It’s pretty clear that the world economy will slide into recession this year (some definitions of recession are less than two per cent growth, in the UK it’s two quarters of negative growth) and the hitherto booming global ad market with it.
Both are due to the Covid-19 virus and there’s not much companies can do about it apart from take precautions to protect staff and partners. But, arguably, adland and the world economy as a whole has made itself especially vulnerable to such not-so-black-swan events.
Big companies are a key driver of the global economy and already they’re bleating – airlines in the lead – for government, that is taxpayer support. But executives and some shareholders have made millions in recent years by loading up their companies with debt so that earnings per share look better. Raising money through new equity is often only used these days in the direst of circumstances. Private equity is the biggest culprit but they’re all at it.
The upshot is that that there’s no money left on the balance sheet when sales dry up. As former UK chancellor George Osborne almost put it, “the time to fix the roof is when the sun’s shining.” But companies in search of so-called shareholder value and big executive bonuses do not.
Others, like big retailers and many manufacturers, have discovered the joy of “just in time” ordering. It means they hold little or no stock, good for freeing up cash for generally useless activities like share buybacks. But what happens when the supply chain is interrupted? We’re currently finding out.
WPP’s Mark Read can pat himself on the back for flogging 60 per cent of Kantar to Bain for £2.4bn before the virus struck, thereby reducing WPP’s worrying debt. But £950m of this is slated for a share buyback, £300m so far although the remainder of the programme may now be put on hold. Money down the drain when WPP’s shares are tanking along with everyone else’s.
As to adland generally the business (and global adspend) is now dominated by events: big sporting ones (like the Olympics and Euro 2020), US presidential elections, Christmas/Thanksgiving, Black Friday, even dear old Mother’s Day.
This is partly a consequence of media agencies taking over the ad agenda, concentrating spend on periods they expect to see higher sales. In other words brand tactics have taken over from strategy.
Some of these “specials” have always attracted proportionately more spend but not to the same extent as now. “Old-fashioned” brand advertisers used to advertise consistently all year round because they were trying to build their brands and relationship with consumers over a period of time.
Now, if you take away the tactical opportunity you nix the strategy too because there isn’t one. Tactical opportunities are dropping like flies, Euro 2020 will likely be cancelled or postponed this week, the Japan Olympics are hanging by a thread.
The only people to benefit will be Facebook and Google, because they always do. Google is about to offer us a “Triage” site so we can find out if we’ve got the virus.
eMarketer recently opined that the world ad market would drop from its initial forecast of $712bn to $691bn this year because of the impact of the virus in China, the world’s second-biggest ad market. Well now you can add the US and Europe to that.
Adland can’t do much about the virus. But it might review the way it’s become over-dependent on events which, as now, can be completely out of its control.