Economic Recession Concerns Impact Advertising Business

At last week's IRTS Newsmakers Panel, I closed the session with a warning that we are likely to be facing a general economic downturn in the next several months, and that both media agencies and publishers should account for that possibility in their planning. The uncertainty in the advertising economy, which is evident in the slowly unfolding Upfront market, reflects the growing concern among economists that we are headed toward a recession -- and the resulting uncertainty among marketers. At the same IRTS event, analyst Michael Nathanson also warned "winter is coming" to the media industry, and he has reported that "given the current scatter environment and uncertainty in key verticals like retail and autos, buyers appear to be in no rush to lock in deals."

Upfront Perspective

There are numerous positive indicators in the overall media economy. As the Upfront edges forward, there is strong demand for broadcast network primetime and original cable content but buyers are resisting secondary and tertiary inventory. In the first year that performance-based data analytics are playing a major role in guiding demand, there are clear signs that buyers are following a different script than in past years.

According to MyersBizNet data, Upfront budgets are flat at best and volume may be down as much as 5% - 7%. I was overly conservative going into last year's Upfront, but this year the scatter market has been slow for two quarters and digital budgets in the first quarter grew only 6% this year compared to 35% last year, although they are on the rebound. Networks are hopeful digital video budgets will be impacted by brand safety issues, but there are no indications this will continue to be a factor. Network ratings erosion has continued, which should drive Upfront network costs-per-thousand into the mid/high single digits, which flies in the face of advertiser demands for cost reductions. It's highly unlikely any network will command the double-digit primetime increases that NBCU generated in 2016.

Holding Firm on 2017 Forecast of 3.3% Ad Growth

MyersBizNet is holding firm, for now, on our 2017 forecast, issued in January, of 3.3% growth in total ad spending, reflecting our projection of 20.0% growth in digital advertising budgets offsetting 6.7% declines in linear/legacy ad spend. Based on first quarter results, this may prove to be an aggressive forecast. With Google and Facebook capturing 80%+ of all digital growth, total 20% digital growth may be overly optimistic, although the perceived flow back to linear media is over-hyped. Ad spending growth (a.k.a. above-the-line) is fed exclusively from below-the-line promotional/shopper marketing, which MyersBizNet projects will decline 2.5% in 2017, resulting in total marketing communications decline of 0.6%.

Overall Economic Headwinds

Overall economic headwinds are clear contributors to the sense of malaise in the media economy. The disintegration of the political environment in Washington and the inevitability of Congressional stalemates on meaningful economic stimulus packages, are compounded by the growing fear that a major economic disruption, parallel to the real estate collapse of 2008, will send the economy into a sustained tailspin. A market crash will trigger a slowdown across all business sectors and be reflected in advertising budgets.

As reported by Fortune, "Bond investor Bill Gross said that without quantitative easing from the European Central Bank and Bank of Japan, the 10-year U.S. Treasury yield would 'rather quickly' rise to 3.5% and the U.S. economy would sink into recession. Gross , who runs the $1.8 billion Janus Global Unconstrained Bond Fund, said in his latest Investment Outlook to clients that Treasury yields will likely rise gradually, yet will stay artificially low due to the 'kindness' of foreign central bank quantitative easing policies. 'Without that financial methadone, both bond and stock markets worldwide would sink and produce a tantrum of significant proportions,' Gross said." As last week's U.K. election reinforces, European markets are uncertain at best, and there is less global interest in supporting U.S. financial markets than at any time in the past half-century.

The Huffington Post has also acknowledged that "the contraction in industrial and commercial credit is a serious warning signal in a mature business cycle, like the current one in the US. Emerging signals for stagnation can be seen in many other credit categories, such as real estate, automobile and credit card loans. These developments do not tell a tale of a boosting economy, but a stalling one. Because interest rates have been rising and because the debt burden of U.S. companies is very high, it is unlikely that any tax cuts, infrastructure spending or regulatory changes are able to turn this trend."

Closing in on a Global Recession

The HuffPost commentary reports "from a purely mathematical perspective, we are closing in on a global recession. The mature business cycle of the U.S. and the rising debt in China hamper the prospects of the global expansion. Whether recession is dead ahead or somewhat further down the road depends crucially on the policy that China takes. Recent actions indicate that the authorities in China have taken their foot off the gas. If this interpretation is correct, global recession is just a few months ahead. If China decides to continue with the massive stimulus and risk even greater financial instability, the global economy may hum along for a few quarters."

Here in the U.S. Donald Trump has warned that the US economy is heading towards a "massive" recession. Some analysts and economists are warning that we may be heading to another and possibly worse financial crash than the 2008 economic collapse. According to public and private sources, major central banks have few options for stimulating the economy, and those options may be difficult to implement. There are high levels of public and private sector debt. Another housing bubble may be looming on the horizon, and defaults on college loan debt are at an all-time high. The risk of major political crises in the U.S., U.K., the Eurozone and China creates uncertainty and unpredictability, and the current climate of political inability makes it nearly impossible for governments to respond uniformly and collaboratively to economic threats.

Many of the troubling economic signals that appeared prior to the crash of 2007-2008 have reappeared but are hidden by unconventional monetary policies. Failure to recognize and respond to these risks -- which is the case as governments and central banks push for artificially stimulated growth -- is the biggest threat to the world economy.

I'm convinced we are facing some form of an economic downturn. It may be a mild one and it may not come until 2018, but there is considerable potential under current conditions it could lead to a wide and sustained crash. Bottom line, the media community faces a highly uncertain future. In this year's Upfront market, both buyers and sellers can hope for the best, capture market share, and plan accordingly.

During the IRTS Newsmaker event, where Nathanson, Omnicom’s Catherine Sullivan, MEC’s Carl Fremont, Bank of America’s Lou Paskalis, IPG Magna’s David Cohen and Horizon Media’s Dave Campanelli were featured panelists, there were several references to an overall concern about the state of advertising. Yet, a belief in the value and importance of advertising to business, culture, society and the economy prevents pessimism from overtaking our overall optimistic long-term outlook. We all share a common belief in the future of our industry and are all working to actively transform our business models. The core question is which business models will survive in an economic downturn and which companies and executives have the vision to invest now before it is too late.

This commentary was originally published at

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