With sports events shelved and consumers in lockdown, the advertising industry is in free fall

With the Olympic Games postponed until 2021 and cinemas closed across the country, whole segments of the advertising market have evaporated.
Image: A message about protecting yourself from the coronavirus disease (COVID-19) is seen on an electronic billboard in a nearly empty Times Square
A message about protecting yourself from the coronavirus is seen on an electronic billboard in a nearly empty Times Square in New York on March 20, 2020.Mike Segar / Reuters

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By Claire Atkinson

As companies across the world try to figure out the economic ramifications of the coronavirus, the advertising business is suddenly in free fall.

With the Olympic Games shelved until 2021 and almost all sports gone from the airwaves and stores, plus cinemas and restaurants suddenly closed, some of the biggest spending category advertisers are no longer online or on the air.

Additionally, despite the current voracious appetite for news, most media platforms cannot monetize that huge spike in traffic, since advertisers include clauses to prevent their campaigns from being positioned adjacent to news about the coronavirus, a practice known as blacklisting.

Even Facebook, typically immune to advertiser pullbacks, said on Tuesday that advertising is declining. “We’ve seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of COVID-19," the company said in a statement.

Twitteralso warned earlier this week that its quarterly numbers would be negatively affected by the pandemic.

With lockdowns keeping millions of Americans in their homes, brands are pondering whether to invest in advertising if they can’t get their products on the shelves because of supply chain issues or because of staffing shortages — even if demand for their products remains.

For the marketing companies who depend on consumers visiting malls, eating out, taking vacations and other discretionary spending, it could mean a loss of as much as $16 billion, if the global threat from the coronavirus continues beyond the first half of the year, marketing industry forecaster Jack Myers said.

The upheaval has led to even the world’s biggest ad agencies cutting costs, laying off staff as projects get canceled and even considering a four-day workweek, said Marla Kaplowitz, president of the American Association of Advertising Agencies.

“This is just the beginning," she told NBC News. "Every agency is going to consider a number of things from a rollback in salaries at a senior level, to furloughing certain employees who maybe can’t work remotely or are not in critical roles right now. There’s going to be a lot of shifting to manage business and cost flow.”

When consumers stop buying, ad agencies are the first to trim the workforce, Robyn Nagorsky, an Atlanta-based freelance producer, said. “Advertising is a direct reflection of our economy. When the economy stalls, advertising stalls,” she said, noting that when brands cut budgets, that affects support staff such as caterers and security workers.

Several industry prognosticators are retooling their expectations for ad growth estimates as the economic ripple effects of social distancing throttle markets and potentially also roil political ad spending.

Changes could also lead to a complete rethinking of spending patterns in the long term, Harris Diamond, CEO of the advertising giant McCann Worldgroup, said.

“We are at an inflection point with respect to e-commerce,” he said, predicting that stay-at-home measures will influence people beyond the state-mandated period. People will continue to visit supermarkets and retail less frequently, he said, noting, “We’re seeing that in Asia already.”

Last week, trends analyst eMarketer slashed its forecast for ad spending in China by $7.5 billion, though it still predicts growth this year.

An indication of what could happen to the American ad industry can be gleaned from a recent survey of advertisers in China, which has just begun to emerge from months of quarantines and lockdowns. Chinese industry magazine Modern Advertising said 95 percent of respondents predicted their first quarter revenue would drop, with 53 percent of those describing the decline as "severe" or "devastating," Reuters reported.