If advertising is the developed economy’s canary in the coal mine, when will she start singing again? asks Dominic Mills
Last week, the U.S’s Q2 GDP figures came out; down 32%. It was a shock, although some pessimists had expected worse.
Other G7 country’s figures have been, or are about to be published. The UK forecast is minus 19%; France, minus 14%; Germany, minus 6%; and China, a rare positive — up 3.2%.
In lock-step, adspend is falling too. Zenith expects Q2 global spend to fall 23%, the World Federation of Advertisers predicts a drop of 30%.
Generally speaking, and perhaps with a small lag, adspend levels rise and fall in line with GDP. The ratio may differ from country to country but broadly, in mature economies, it remains pretty steady.
Now a big question is this – is the link broken, or will it be restored?
Here’s an interesting study from 2014 from the WFA, which covers the APAC region before and after the financial crisis and shows how adspend recovered.
If we believe that adspend is a leading indicator of growth, then history shows that it will start picking up again soon. The caveat is that in modern times we have not experienced a downturn that encompasses both supply and demand.
Putting current and future job losses to one side, what then do the latest set of Q2 figures from Publicis, IPG, Omnicom and Havas (WPP reports later this month) tell us about the state of the advertising economy?
Of course, we should bear in mind that these titans have different exposure to different markets by geography and varying client bases, and then within that, differences in media, creative, digital and so on.
Nevertheless, if you want a rough snapshot, it’s worth looking at the organic revenue elements of their latest Q2 results since, in the round, they can be said to be representative of the industry as a whole.
The two best performers were Publicis, down 13%, and IPG, down 9%. Indeed, both Publicis and IPG shares rose after their results and have (as of 6 August) hung on to most of their gains. The reason? The figures weren’t as bad as expected.
Havas, more skewed to Europe, reported organic revenues down 18%, better than Omnicom, once the most reliable of the holding groups for churning out incremental improvement, which reported revenues down 23% – although there is a suggestion this was partly a result of a pricing mess-up in programmatic.
But nevertheless, Omnicom boss John Wren thinks the worst is over, even if there is no immediate rebound.
We shall see. It has not quite been the carnage I expected. Everything depends however on any second waves and the situation in the U.S.
Which brings us back to the headline. Advertising is the developed economy’s canary in the coal mine. Let’s hope it starts singing soon.
Microsoft gets a seat at the ads table…
