An advertising downturn is coming in the UK. Don’t be fooled by this year’s cheery crop of Christmas ads with elves, fairies and magic spectacles.
Media buyers say there is little sign of a hoped-for double advertising bounce from Christmas and the winter football World Cup.
In reality, adspend is wobbling and Q4 revenues may turn negative, buyers and media owners say. “Very soft”, “bumpy”, “late” and “stop-go” is how some insiders describe recent trading.
If England’s footballers do well in Qatar that might just save the quarter, but some brands are avoiding the World Cup because of controversy around human rights in the host country.
Client sentiment has been fading throughout the year because of the cost-of-living squeeze but UK advertisers’ behaviour changed markedly after mid-October, according to one agency boss, who says: “It’s starting to bite. We’re feeling the recession start to kick in.”
Some project work and campaign plans that weren’t already under way are being “shelved”, this person warns, adding growth expectations for 2023 are being “dramatically scaled back”.
The first half of next year is looking especially weak, but the second half might be a bit better, so the full year might not be so bad.
Warc has cut back its 2023 UK ad forecast twice already this year but was still expecting growth as recently as October. Since then, the Bank of England has warned of a two-year recession.
Brands are looking for excuses to cut spend, according to another agency source, who speculates this may be one reason why some marketers have been happy to pull their ads from Twitter since Elon Musk’s maverick reign began 10 days ago.
Some of the storm clouds hanging over the ad market are macro-economic: inflation jumped during the recovery from the pandemic and was made much worse by the slow restart of supply chains and then the impact of the Ukraine war on energy prices. Now central banks are jacking up interest rates faster and more aggressively than expected, which is aggravating the cost-of-living squeeze.
A “digital correction”
More pertinently for the ad industry, there has been a “digital correction” in 2022 as it became apparent that the boom in technology and ecommerce companies was over-hyped.
Furniture retailer Made and mattress-turned-sleep wellness brand Eve Sleep are among the one-time digital darlings that have collapsed in recent weeks – with investors wiped out.
Other bigger names such as Netflix, Peloton and Stripe have seen their valuations plunge and have cut jobs.
This has a direct impact on the ad market because so-called “digital disruptor” brands spent heavily on advertising and sponsorship in the race to win market share – before and during the pandemic.
Even the biggest digital advertising platforms, including Facebook owner Meta and YouTube, reported declining quarterly revenues for the first time this year.
One seasoned industry observer says this “digital correction” was inevitable as online advertising has become so dominant – upwards of 75% of all adspend in the UK in 2022, according to an estimate by Group M.
It is “the law of large numbers”, as Mark Read, the chief executive of WPP, told Campaign at its Q3 results, explaining how the sheer size of the biggest digital platforms means it becomes impossible for them to outgrow the market itself.
However, some more established players – from consumer goods giants Procter & Gamble and Unilever to agency holding companies such as Publicis Groupe and WPP – have benefited from something of a swingback to premium brands and more trusted ways of brand-building.
Their revenues are all up by strong single-digit percentages or higher – at least for the first three-quarters of 2022.
But no company will be immune from a wider economic downturn.
There are worries about how staff will cope. Publicis Groupe’s decision to spend €50m on an exceptional bonus of one week’s pay for employees without variable remuneration in November – ahead of the holiday season – sent a “thunderbolt” through the agency sector, according to a senior figure at a rival group, because it shone a spotlight on other companies and whether they are doing enough to support their teams.
Some experienced advertising leaders who have worked through previous recessions are staying positive. “We are heading for a recession out of which opportunities can arise,” one agency boss says. “Clients need to make sure they are getting their fair share of [advertising] price reductions.”
And a leading media owner believes the downturn will not be as deep as the global financial crisis of 2008-9, or as sudden as the Coronavirus slump of 2020, when virtually all adspend vanished in Q2.
Writing in Impact, the magazine of the Market Research Society, Lorna Tilbian, the chair of Dowgate Capital, says only half-jokingly that investors need to focus on the ten “Fs”: food, fags, phones, pharma, films, facials, fossil fuels, firearms, finance and fizz. (Best to leave aside the fact some of these sectors are no-go areas for ad folk.)
Tilbian, a media banker and analyst since the 1980s, has seen plenty of recessions. When I asked her to rate this downturn, she said: “This is the real deal.”
Gideon Spanier is UK editor-in-chief of Campaign