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By Megan Graham

KEY POINTS
  • Though advertising spending has struggled in recent months as a result of the coronavirus pandemic, a new forecast says the impact won’t be quite as dire as it was during the financial crisis.
  • In a new report released Tuesday, GroupM said it expects U.S advertising to decline 13% during 2020 (excluding political advertising, which varies greatly on election years), compared to the 16% drop seen during the 2009 financial crisis.
  • “That we ‘only’ expect a 13% decline is surprising,” the report says. “We might normally expect that because the 2020 economic decline is so much worse than 2009, advertising should be much weaker.”

Though advertising spending has struggled in recent months as a result of the coronavirus pandemic, a new forecast says the impact won’t be quite as dire as it was during the 2009 financial crisis.

A new U.S. mid-year report released Tuesday from GroupM, advertising holding company WPP’s media agency arm, shows how the outbreak of Covid-19 changed the group’s expectations, originally forecasted advertising to grow 4% this year. GroupM now expects U.S advertising to decline 13% during 2020 (excluding political advertising, which varies greatly on election years), compared with the 16% drop seen during the 2009 financial crisis.

Brian Wieser, GroupM’s global president for business intelligence, said the ad market’s decline is abating after an “initial freefall” that impacted ad spending beginning in March.

“That we ‘only’ expect a 13% decline is surprising,” the report says. “We might normally expect that because the 2020 economic decline is so much worse than 2009, advertising should be much weaker.”

But, it says, there are differences between the two situations. In 2009, declines played out over months and a wider range of businesses were gradually and severely impacted. In 2020, the stoppage in March of conventional in-store retail activity “ground to a halt, as did tourism, hospitality and place-based entertainment industries.”

Most other economic activity continued, however, and retail companies worked out strategies for pickup or delivery.

“Going back to mid-March, it was absolutely the case that if you could cut your spending, you did,” Wieser told CNBC. But shortly after, marketers figured out how to adapt.

“As we’ve seen, so many parts of life have just continued differently,” he said. “We’re still buying our food, we’re just doing it in higher concentrations and from fewer places, and buying more products online. Instead of taking a road trip vacation, we’re buying 72-inch flat-screen TVs. The bulk of the economy has continued to operate, not normally, just differently.”

Wieser also pointed out that where impact has been most profound has been concentrated in areas of the economy that aren’t as intense in advertising, giving restaurants and bars as an example.

“It’s not that they don’t spend money in advertising, just less than other categories,” he said.

Wieser said that declines in global ad revenue from Google and Facebook were also more modest than expected in April. Plus, the group expects businesses of all sizes will transition online more aggressively, leading the group to forecast digital advertising to decline only by 3% during 2020, or to be flat including political advertising.

GroupM expects total TV advertising to decline by 7% in 2020, with national TV declining around 11% in 2020. Local TV will see an estimated decline of 34% because of the weakness in local retail and automotive advertising, though it will grow 1% when including political advertising.

It expects the segment of players like Roku and Disney-owned Hulu that offer primarily professionally produced TV in digital form to fare “much better,” with only a 3% decline in 2020.

But the report said that much uncertainty persists and that though markets and corporate decision makers are showing improving confidence compared with mid-March, we’re still in what’s considered to be the “first wave.”

IPG Mediabrands’ Magna, which is part of Interpublic Group, also released an updated forecast Monday. The group said it estimates global ad revenues will decrease by an estimated 7% in 2020 as a 16% decline in linear ad sales is aided by a 1% growth in digital.

Magna expects the global economy will recover in 2021 after the “pandemic leads to the worst economic downturn ever” in 2020, while major sporting events like the Summer Olympics and UEFA Football Championship will help spur a recovery in marketing budgets and ad spending.

Feature Image Credit: Angela Weiss | AFP | Getty Images

By Megan Graham

Sourced from CNBC

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