Global ad spending will likely fall if spread of coronavirus continues – CNBC

The World Advertising Research Center said in its Global Ad Trends report on ad spend last week that if the crisis remains contained, advertising spend would be delayed until later in the year. The group forecast last week that advertising spend would reach $660 billion this year, but that figure doesn’t include potential impact from the coronavirus since, if it’s contained, that displaced spend would be reallocated for later in the year.

“Advertising’s relationship with GDP is strong, but a slowdown in economic output as a result of the virus will not necessarily translate into reduced advertising investment,” the report said. However, if events like the Tokyo Olympics or UEFA Euro tournament are postponed or canceled, the group said, it would expect a “notable impact.”

James McDonald, WARC Data’s managing editor, told CNBC on Tuesday a major disruption from coronavirus could lead to long-term restrictions on movement and large gatherings. That would impact spending in areas such as cinema, the out-of-home advertising market and even radio, since so much of radio is consumed during commutes, he said.

If people are spending more time at home, they would instead be spending more time on streaming services, social media and mobile games, which could all see increased ad investment, McDonald explained.

Collin Colburn, a senior analyst with Forrester focusing on B2C marketing, said streaming providers and delivery services such as Grubhub or Uber Eats might amp up advertising if people end up spending more time indoors.

But, he said that consumer-packaged goods or manufacturing-related companies might decrease ad spending if there are inventory issues due to constraints on the supply chain.

“You might not want to be advertising products if there’s no inventory,” he said.

Then there’s the broader impact on advertising if there are broader economic issues, which could cause advertisers to readjust their budgets.

“Advertising is an easy [area] to potentially cut in a time where there’s uncertainty or volatility.”

Advertising is an easy [area] to potentially cut in a time where there’s uncertainty or volatility.

“China is going to be really useful to get a read in how this can play out,” Brian Wieser, global president of business intelligence for GroupM, WPP’s media agency arm, told CNBC.

On Monday, Wieser said in a post that everyday life in China had been severely impacted by travel restrictions and business closures due to the coronavirus outbreak, and people spent more time consuming media and less time going out shopping. But, as the pace of new infections in China began to decelerate, Wieser said, stores and factories began to reopen.

“In short, there appears to be a basis for optimism around a resumption of normalcy — or at least a ‘new normal’ — in the coming months,” Wieser said. “Unfortunately, much of the rest of the world is only now going through what China has gone through over the prior two months. This means that we likely have yet to see the worst play out.”

Wieser said the possibility of a recession will be realistic for many countries, at least on a short-term basis. How much those recessions may impact ad spending is difficult to predict.

“While it is far too early to anticipate outcomes with any precision, the implied double-digit declines in ad spending within China for the first quarter could play out elsewhere, with reduced declines in subsequent quarters and an eventual reversion back to growth as we have seen following other recessions,” he wrote.

“Of course, marketers able to avoid making cuts will generally fare better given what will likely be relatively favorable pricing and reduced competition for consumer attention. Longer-term brand-building will benefit from a sustained media presence, albeit with appropriately modified messaging.”

The implied double-digit declines in ad spending within China for the first quarter could play out elsewhere, with reduced declines in subsequent quarters and an eventual reversion back to growth as we have seen following other recessions.

Market research company eMarketer said it’s considering the economic impact of the virus on its ad spending forecasts. Meanwhile, Publicis Groupe’s Zenith, which releases advertising forecasts, said it’s updating its guidance given coronavirus impact but didn’t have details to share yet.

For independent media agency Crossmedia’s CEO Kamran Asghar, it’s too early to tell the impact on client spend.

“It’s literally an hour-to-hour deal,” he said in an email. “Our recommendation is to simply do what’s best for our client’s business and their customers. Our travel clients are certainly bracing for impact but are committed to staying the course and helping their customers navigate travel options. All our clients are evaluating procedures that could affect ad spend, but we have not seen any major pull back to date.”

For now, some areas that have been hard-hit in the stock market are still spending on advertising. That includes Carnival Corporation and its cruise ship brands.

“Our ships are mobile, sailing to more than 700 ports around the world, so we are able to quickly move our cruise ships as needed to alternate destinations,” a spokesman said. “We have thousands of guests sailing with us each and every day. We continue to advertise and promote cruising through all our channels with all our brands.”

All our clients are evaluating procedures that could affect ad spend, but we have not seen any major pull back to date.