 points from the Dow Jones and the value of stocks falling steeply. The advertising executives think the coronavirus pandemic means normal business is on hold indefinitely.

According to a report from research firm eMarketer, a reduction in the growth of advertising is expected on a global scale due to COVID-19. The firm said the global ad spend is expected to be $691.7 billion, down from the earlier estimate of $712 billion. The total ad spending of China, the second-largest ad market is expected to reach $113. 7 billion, down from the previous estimate of $121.13 billion.

Many business events and pitches worth millions of dollars have been postponed until the coronavirus stabilizes. While it is early to predict the overall economic outcome due to coronavirus outbreak, however economists like IAB Europe’s Daniel Knapp warns a situation similar to the 2008 recession. However, that recession was driven by the issues in the financial system, currently, coronavirus is creating the collapse of the consumer demands across sectors weakening the economic activities around the world.

The impact of coronavirus pandemic on advertising has begun to sink in. As quoted by the DigiDay, David Indo, CEO of ID Comms said,

“We are facing unprecedented market conditions and many advertisers have sensibly focused on protecting key business and commercial requirements.”

He further added,

“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.”

The biggest impact of the coronavirus pandemic has been a major disruption to supply chains. For instance, Apple witness a shortage of iPhone supply in China. As a result, it established  Foxconn as a primary manufacturer. Currently, the production is shut down in China reducing the forecast in iPhone shipments in Q1 by as much as 10% according to Apple analyst Ming-Chi Kuo cited by MacRumors. Some advertisers like Adidas and AB InBev are pulling out dollars from China because of coronavirus overturning the ability to sell ads whereas others with streaming services are wary to take more ads as it might look that they are trying to gain more profit from people forced to stay at home.

Cancelled events and travel restrictions refer to fewer people travelling which means business metrics like return on advertising spend are in freefall for travel companies. According to Gareth Owen, MD of independent agency network TiPi Group, certain verticals like travel are trying to cut down on advertising and their travel clients aren’t bidding on the keywords that usually drive sales as a part of cuts to pay-to-click strategies that have also stopped display budgets.

Speaking to DigiDay, 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 problems of the travel industry and event organizers are becoming a part of the ad industry as well. For example, influencers looking for collaboration on lucrative projects are suspended for two reasons – no travel or event is cancelled. Even though only a few travel and tourism campaigns and brand sponsorships have been cancelled by companies, but if the situation gets worst it can have serious repercussions on the influencer’s income

The outbreak has even halted the shooting of movies and series at various stages of production. This can cause monetary damage to the production houses and channels.  Therefore, insurance is a big consideration for them as the outbreak comes under force majeure ‘clauses in the contract and is not covered in any policy. Alternatives, like repurposing old footage or investing in animation, is being considered as neither requires to shoot.