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Global Advertising Market Faces ‘Car Crash’ Next Year Amid Cost of Living Crisis | Advertising

JThe $850bn (£720m) global advertising market faces the prospect of a ‘car crash’ next year as the cost of living crisis forces households to drastically cut spending prompts companies to consider drastically reducing marketing budgets.

The advertising industry remains optimistic about its prospects – the FIFA World Cup is expected to keep growth at a gloom-defying level of 8.4% this year, while 6.4% remains forecast for 2023 – despite the growing concerns that the economy it feeds on is heading into recession.

“Conventional wisdom suggests that next year will be a car crash,” said a senior media industry executive. “Consumers are squeezed harder than at any time since the 1970s. Many things will become secondary to essential spending, creating an unpleasant cocktail for the advertising industry. »

During the last ad slump in 2009, industry doyen Sir Martin Sorrell encouraged brands to keep their marketing spend down, citing evidence that those who did would come out the other side, taking over their rivals for market share.

In practice, advertising budgets are a quick cost-cutting strategy to increase, or at least save, a company’s bottom line when demand dries up.

“With the recession looming, the ‘R-word’ has marketers wondering if they should cut spending,” says Richard Broughton, director of Ampere Analysis. “Marketing is an easy cost to reduce and it tends to have an instant and immediate impact.”

Earlier this month, WPP, the company Sorrell built into the world’s largest marketing services empire before an acrimonious departure four years ago, saw £700m wipe out its market value as investors reacted to concerns about customer advertising spend next year as the global economy weakens.

“We are, like everyone else, aware of the economic environment,” said Mark Read, chief executive of WPP. “There is skepticism about the outlook for the sector. But we are yet to see signs of customers cutting back on spending as consumer demand remains strong across the globe. »

While some analysts have seen investor reaction as an overreaction – WPP and its big French and US listed rivals continue to post strong financial results, albeit with prospects of a slowdown – signs of trouble loom on the horizon.

Last month, ITV reported that advertising growth of 12% in the first quarter, compared to the same period in 2019 before the pandemic, had fallen to just 2% in the second quarter.

And earlier this month, online delivery service Deliveroo hit its downgraded targets in part by cutting its marketing budget through “more careful targeting of spending given the tougher environment for consumers” – a does not bode well for a change in the advertising market.

“Ambient music has changed within the industry recently,” says James McDonald, director of data, intelligence and forecasting at industry research organization Warc. “The forecast doesn’t look as positive as it used to. I’m not saying an ad slump is imminent, but the likelihood has increased.

Television has been a winner of the pandemic – last year marked ITV’s best advertising haul in its 67-year history – with advertising cost inflation, FIFA World Cup advertising gold and an increase in post-Covid spending keeping the market buoyant.

However, globally, the cost of buying TV ads has jumped nearly a third since before the pandemic, the biggest increase in more than two decades, according to Warc.

With increased scrutiny of how marketing budgets are spent, TV looks expensive, a problem ITV tried to solve by offering a fifth of advertising slot prices during what it dubbed the Christmas World Cup later this year.

“A downturn is already happening,” says Berenberg analyst Sarah Simon. “[And] brand advertising seems an obvious cost category where temporary reductions can be made.

The pressure on TV budgets in particular will increase further with the launch of new ad-supported packages from Netflix and Disney+, as well as the rise of Amazon, Apple and TikTok in the battle for budgets. advertisers.

“TV is always on point,” McDonald says. “It’s not just for brands to ask whether it’s getting too expensive, but can they afford to live without the considerable [audience] does reaching this give us for our budget? However, right now, all advertisers – all advertisers – are going to review their budgets. »

Even spending on digital media – which for years has hijacked marketing budgets from traditional outlets such as TV, newspapers, magazines and radio – is not immune to shifting marketing priorities. advertising expenses.

The once unstoppable $115 billion advertising giant Meta, the owner of Facebook and Instagram, stunned markets by reporting its first ever drop in revenue and forecast another decline for the third quarter.

“Pricing pressure is also being felt in the online media landscape,” McDonald says. “The first loss of underperforming Facebook, Twitter and Snap, this could be the canary in the coal mine for a shift of budgets from branded ads to performance marketing. Contrast that with the search arm of Google which has made $41 billion last quarter, its second highest quarter on record, and Amazon’s ad business continues to grow rapidly.

Some markets – notably the United States, the largest advertising market in the world by far – are showing fewer economic warning signs.

“Keep in mind that the global economy is unlikely to slip into a recession, even if some individual markets do,” says Brian Wieser, global president, business intelligence at WPP’s Group M, the world’s largest buyer of electronics. advertising space for customers.

But in the UK, with the cost of living crisis showing no signs of improving – energy bills continue to climb and inflation is expected to hit 13% – opinion on the outlook for the advertising market is becoming increasingly more bearish.

“Advertising has always been strongly correlated with consumer confidence and spending,” says Simon de Berenberg. “It’s pretty clear that the outlook for the consumer is set to deteriorate further and as we head into 2023, the economic outlook currently looks very challenging.”