Coronavirus disrupts advertising industry as events are cancelled and consumer spending falls

The Covid-19 pandemic is hitting the global advertising industry hard as companies slash marketing budgets amid deteriorating economic conditions.

A nosedive in consumer spending, the cancellation of major events and the logistical difficulties of producing creative content have also created problems for the industry.

Some 88 per cent of marketers plan to cut back on spending in the first half of 2020, with one in five reducing spending by at least 40 per cent, according to a survey by the World Federation of Advertisers published in April.

"The impact will be severe, and focused primarily in the second and third quarters of 2020 – though the aftershocks are expected to last into the fourth quarter and early 2021," James McDonald, head of data content at the World Advertising Research Centre, told The National. "The practicalities of actually producing advertising in the current climate is a prohibiting factor. Secondly, some major product sectors – travel and transport being the most obvious – are in complete paralysis. Finally, as economic conditions deteriorate, there is a general hesitance to commit ad budgets at present."

Sectors hardest hit by the lockdown measures – such as travel, transport, tourism and automotive – are likely to see the biggest declines in advertising investment, Mr McDonald added.

Bans on large gatherings and restrictions on movement aimed at containing the spread of the deadly virus will also hit the out-of-home advertising market. For example, spending on ads in cinemas has "evaporated" and the market is unlikely to reopen before July.

Traditional media are expected to "fare worse" than digital, particularly in the US, though online platforms are not immune, he added.

This year was slated to be a lucrative period with mega events including the Tokyo Olympics, US elections and sports tournaments but may shape up to be the worst for advertising giants such as London-based WPP, Paris-based Publicis, US-based Omnicom and Interpublic Group.

The pandemic has hammered the global economy, which is forecast to contract 3 per cent this year, and projected to slide into the deepest recession since the Great Depression of the 1930s. The outbreak has hampered international trade, paralysed air travel and forced companies to furlough or lay off employees.

"While the economy is on standby, advertising is a risky business," Jean Imbs, professor of economics at NYU Abu Dhabi, said. "The bulk of goods will simply not sell during the lockdown, when we could have up to 25-30 per cent unemployment. Nobody buys a car when they fear being laid off."

Possible exceptions are "counter-cyclical" goods, which consumers stock up on during periods of uncertainty or precautionary saving, and products that make people "feel good about themselves" during a lockdown, he added.
Advertising agencies face steep revenue losses and some may not survive the pandemic.

"During the lockdown period, it is very clear that any form of advertisement offline will suffer enormously simply because the whole economy is and will be on standby," Mr Imbs said. "And so of course some agencies could simply go bust during the period."

WPP, the world’s largest advertising group, said in March that first-quarter revenue fell by as much as 30 per cent in some regions and it expects the impact on its business will worsen in the short-term. The company, which owns Ogilvy and Hill+Knowlton agencies, also pulled its dividend and share buyback and withdrew its 2020 guidance.

Tech giants Twitter, Facebook and Google are all navigating the pullback from advertising.

"We experienced a significant reduction in the demand for advertising, as well as a related decline in the pricing of our ads, over the last three weeks of the first quarter of 2020," Facebook said in an April 29 statement.

Still, while spending on traditional print and radio ads, billboards and in-store promotions will see "huge" cuts, companies with adequate marketing budgets will shift their focus to pop-up ads on mobile phones, electronic devices and YouTube as people are spending more time at home in front of screens, Sajid Khan, professor of marketing at the American University of Sharjah, said.

"Advertisers should invest in new research – for instance, studying the consumer’s evolving thought processes and web-surfing behaviours is useful," Mr Khan said. "Studying consumer behaviours with new data, in this unprecedented context, is vital for advertising effectiveness."

The current crisis, unlike the 2008 financial crisis, is different as more people are glued to their television screens for Covid-19 news updates. Linear TV audiences are "at new heights" while ad rates are dropping to "new lows", according to Mr McDonald.

"Indeed, costs are set to deflate across all media, so this is a boon to advertisers still in the game," he said.

Companies with booming sales during the pandemic – such as those in e-commerce, gaming, e-learning and remote work software – stand to benefit from lower rates.