10 Signs Digital Advertising Market Is Headed For Collapse From COVID-19 Shock

10 Signs Digital Advertising Market Is Headed For Collapse From COVID-19 Shock

Here are 10 signs why the digital advertising market is headed for a major collapse this year from the coronavirus shock. Image: mmg

The coronavirus pandemic has hit the American economy hard, and more hits are to come. One area that has been negatively impacted is the advertising world, particularly in regard to digital media. Some experts are, in fact, saying the end my be near for digital media advertising.

Here are 10 reasons why the digital advertising market day will soon collapse.

Google moving in slow-mo

One sign of a digital media advertising slow-down can be seen by looking at Google. Google’s parent company, Alphabet Inc., recently announced a “significantly” slowing of hiring for the remainder of the year, Bloomberg reported.

In an email to employees, Chief Executive Officer Sundar Pichai said: “It’s now been well over two months since we closed the first Google offices in Asia out of an abundance of caution around the spread of COVID-19…We’re only a quarter of the way through 2020, and it’s already been the most unusual year in memory.”

He later referenced the hard times the company went through during the 2008 financial crisis and how the situation is similar today. 

Pichai wrote that the “entire global economy is hurting, and Google and Alphabet are not immune to the effects of this global pandemic. We exist in an ecosystem of partnerships and interconnected businesses, many of whom are feeling significant pain…We are reevaluating the pace of our investment plans for the remainder of 2020. That starts with taking a more critical look at the pace of hiring for the rest of the year.”

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And although Google had planned to hire another 20,000 Googlers as it did in 2019, the company has put this hiring on hold.

“We believe now is the time to significantly slow down the pace of hiring, while maintaining momentum in a small number of strategic areas where users and businesses rely on Google for ongoing support, and where our growth is critical to their success. By dialing back our plans in other areas, we can ensure Google emerges from this year at a more appropriate size and scale than we would otherwise,” Pichai said.

According to him, the company will also reload the “pace” of its investments in “areas like data centers and machines, and non-business essential marketing and travel.”

Not in the budget

According to a new survey, advertising budgets will probably drop even more now than they did during the crisis of 2008-09.

The survey was conducted by the Interactive Advertising Bureau. Some 390 media buyers, media planners, and brand executives were queried about their U.S. advertising plans for the rest of the year. 

“The research found that nearly a quarter have paused all advertising spending through the second quarter. Another 46 percent are reducing their budgets,” Barons reported.

Forty-four percent said they believed the impact of the current slowdown will be “substantially” worse than in the 2008-2009 crisis. Thirty percent said it will be “somewhat” worse.

Digital advertising decreased by 33 percent, revealed the survey. And for May and June, the survey group predicted a 28 percent cut to digital media spending and a 35 percent reduction in traditional media.

And “steep” spending reductions are predicted in every category, including digital display, video and audio, linear TV, terrestrial radio, print, out-of-home, and direct mail.

This is bad news for newspapers, magazines, TV and radio station operators, billboard owners, and ad-supported web services.

About-face at Facebook

Due to the COVID-19 pandemic, Facebook has dropped its ad rates. Companies auditing on the social media giant can now reach more users per dollar.

The reason Facebook dropped its rates is that even though users in quarantine are seeking more content online, advertisers are pulling back due to the economic shock.

“The cost to put an ad in front of Facebook users 1,000 times in March dropped 15 percent to 20 percent from February, according to a recent analysis by one advertising holding company’s buying group,” The Wall Street Journal reported.

Digital marketing agency Wpromote LLC, which manages more than $130 million in annual ad spending on Facebook, saw rates fall about 25 percent from February to March. Meanwhile, the drop was 20 percent at 4C Insights Inc., a marketing technology firm that helped brands manage $350 million in ad spending across major tech platforms including Facebook, Instagram, and Twitter Inc. from January to March.

March ad spending on Facebook and Instagram through 4C Insights dropped 5 percent from March 2019, while experts expected a 30 percent increase if the COVID-19 crisis had not happened.

“Facebook isn’t alone: The cost of 1,000 impressions fell 22 percent on Facebook sibling Instagram from February to March…YouTube, part of Alphabet Inc.’s Google, also saw a 15 percent to 20 percent drop in prices from February to March,” The Wall Street Journal reported.

Slump worse than in 2008

Tim Armstrong, a veteran digital advertising executive, has predicted that the COVID-19 pandemic will have more of a negative impact on ad spending this year than the 2008 financial crisis or the recession that followed after  9/11.

According to the former AOL CEO, even though social media and broadcast engagements are way up, advertising spends have decreased.

“For the first time in history, you’re probably going to have the highest point of media usage in the history of the United States and the lowest point of advertising in the U.S.,” Armstrong told The Information.

“I think the shock wave that has hit advertising is broad and is deep. The latest thing I saw was that people are expecting a 30 to 40 percent drop in advertising overall,” he said.

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YouTube ads down the tube?

“Due to the impact of Coronavirus on the economy, the majority of the businesses are reducing their ad spend and according to YouTubers, their ad revenue is reduced by more than 50 percent only in March,” Digital Information reported.

This turn of events has even the top YouTube accounts with millions of subscribers complaining about how the coronavirus pandemic is negatively impacting their earnings. Some of the top YouTubers are also reporting about a drop of more than 50 percent in the earnings on YouTube. One YouTuber with a subscription base of more than 8,000 subscribers, for example, is facing a 70 percent reduction in its ad revenue.

Product supply decline=decreased ad sales

One of the biggest advertisers worldwide, consumer goods giant P&G has announced that 17,600 of its products could be affected by coronavirus in China. This announcement only highlights the supply chain risk.

P&G, as did major companies like Apple, Adidas, and Starbucks, warned its sales and profit in China, its second-largest market, would be hurt by the coronavirus outbreak there. And that’s just part of the side effects.

“We access 387 suppliers in China that ship to us globally more than 9,000 different materials, impacting approximately 17,600 different finished product items,” Jon Moeller, Procter & Gamble’s chief operating officer and chief financial officer, said at a conference. “Each of these suppliers faces their own challenges in resuming operations.”

With a decrease in product supplies, P&G is expected to cut ad buys. This will probably hold true for other consumer goods retailers.

“With the U.S. depending heavily on China—’the world’s factory’—for imported categories from shoes to mobile phones, retailers, and brands are on their toes, waiting to see how the outbreak could end up affecting what consumers see on U.S. store shelves,” Forbes reported.

Low expectations at Expedia

According to Expedia Group chairman Barry Diler, the online travel shopping company normally spends $5 billion on ads but probably “won’t spend $1 billion” this year. There will be major slashes in its ad budget.

“At Expedia, for instance, we spend $5 billion a year on advertising. We won’t spend $1 billion on advertising probably this year,” Diller recently said on CNBC’s Squawk Box. “You just rip that across everything.” 

Since travel is way down, Expedia Group, whose brands include Expedia, Hotels.com, Trivago, Orbitz, and more, isn’t planning any major upcoming ad campaigns.

Diller also mentioned that Expedia is one of Google’s biggest advertisers and that Expedia is working to move away from its “reliance on Google and Metasearch” to develop more direct relationships with its customers.    

Vox furloughs

In an effort to avoid layoffs, digital media company Vox said it will furlough about 100 employees, according to sources. It is all in an effort to cut costs amid coronavirus pandemic.

Vox Media, which owns SBNation, New York Media, The Verge, and other brands, is preparing to announce a furlough of about 100 employees later this week, according to people familiar with the matter.

“Vox executives are negotiating details with the Writers Guild of America, East, which represents about 350 people at Vox,” CNBC reported. Depending upon those negotiations, more people could be furloughed.

According to sources, Vox is looking to furlough employees for three months. It is also looking into temporary three-month pay cuts for the company’s highest earners. Sources also said Vox wants to ensure health care is covered for furloughed employees

A Vox spokesperson declined to comment.

But CEO Jim Bankoff did comment in a statement about the state of advertising. “I’ll state the obvious that the advertising market is experiencing a downturn unlike ever before,” Bankoff wrote. “While at this point I can’t put an exact number on our own decline, I know that –  just like nearly all other companies and publishers – we have already seen a significant impact in March and our business will continue to be deeply affected this quarter, next quarter and likely for the remainder of 2020. It’s important to emphasize that we expect our ad business to rebound eventually, but since the timing cannot be predicted, we need to plan with extra caution.”

The Vox news follows cuts by other digital media companies such as Group Nine Media and Buzzfeed. Group Nine announced it was going to lay off about 7 percent of its employees and furlough a smaller number, while Buzzfeed said employees’ pay would be cut on a sliding scale depending on salary. 

News media outlets ravaged by pandemic

The COVID-19 pandemic has caused major turmoil for news outlets across the board. With ad sales down, media companies have been laying off employees by the thousands. 

“Roughly 33,000 workers at news companies in the U.S. have been laid off, been furloughed, or had their pay reduced. Some publications that rely on ads have shut down,” The New York Times reported.

Gannett, for example, has made major cutbacks. The nation’s largest newspaper chain has ordered 24,000 employees to take five unpaid days off per month through June, The Times reported.

It’s not that there aren’t people seeking the news — people have become eager for news content during the pandemic — but attracting advertisers has been a major hurdle.

Bustle, G/O Media cut staff

Add Bustle Digital Group (BDG) and G/O Media Group to the list of big digital publishers taking major cost-cutting measures. Each company is laying off around 5 percent of their staffs.

BDG has laid off 24 staffers and this included all seven employees at The Outline, the digital culture site BDG acquired in 2019. The Outline will cease publishing. More than 300 people work at BDG. Of its 275 employees, G/O Media laid off 14 staffers.

Bustle also laid off its deputy features editor. In addition to the cuts, all BDG employees earning more than $70,000 will receive a temporary 18 percent decrease in their annual salary, Digiday reported. Also, executives will take a pay cut of 30 percent and CEO Bryan Goldberg is reducing his salary by 85 percent.

G/O media did not disclose which areas were cut. But sources say the company’s highest-ranking editorial employee was let go.

“Our objective is to insulate as much as possible the site-specific editorial teams as well as those positions most focused on the things that will best move us forward,” G/O Media CEO Jim Spanfeller wrote in a memo. Additionally, other “spending controls” have been put in place, he said.