JOIN USCoronavirus pandemic brings change to ‘bloated’ ad industry
The advertising industry’s tendency toward excess — catered parties in Las Vegas headlined by pop stars; unwieldy internal hierarchies stuffed with countless director roles; throw-it-at-the-wall ad placement — has persisted for years despite concerns about wastefulness.
The pandemic may force all of that to change.
Some people in the industry say a correction was necessary. Marketing budgets have dwindled as the coronavirus led to nationwide lockdowns and canceled events, and customers are no longer in the mood for flashy TV commercials or bright, cheerful billboards.
The research firm Forrester predicted last week that advertising spending in the United States would decline by 25% this year and would not recover until 2023. For Twitter, advertising revenue fell 23% in the most recent quarter. Now the platform has said it is looking into subscriptions and other ways to make money that do not depend on ads.
The ad giant Omnicom Group said Tuesday that revenue in its second-quarter slumped nearly 25% and that the decline “is expected to continue for the remainder of the year.” Like many of its peers, it laid off 6,100 employees, shed more than 1 million square feet of space, froze hiring and implemented some pay cuts.
In place of the pre-pandemic parties and dinners, the longtime advertising executive Gaston Legorburu has been going “from war room to war room” at Fortune 500 companies, where he said he found many advertising plans and marketing departments in limbo. His agency, Glue IQ, has placed interim workers at companies that have cut back their staffs.
“There’s a big correction — a lot of these teams have gotten too big and too bloated,” he said. “They’re now having the realization that they can do twice as much with half as many people.”
While the industry tightens, the ads it produces have become simpler and more practical. Campaigns are often produced quickly and on the cheap as companies have tried to adjust to the initial shock of lockdown, worldwide civil rights protests and the seesaw of reopenings that have sometimes been interrupted by new outbreaks.
More clients have asked that their ads be made by and feature a more diverse group of people, while also demanding more evidence that the ads are effective. Agencies have experimented with digital tools to help brands stay relevant, such as a “tension map” that analyzes online conversations around the country.
“This is an industry that is constantly talking about wanting to transform itself, but that is also constantly sticking to very traditional approaches,” said Marcelo Pascoa, the vice president for marketing for the beer brand Coors. “Old habits die hard, but people are being forced out of necessity to adapt faster.”
In 2020 and 2021, agencies will shed 52,000 jobs, according to Jay Pattisall, an analyst with Forrester. Half the jobs will not return, he predicted. Last week, the agency Wieden & Kennedy laid off 11% of its workforce, citing “an impasse” with the pandemic. Havas, another large ad company that laid off employees, said that recovering “will undoubtedly take more time than hoped.”
“There will be fewer and smaller agencies that are just as capable, if not more capable, because they’ll lean on technology for basic tasks — like a bot that takes notes for you during a call, that processes the paperwork to hire an influencer for a campaign, or does audience analysis for a media planner,” Pattisall said.
Other work may go to part-time contractors, as companies seek flexibility, said Kenny Tomlin, who recently co-founded the digital agency CourtAvenue. Tomlin has helped connect Fortune 100 brands with “pre-tired” marketing professionals — workers who are on the cusp of retirement but still want occasional work.
“There are a lot of client engagements right now that are project-based, where they don’t want to sign multiyear retainment agreements, and they don’t know what their long-term budgets are,” Tomlin said.
The pandemic and the Black Lives Matter protests have forced many companies to take a hard look at their marketing strategies. Visa said this month, during what it called “a time of great introspection and change,” that it would take bids from ad agencies hoping to become its go-to creative partner. The company, which spent $235 million on marketing in the first quarter of 2020, said it would consider candidates’ commitment to diversity in its review.
Coca-Cola is also “reassessing our overall marketing return on investment on everything from ad viewership across traditional media to improving effectiveness in digital,” James Quincey, the chief executive, said during a conference call last week. The company will “be judicious in our use of marketing,” he added, as it tries to track changes in regional lockdown policies.
But there are reasons for optimism. Dentsu, a major advertising holding company, has returned some agency employees to full shifts after moving them to reduced schedules. At the advertising and communications giant WPP, which has had more than 100,000 employees working from home for months, new business plunged early in the pandemic but has since recovered to early 2020 levels.
WPP and the rest of the country have “seen decades of innovation in a few short months,” said its chief executive, Mark Read.
Live sports, a magnet for advertising, may be on their way back, with the National Basketball Association season scheduled to restart Thursday and the National Hockey League set to return Saturday.
Ad space attached to four games that helped usher in the Major League Baseball season on Saturday quickly sold out, according to Fox Sports. More than 60 advertisers, such as Hankook Tire and Bud Light, participated. But that space may be at risk: More than a dozen Miami Marlins players and coaches have tested positive for the coronavirus after this weekend’s games, putting the rest of the shortened season in doubt.
Derek Andersen, the chief financial officer of Snap, warned on a conference call last week that the demand for ads in the third quarter of the year had “historically been bolstered by factors that appear unlikely to materialize in the same way they have in prior years, including the back-to-school season, film release schedules, and the operations of various sports leagues.”
The uncertainty has provided a challenge to an industry that tried to gauge the national mood.
“The consumer psyche and what they wanted to hear and needed to hear from brands would just change week to week,” said Chris Brandt, the chief marketing officer of Chipotle.
Filming restrictions meant that the restaurant chain had to turn to “really scrappy” tactics to produce ads, such as using FaceTime and previously created material. A recent campaign shot on a farm in Idaho cost “a fraction of what a full-blown production would have cost,” Brandt said.
“This is the new standard,” he said. “I don’t want to go back to every spot being half a million dollars.”