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How COVID-19 will affect the global advertising market?

The COVID-19 pandemic is an unprecedented global occurring that has put the world in uncharted territory. The number of infected cases across the world has crossed 720,000, while fatalities have climbed to almost 34,000. Along with the human crisis, the pandemic has thrown the global economy into a spin, with the International Monetary Fund chief Kristalina Georgieva declaring last week that COVID-19 has led to the global economy now entering recession. Macro-economists have also slashed previous forecasts. 

In its report, titled ‘Beyond the Outbreak: How COVID-19 will affect the Global Advertising Market’, MAGNA has analysed macro-economic developments arising out of the COVID-19 crisis that are seen having a significant effect on the global advertising market. MAGNA’s report notes how the impact of the virus, and the precautionary measures taken by nearly all Governments and corporations to curb the contagion, are disrupting both supply and demand for goods and services. 

The report states that on the one hand, the supply of impressions and ratings will increase, at least temporarily, for most media types (TV, digital media and radio in particular) and decrease sharply for out-of-home media, while on the other hand, demand from most industry verticals will decrease in proportion to the severity of the business impact. 

Applying the industry’s behaviorial patterns, plus supply issues, to key advertising industries, MAGNA rated the severity of the impact to business outlook and advertising spending (on a full year basis): severe, significant, mild, positive. 

Severe (sales down to zero for weeks, slow recovery, and potential long-term damage): travel, cinemas, restaurants, personal services (beauty parlours, gyms, etc.). Although the revenue losses will be severe for many segments of the travel industry, to the point of some companies possibly going under, advertising spending (at least lower funnel spending) may resume soon after the outbreak simply because many segments of travel are fixed costs industries where advertising and dynamic pricing drive occupancy and profitability. 

Significant (strong slowdown, decent recovery): retail (mild impact for grocery shops, severe for department stores, positive for eCommerce), automotive, beauty. 

Mild (moderate slowdown, good recovery): technology, telecoms, pharma, food, drinks, personal care, household goods (some toiletries having a temporary surge in sales). 

Positive: home entertainment (SVOD, OTT), e-commerce and delivery services, cloud computing services. 

Supply Side 

Work-from-home (WFH) policies and quarantines are keeping millions of families at home for weeks. Early data from China, South Korea and Italy suggest significant increases in TV viewing and digital media consumption. When WFH and quarantines are established on a national scale, linear TV viewing increases by approximately +10%, while news programmes and news channels audience grew by +30% or more. Digital media consumption, especially, social media and digital video, also increase by +10% to +30%. 

Demand Side 

MAGNA will update its detailed media owners’ Net Advertising Revenues (NAR) forecasts early June (70 countries, 10 media types, 5 years forecasts), based on media companies Q1 earning reports to be published in April, and reports from local trade organisations. By then we will also get a much better visibility on the pandemic and the economic outlook. In the meantime, we should all be aware of the sensitivity of advertising spending to the economic environment. 

Based on 20 years of NAR data, MAGNA developed a statistical model showing the relationship between economic growth and the fluctuations of advertising spending (or revenues) for any given market, or region, or the world.

The key takeaways of the model are:

  • Advertising revenue fluctuations are synchronised and correlated with economic fluctuations
  • Advertising revenue fluctuations typically amplify economics ups and downs. For instance, during the last recession in 2008-2009, when global nominal GDP fell to -1% and real GDP to -2%, ad spending declined by -10%. Conversely, ad spend rebounded even more than the economy the following year.
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