March 10, 2020  |  Culture

5 ways the Coronavirus is impacting the advertising & marketing industry

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What started as a disease stemming from a Wuhan seafood market in mainland China back in December has quickly escalated into an epidemic that has spread to parts of Europe, South Korea, the Middle East and now the United States. Coronavirus, officially named “COVID-19” by the World Health Organization (WHO), has been creating a panic among the public as people prepare for possible quarantines; markets tank; the economy slows down; cruise ships continue to sit in quarantine off the coasts; the global travel market declines; public schools close; and companies tell many employees to work from home.

And amid the outbreak of COVID-19, uncertainty and disruption have already begun to affect the advertising and marketing community. Here are five ways COVID-19 is disrupting the industry:

1. Several prominent events & conferences are being cancelled

As COVID-19 continues to spread nationwide and across the globe, companies, networks and the media have postponed and cancelled many events and conferences in an effort to protect the health of their employees, and as a precaution based on suggested travel restrictions.

The upfronts are legendary within the media industry, an annual deal-making event that goes back more than five decades. The upfronts give the major networks a chance to trot out their stars at grand venues in New York to hype their fall lineups. More favorable rates are offered to advertisers months before the new season, making the deals attractive to brands, whose early commitments suit the networks, too. This year, as health and safety concerns loom around large gatherings, many TV networks and businesses are abandoning live, in-person upfront presentations in exchange for virtual presentations. ViacomCBS and NBCUniversal became the first two media companies to cancel their May upfronts as a result of coronavirus. They follow AMC, A+E Networks, Fox News Media and Comcast’s FreeWheel’s footsteps in scrapping their March upfront plans in exchange for a virtual presentation. No other upfront events are scheduled until the last week of April, when NewFronts kicks off the week of April 27.

South by Southwest (SXSW), a massive annual event that blends art, tech and music in Austin, was also recently cancelled after many brands began pulling out of the prominent industry event. The cancellation creates unfortunate economic implications for both the large companies that began preparations for the festival months in advance, as well as the many local businesses that rely on the profits from the festival to stay afloat. With 417,400 in attendance last year, SXSW is Austin’s second-largest annual event, behind Austin City Limits. One report tabbed SXSW’s economic impact in 2019 at $355.9 million. The decision to terminate the 10-day festival due to the threat of an outbreak has ravaged SXSW’s finances because its insurance does not cover disease-related cancellations; the organization admittedly had never foreseen a pandemic as a possibility.

Facebook also decided to cancel an upcoming event, specifically its annual developer F8 conference scheduled for May 5th – 6th in San Jose, in order to prioritize the health and safety of their developer partners, employees and everyone who assists with the conference. Last year, 5,000 people attended F8. In lieu of F8, Facebook said it has plans to connect with developers through “a combo of locally hosted events, videos and live streamed content.” F8 is the second conference that Facebook has cancelled due to COVID-19. Earlier this month, the company canceled its global marketing summit that had been scheduled to take place in San Francisco in March.

Concern about COVID-19 has also begun to infiltrate major sporting events: The first major American sporting event, the 2020 BNP Paribas Open scheduled for this month in Indian Wells, Calif., was postponed by event organizers, following the announcement from Riverside County officials of a public health emergency on Saturday.

2. Global ad spending may shift or fall

Early data indicates that overall ad spending may take a temporary hit, however, as more people stay home due to COVID-19 and tune into news and streaming programming, certain tactics such as TV could actually benefit. Publicis Groupe’s Zenith said this week it would lower its December prediction of a 4.3% rise in global ad spending this year.

But while TV revenue may benefit, New York Times CEO Mark Thompson expects first-quarter digital advertising revenue to drop 10%, amid reports that the Times is seeing a slowdown in international and domestic ad bookings, which they are associating with uncertainty about the virus.

James McDonald, WARC Data’s managing editor, told CNBC on Tuesday that a major disruption from COVID-19 could lead to long-term restrictions on movement and large gatherings, which would impact spending in areas such as cinema, the out-of-home advertising market and even radio, since so much of radio is consumed during commutes. If people are spending more time at home, they would instead be spending more time on streaming services, social media and mobile games, which could all see an increased ad investment, McDonald explained. Digital advertising platforms such as Google, Bing and other search engines that sell paid search, as well as display and programmatic ad servers, would also benefit from people staying out of stores.

Collin Colburn, a senior analyst with Forrester focusing on B2C marketing, said consumer-packaged goods or manufacturing-related companies might decrease ad spending if there are inventory issues due to constraints on the supply chain.

“You might not want to be advertising products if there’s no inventory,” he said. There’s also the broader impact on advertising if there are broader economic issues, which could cause advertisers to readjust their budgets. Advertising is often one of the first areas to be cut in a time where there is uncertainty or volatility. “Of course, marketers able to avoid making cuts will generally fare better given what will likely be relatively favorable pricing and reduced competition for consumer attention. Longer-term brand-building will benefit from a sustained media presence, albeit with appropriately modified messaging,” Colburn explained.

While digital advertising may see some life from streaming services, social media and mobile gaming, there will likely be some impact, particularly due to reduced spending in the travel sector, as travel makes up about half of total ad spend. The COVID-19 outbreak is expected to have a negative impact on travel and leisure as people delay trips and avoid public places. However, this could be partially offset by higher click or impression volumes in other categories such as health and pharma, including the face-mask industry, where 3M’s 95 grade masks are now difficult to find.

3. Social ad platforms are becoming stricter in their policies

As the COVID-19 crisis continues to grow, social media platforms are stepping up to help curb conspiracy theories and prohibit the spread of false information. Facebook, Twitter, YouTube, and TikTok have all been working to promote factual content and some are also limiting the reach of posts with misinformation on their platforms. The World Health Organization (WHO) has also now joined TikTok in an effort to boost accurate information about the illness.

Facebook’s strategy for dealing with COVID-19 include tightening up its rules around any ads that reference the virus in an attempt to diminish misinformation regarding the outbreak. Any ads that specifically mention a promise to cure or prevent the coronavirus or attempt to create a sense of urgency, such as mentioning a limited supply of a product, will be banned from the platform. Mark Zuckerberg also announced last week that Facebook is working closely with the WHO and would provide them with free access to ads on Facebook. “Researchers are already using aggregated and anonymized Facebook data — including mobility data and population density maps — to better understand how the virus is spreading,” Zuckerberg mentioned.

In a statement, Twitter appears to echo some of the latest steps being taken by Facebook. The company said based on its Inappropriate Content Policy, it would “halt any attempt by advertisers to opportunistically use the COVID-19 outbreak to target inappropriate ads,” that it was working with fact checkers to promote accurate content on the site, and that it was also supplying data to researchers.

Twitter has said it’s not “seeing significant coordinated platform manipulation efforts around these issues.” This doesn’t mean that there’s not false information about coronavirus on Twitter, rather that the company hasn’t found any evidence of intentional disinformation campaigns by someone, like a state actor or political group. Government entities that want to disseminate public health information will be permitted to promote ads on COVID-19. Additionally, Twitter has said that they are committing “Ads for Good” credits to nonprofit organizations to ensure they can build campaigns to fact-check and get reputable health information to the widest possible audiences.

Beginning in late January, the video platform YouTube responded by beginning to show short previews of text-based news articles about the coronavirus in search results. If you search “coronavirus” on YouTube, for example, you’re linked to a WHO landing page about COVID-19. YouTube has said that false information generally does not violate the platform’s rules unless it involves hate speech, harassment, scams, or inciting violence. The company also said it aims to reduce the recommendations of what it deems “borderline content” or videos that could misinform users in harmful ways — including false information about coronavirus.

While not a social platform, Amazon has also cracked down on its site, alerting any merchants that if they engage in price gouging for items such as face masks, then they will be removed from the site for being out of compliance of their Fair Pricing Policy.

4. Growth of eCommerce

As e-commerce supply chains are strained by the spread of COVID-19 and subsequent factory closures in key regions like China, marketers should recognize that “cocooning” could actually boost e-commerce growth rates as more people will shop online rather than in-stores and may be active during additional times when they typically don’t browse. When the outbreak happened in China, it inadvertently created a boon for e-commerce, as shoppers stuck at home bought their goods online. But the surge in online orders has also heaped pressure on businesses to fulfill them. In some instances, this pressure is getting to be too much for businesses and threatens to upend their e-commerce operations.

Executives from Procter & Gamble told shareholders last week that COVID-19 was putting pressure on their e-commerce business. As sales from stores that sell their products slide, the demand has moved online, said the CPG company’s chief financial officer Jon Moeller at a Consumer Analyst Group of New York event. While the demand for products is there, the supply is limited, he said.

Based on trends being seen in China, an additional e-commerce area that could see potential growth in the U.S. as a result of being housebound is online grocery services. Chinese online retailer JD.com reported that its online grocery sales grew 215% year over year to 15,000 tons during a 10-day period between late January and early February.

Additionally, concerns about food delivery due to possible food contamination have spurred recent innovation in contactless pickup and delivery services. Companies like McDonald’s and Starbucks are increasing delivery services that limit human-to-human contact, and orders are packaged to keep them free of contamination.

The coronavirus isn’t the first time these sorts of disruptions have hit retailers and their customers. Long before this outbreak, the SARS virus in 2003 was a turning point for company growth into ecommerce for brands such as Alibaba and Tencent. At the time, e-commerce was relatively primitive but as the outbreak left many Chinese suppliers with few brick-and-mortar stores to sell their goods, many turned to the online platforms that hadn’t been forced to close.

5. Advertising production may be impacted

In a world already ruled by tight deadlines, inflexible budgets and seamless travel, advertising production might be impacted as restrictions and guidelines are being implemented regarding nonessential travel, which could throw off production schedules. As media is often purchased well in advance and production schedules are typically tight to begin with, force majeure issues like a natural disaster, or in this case, a virus, is not something that is ever factored in with production planning or scheduling.

Matt Miller, president and CEO of the Association of Independent Commercial Producers, told Adweek that his team has continued to provide guidance while also reinforcing the fact that this part of the industry has well-established business policies when there’s a disruption like a natural disaster or civil unrest. to Still, the prospect of a brand canceling production can be costly, and insurance doesn’t cover force majeure issues like natural disasters or, in this case, a virus. We’re seeing and hearing various announcements, especially from agencies,” Miller said. “But if marketers, agencies and production companies are on the same page, working together, they’re all going to carry out their work as efficiently and safely as possible.”

Safety has become a big issue among production companies, especially as teams travel from shoot to shoot and project to project. Location has also started to factor into productions in a different way than it might have in prior projects – for example, while it might be cheaper for a company to film out of the country, travel issues might keep production in a shop’s hometown instead despite the additional cost. Agencies are now bidding on multiple cities early in the process to hedge their bets and avoid having to make any drastic changes midstream, and crew well-being is also being factored in the decision on where productions may ultimately take place.

Looking Ahead

COVID-19 will likely continue to impact the marketing and advertising industry as new cases continue to spread worldwide, and the economy continues to react and show signs of volatility.

As fears around the spread and containment of COVID-19 increase, many in the industry are also looking ahead to the fate of the 2020 Summer Olympics in Tokyo. Despite having set a new ad sales record for the 2020 Tokyo Olympics – selling more advertising inventory for Tokyo than in the entirety of the 2016 Rio Olympics – there is still some uncertainty surrounding the games.

While International Olympic Committee (IOC) member Dick Pound made comments last month suggesting that the Games could be canceled due to the ongoing COVID-19 crisis, the IOC released a statement during the last week of February saying that its “executive board today expressed its full commitment to the success of the Olympic Games Tokyo 2020, taking place from 24 July to 9 August 2020.” While the Games are still moving ahead as planned, Tokyo has already shortened the torch relay and delayed training for its 80,000 volunteers.

This isn’t the first time a pandemic took place leading up to the Olympic games. There was H1-N1 before Vancouver in 2010, and Zika before Rio. And while each situation is different, there is no indication at this time that the Games are not going to happen. However, it will be interesting to see how that could change as the starting date gets closer or if additional, new or extra precautions are taken, such as a fan-free Olympic Games, with only sports officials and broadcasters as spectators, in an effort to protect the health of the athletes competing.

The potential cost implications for holding the Olympics without spectators, and having to refund ticket sales, could cost Tokyo organizers some $850 million, according to the organizing committee’s budget documents. Years of planning have gone into Tokyo 2020. The official budget for the Games is $12.6 billion, of which $6.7 billion is “venue-related” and $5.8 billion is “service-related.” Some estimates put the actual cost north of $25 billion, having broken records for corporate support with each of the games’ 15 “Gold” sponsors, including Canon, Mizuho and Nomura, paying $100 million for that status.

The fate of the games likely won’t come until May; however, the IOC, who will be involved in the decision, along with WHO and Japanese organizers, will likely want to take the interests of sponsors and broadcast partners into account. NBCUniversal has already sold $1.25 billion in commercials for the Games, for example. Although broadcasters would receive some protection from insurance, they and the IOC would still face significant financial losses if the Games are canceled.