Coronavirus fallout: adspend falls victim too
Expect spending on advertising to slow in the next six months, agency heads say, as companies slash their marketing budgets to compensate for lost revenue brought on by the Covid-19 pandemic
SA’s advertising and communications industry has gone into high alert over the Covid-19 pandemic. Many people in the sector are saying revenue in the normally busy second quarter will be reduced, and this will have a serious knock-on effect for the rest of the year.
James Barty, founder of the King James Group, which has Pick n Pay on its books, says: "We expect to see shifts in [places] where spend is deployed — perhaps an upweighting of digital channels." And he says there is already a change in health information messages, with specific campaigns set to deal with the outbreak of Covid-19.
Barty believes the impact on the bottom line will be client and category dependent. "I think recessionary measures have to a large degree been factored into planning, and our agency environment is already operating under austerity. The added impact of the coronavirus on some clients will be felt only in time."
Other agency heads agree the industry should expect change. Robyn de Villiers, chair of reputation management agency BCW Africa, says: "Many years of working in SA and across Africa [have shown] times of uncertainty often lead to delays in the decision to invest in communications, or to cancellations. But this is an unprecedented time; ongoing communication is needed now more than ever before."
Kgaugelo Maphai, MD of the Joburg office at The MediaShop, which has Shoprite Checkers and Tiger Brands on its books, says companies will be affected in different ways. "Most clients are dealing with the impact on sales, so it’s positive for food retailers. But for others — especially those dependent on products from China — it’s not too good," he says. He expects adspend to shrink in some categories but says it’s too early to say what the effect will be on media agencies’ collective bottom line.
Andrew Fradd, MD of Mortimer Harvey, which works with Absa and Vodacom Business, says talks with clients relate to reduced spending on planned activities. "The intent remains to ensure business continuity and sustained and relevant communications … we now have to understand the effect that working from home has on overheads and expenses."
Chris Botha, MD of Park Advertising, says: "Marketing spend is often a symptom of business revenue. Revenue is down; therefore less money will be spent on advertising. Expect adspend to slow down over the next six months and expect businesses to adjust marketing spend to compensate for lost revenue. We have already had global clients cut back local spend because of the impact of lost sales in China.
"Media owners will be making less money. The result? Either more discounts or severe margin protection as clients look to cut spend. Relationships between media owners, media agencies and clients will be tested at the negotiation tables."
Botha expects cinemas to take a beating because of crowd restrictions, and that audience sizes will plummet. He believes that the use of WhatsApp as a news and business tool will continue to grow.
"While WhatsApp doesn’t take advertising, it does inform data for Facebook and Instagram, so what these platforms know about you will grow as you use them more," he says.
He also foresees a drop in the audience for roadside out-of-home advertising, with fewer people on the road. Radio listenership in cars, he believes, will decrease as working from home becomes the new short-term norm. This, he says, will affect adspend in the medium term.
Stuart Lee of the Famous Faces speaker booking agency says there has been a notable drop in conference activity, but in the form of a series of postponements rather than outright cancellations. Lee urges companies to embrace technology in the conference space. "Technology’s surge is unstoppable and with it the opportunity for experts and audiences to interact. It’s also much more cost effective."
Globally the ad industry’s losses could tally up to $26bn as companies slash marketing budgets, says US ad industry analyst Michael Nathanson of MoffettNathanson. That is almost an 11% decline.
However, he says there might be a small upside of television benefiting in the short term as people stay home and watch news and streaming programmes.
Publicis Groupe’s Zenith media agency says it will lower its December prediction of a 4.3% rise in global ad spending this year, due to Covid-19.
Adspend by major brands in China has dwindled significantly in the wake of the outbreak and could be a sign of what’s to come in the rest of the world.
The eMarketer data and research agency has slashed its China adspend forecast by 6.2%. The rate of adspend growth is expected to be the lowest since 2011.