ANALYSIS: Better times ahead for advertising but no dancing in the street yet

Chris Pash
By Chris Pash | 8 July 2020
  • Media agencies are seeing better bookings for July and August
  • Official numbers show Australian are out spending again
  • Advertising demand lifting after the June quarter

The advertising industry, with one eye on the possibility of a second wave of the pandemic, is starting to see indications of a climb out of the COVID-19 economic trough.

Industry leaders and crystal ball polishers report better advertising bookings and interest for July, August and September and some economic indicators of better times to come.

The markers are tentative but give rise to optimism as more brands get back in the market. 

Mark Coad, CEO of IPG Mediabrands Australia: “We're certainly through the worst of it, there's no question about that.”

He says clients have over the last few weeks turned their attention to the climb out of the economic hole rather than dealing with the fallout from the pandemic.

“It feels to me like there'll be improvements in July and August, and by September/October, we should be back to something resembling normal,” he told AdNews.

“There'll be categories that will remain offline for some time, if not indefinitely. The market's never going to come back to what it was.

“I'm talking about the travel industry particularly, and tourism.

“Having said that there are categories that are flying. Just pick up the weekend papers, they look like the Harvey Norman gazette.”

The slump in ad spend has broken records. The 40.4% drop in May, as measured by media agency bookings, was an all time record decline, described as disastrous.

However, the SMI (Standard Media Index) forward bookings data is showing stronger demand after the June quarter.

“When we look at the level of confirmed ad spend for July compared to what it was at this time last year, we can see a difference of only nine percentage points and for August the difference is even smaller at six percentage points,” says Jane Ractliffe, the local managing director for SMI.

“Given the difference in demand in May was more than 40 percentage points this shows the market is clearly regaining confidence."

Coad at IPG Mediabrands says he would be surprised if June was as bad as May.

A lot of advertisers have started to return to the market as businesses reopen.

“Just watch TV for half an hour and see some of the advertisers, the businesses spruiking home delivery, contactless transactions, that they've never done before,” he says.

“In the next quarter, others will just come back online along with more confidence in the market. I think April and May were the two worst months and from there it'll be a steady climb.”

More than a third of independent media agencies expect clients to increase spend from September, according to the first Pulse Survey from the Independent Media Agencies of Australia (IMAA)

However, Michael Bass, the chief investment officer at Amplifi, thinks the consensus view of a bounce back in July is optimistic.

Forward planning and bookings suggest some uplift in August. However, Bass says the market is currently trading very short, so it’s difficult to accurately predict

“There are so many dependencies for recovery, it seems to be a perfect storm of difficulty,” he says.

“The main factors are the recession, unemployment rate after JobKeeper ends and most importantly, the supply chain.

“Even if there is a recovery of sorts in the economy, a big factor right now is whether marketers have the product to sell.

“It always makes sense to have a strong marketing plan through a soft market. Now is the time to spend, not pull back. Many opportunities exist for brands to grow during difficult times, ensuring they have set a strong foundation and are top of mind when the market bounces back – because inevitably, it will.”

Brett Dawson, CEO Bohemia Group, says he is seeing more confidence from clients in July, August, September.

“But we remain on high alert and seeking flexible terms due to what's happening in Victoria right now and the impact of a withdrawal of government support in October,” he says.

“We are officially in recession and the question of a V or U shape recovery remains a hard one to predict.

“I was in high school in the last recession in Australia in 1991 so it's not like there is a relevant play book.

“I do believe that if Australia can remain on top of this virus, and can stay out of the rising global US Vs China tension, and get the majority of the country back into work, then we are best placed to recover faster than most.

“The media sector will be a good leading indicator to watch, it correlates to consumer and business confidence, so is the first to be hit (and we were hit hard) but will also be the first back.”

Nicola Lewis, chief investment officer at GroupM, says advertisers are already coming back with a sense of optimism.

“In the second half of the calendar year, we’re already starting to see green shoots of recovery with many sectors choosing to increase spend to take advantage of market opportunities and build long-term brand equity,” she says.

“This is the result of restrictions easing, increasing footfall and concerns around supply abating.

“Sport is back, which is providing some momentum and an opportunity for advertisers to re-engage. In addition, our industry will continue to truly transform, fuelled by advances in data, tech and content.

“We will see a number of categories continue to spend and even increase their spend including tech, banking, healthcare and home entertainment. SVOD and the catch-up ecosystem continues to grow exponentially, and importantly, we will continue to see significant growth in ecommerce.

“The appetite for brands and platforms to aggressively increase investment in digital activity to enhance the consumer experience has never been stronger.

The latest economic data shows Australians are spending again.

Retail trade rose by a record 16.9% in May.

And buying a car is back on people’s to do lists. CommSec: “When the car market starts lifting it usually signals that the broader economy is well and truly on the recovery path. We aren’t there yet, mainly because people are wary about what is happening in Victoria. But progress is being made.”

Many forecast better business conditions in 2021.

Magna says Australian advertising spending in 2021 will increase by 6.9% to reach $16.4 billion, slightly below the 2019 totals, which won’t be surpassed until the end of 2022.

GroupM forecasts show a recovery next year with Australia expected to see the fastest bounce back of the top 10 biggest spending markets, with 25% growth in calendar 2021.

Economists at investment bank Morgan Stanley see the COVID-19 recession as deep but the shortest in history: “The worse the crisis that plays out over the next 18 months, the deeper the scars down the line. On the other hand, a rapid return to pre-COVID conditions could undo the damage sooner than expected. The pace of the recovery over the next 18 months holds the key to the medium-term outlook.”

And the 2020 CMO Spend Survey by industry analysis firm Gartner shows that marketers believe budget cuts brought about by COVID-19 will be short-lived.

The majority of CMOs responding to Gartner’s survey believe the post-COVID-19 economic curve will be V-shaped. 

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