Coronavirus and Ad Budgets: What should marketers expect?
How will the coronavirus affect the ad industry?
The coronavirus just keeps spreading.
Now with over 126,000 infected and over 4,600 deaths as of March 11, travel restrictions popping up in Europe and the United States, and the WHO officially declaring it a pandemic, the virus is disrupting businesses all over the world.
The ad industry is no exception.
Here we will gather all the latest information on how the coronavirus is affecting the advertising industry.
We'll continue to update this as news comes out. Read on to stay informed.
March 13th, 2020
Coronavirus expected to hit global ad spending
Fallout from the coronavirus is expected to significantly curb global advertising growth by many billions of dollars, according to a new report by eMarketer. The firm said that as things currently stand, global ad spend will reach just $691 billion, down from their earlier estimate of $712 billion.
Of course, this is absent many cancellations that have not yet occured, but are suspected to take place if the virus stops spreading. The 2020 Summer Olympics in Tokyo is at risk of being scrapped over fears of the virus. The NBA suspended its season last week, and other sporting events are having matches played indoors with no crowds.
China is largely responsible for the decline, as the strict quarantine imposed by the government in several of the country's provinces halted economic activity. Moreover, increased digital media consumption by people who spent their time consuming media indoors was not enough to offset the loss from advertising elsewhere.
Not all platforms will be affected equally, according to the report. Amazon is likely to take a more serious hit, as disuprtions in global supply chains complicate advertising on the platforms for third-party sellers.
Digital ad budgets massively being cut
In a new post for SearchEngineLand, adtech journalist Ginny Marvin cited how companies were drastically cutting advertising budgets.
- London-based e-commerce agency Vervaunt said one client was concerned with developments in China, but expected to run ads for at least a few more months based on current stock. But with supply chain disruptions and no improvement in site, they cut Google Search and Shopping budgets by 40%.
- A luxury international travel business cut budgets by more than 50% across all digital channels last month.
- UK-based digital agency Distinctly says that two clients paused ad spend entirely due to coronavirus fears.
At the same time, some analysts believe that marketing budgets will simply be shifted toward the second half of the year and that this will not have a major impact on the advertising industry overall.
Google target price downgraded on lost ad spend in travel sector
Loop Capital Market analyst Rob Sanderson has cut Google parent company Alphabet's target from $1,450 to $1,320 on an expected 15% y/y decline in travel ad revenue in Q1 and a 20% drop in Q2 because of the coronavirus.
While the cut is only based on expected losses in the travel industry, the firm says that it expects losses in ad spend across all industries.
Alphabet shares fell by 5% in trading on March 11th.
Facebook ad business to plummet on coronavirus news
Analysts at Needham have reduced Facebook revenue and earnings per share estimates on fears that consumer demand and ad projections will decline in the near term because of the coronavirus.
A research note points to channel checks showing lower spending in travel, retail, consumer packaged goods and entertainment, which taken together make up 30%-45% of Facebook's total revenue.
In addition, six out of the largest ten advertising markets by country are hotspots for the coronavirus.
As advertisers leave Facebook's ad auction, there will be more downward pressure on prices with falling demand for ad units. This
How will coronavirus affect advertising?
While most experts agree that if the coronavirus continues to spread, advertising across several industries will be affected, specifically ad spend in industries related to travel will fall.
At the same time, some sectors could see ad spend increase, in particular streaming TV and video games, since usage is projected to go up if consumers are spending more time indoors.
Sports events advertising
Major brand advertising for sports games and the olympics will get significantly affected as these events are likely going to be cancelled.
The National Basketball Association (NBA) took the drastic decision to suspend the season after one of the league's basketball player's got sick.
Restrictions on public gatherings.
Major conferences in the industry are getting cancelled.
With long-term restrictions possibly being implemented against movement and large gatherings, certain ad spend would be affected in cinema and out-of-home advertising market.
Presumably however, with people spending more time at home, spending on streaming services, social media and mobile games could all see an increase in ad spend.
In particular, streaming providers and delivery services like Uber Eats might boost advertising if people spend most of their time indoors.
eCommerce in Trouble
The coronavirus is disrupting supply chains.
With so many goods produced in China, advertisers are cutting spending on Amazon as they are unable to keep their items in stock and keep inventory in line with demand.
General Economic Decline
Another problem could emerge for the advertising industry is if the coronavirus creates an overall hit to the economy. With major events getting cancelled, people working from home, and schools shutting down, there could be a major impact on the economy.
When companies face budgeting issues, often marketing is the easiest area to cut in times of uncertainty and volatility.
If we look back to the global recession of 2007, most agencies experienced significant cuts to their client's advertising budgets.
China offers a clue
What is happening in Italy and the United States right now is essentially a repeat of what China has been going through since January.
To see how advertising could get affected in the United States and Europe, it is helpful to look toward China.
In China shopping plummeted as people spent time indoors. But at the same time, media consumption rose.