- "Cautious optimism" from major advertisers
- New geopolitical risks
The latest John Lewis Christmas advert features a deranged Venus flytrap which is cast out in the cold by a cautious family. After a difficult year, maligned UK media players may feel a certain affinity with the plant. There are signs, however, that the misery of 2023 could give way to a brighter 2024, as advertisers boost their budgets once more.
The last couple of months have been littered with forlorn updates from the likes of ITV (ITV), Reach (RCH), WPP (WPP), Time Out (TMO), M&C Saatchi (SAA), S4 Capital (SFOR) and STV (STV). Profit warnings have featured heavily, with several companies citing weakness in China, slow client decision-making and low demand from the technology sector. At the same time, costs – particularly people costs – have kept ratcheting up.
Big Tech firms, boosted by their adoption of artificial intelligence, are faring significantly better, but even Meta (US:META) reported “more volatility” in ad sales at the start of the fourth quarter.
Against this gloomy backdrop, however, a new study by the World Federation of Advertisers and media analytics group Ebiquity (EBQ) found there is “some cautious optimism returning to media spending”. Some 60 per cent of surveyed companies intend to increase their marketing budgets next year – albeit from a fairly low base – with 14 per cent planning to boost spending “significantly”.
Ebiquity chief executive Nick Waters said advertising was often a six-month leading indicator of wider economic health so this could signify a recovery in mid-2024.
Over 90 companies took part in the study, including four of the world’s 10 biggest advertisers and 16 of the top 50. Together they represented $50bn (£40bn) of global ad spend.
The areas organisations plan to put their budgets towards also seems to be changing. Over a third of respondents indicated they would increase their share of “brand” advertising, which relates to things like billboard and television campaigns, versus “performance” advertising, a data-driven, digital approach in which companies often pay per click, sale or lead.
Connected television is in line to be the main beneficiary, with 85 per cent of respondents planning to up their spending on streaming services. In contrast, two thirds of respondents intend to cut back advertising in print media, on linear television and on the radio.
This chimes with what individual companies have reported recently. In the nine months to the end of September, ITV saw total advertising revenue fall by 7 per cent, despite a 23 per cent jump in digital sales. The question now is whether it can grow its ‘on-demand’ arm quickly enough to offset the decline in traditional broadcasting.
UK Public sector broadcasters have received a boost from the Media Bill, however, which was announced in this month’s King’s Speech. The bill proposes various changes, but crucially for the likes of ITV it imposes obligations on smart TVs to ensure video-on-demand services run by public service broadcasters are prominent on their platforms. STV's chief executive Simon Pitts described it as a "key piece of legislation".
A new test
Media companies across the spectrum are suddenly facing a new challenge, however: war in the Middle East. Marketing demand typically softens during major conflicts as brands do not want their adverts appearing alongside harrowing news coverage. This occurred when Russia invaded Ukraine and the horrors of the Israel-Hamas war are starting to have a similar effect.
Last month, Snapchat (US:SNAP) flagged pauses in spending “from a large number of primarily brand-oriented advertising campaigns immediately following the onset of the war in the Middle East, and this has been a headwind to revenue quarter-to-date”.
“While some of these campaigns have now resumed, and the impact on our revenue has partially diminished, we continue to observe new pauses and the risk that these pauses could persist or increase in magnitude remains,” it said.
Meta also observed “softer ad spend in the beginning of the fourth quarter, correlating with the start of the conflict” in its latest earnings call.
“Historically, we have seen broader demand softness follow other regional conflicts in the past, such as in the Ukraine war. So, this is something that we're continuing to monitor. We've reflected the latest trends and advertiser reaction that we've seen into our Q4 outlook, which again, we think, reflects the greater uncertainty and volatility in the landscape ahead.”
As advertisers cautiously prepare for 2024, therefore, sudden market shocks never feel far away.
