For the past few years, I’ve published a quarterly State Of Digital Media report that captures the hundreds of conversations that I have regularly with leaders at publishers, agencies, brands and platforms from all corners of the globe. Unlike what you read in the industry trade publications, these reports have been filled with insights and opinions that reflect what my peers are thinking about but may not want to share publicly yet.
Today’s update is a written reflection, instead of a monster slide deck, which you can also listen to here if you need a break from the screen and prefer audio.
In a time of rapid change, the fundamental question that everyone faces is not if to change but how to change. We have a choice. To lead or to lag. To “lead” is to pay attention to leading signals, each a preview of what we can expect more of. To “lag” is to hope for a return to lagging trends, each of them on the edge of disruption.
Naturally, as an entrepreneur and business leader, I see opportunity everywhere. Opportunities to help create what may be and opportunities to recreate what once was. I have categorized several digital media trends here as either leaders, a signal of what is to come, or as laggards, where imminent disruption is expected.
Here is what I am paying attention to in digital media right now:
The IAB reported that digital display ad spending was down 38% in April and 28% in May in Europe. June is expected to be down only 16% and full year digital down 5.5% compared to 2019. It all sounds like it is trending in a hopeful direction, however I would warn anyone who is not called Facebook or Google against being overly optimistic about a quick return of ad spend.
The platforms have captured a disproportionate share of whatever spend had remained during the past few months. The IAB found that two-thirds of publishers are experiencing a decrease in CPMs. Display advertising has seen a 30% decrease in ad rates, while social media platforms have seen only an 18% decrease and search platforms only a 9% decrease in rates. There is a belief that the dependency of marketers on the likes of Facebook and Google has only accelerated over the past few months. They may capture a bigger share of any growth we see, month over month, in ad spend in the coming months.
I caution the headlines that we will read in the coming weeks that will show an increase in consumer sales as well. There will no doubt be a short-term bump based on consumers pausing purchases. The revenue that most consumer businesses will see is not a good indicator of any new normal or run-rate, but a post-lockdown one-time bump.
Advertising is a seasonal industry, anchored on the major fall moments of Back-To-School, Halloween, US Thanksgiving, Black Friday and the Holidays. This is why the NFL season starts in August, the NBA and NHL in September and new TV series launch in the fall. Entertainment and sports are ad-funded businesses that are going to have less original and live content available this year. With less interesting and relevant ad inventory available to brands, more will be funneled to digital media platforms and websites.
Agencies and marketing teams are also known to spend every last dollar they have in their annual media budgets, to increase the chances of getting a similar budget again the following year. Given that the majority of ad buyers reduced spend in Q2, there are many reasons they will want to “make up” for that spend in Q4.
Political advertising is expected to be $6.7 billion this year for the 2020 US Elections. A large share of that will happen in September and October. Automotive typically accounts for 12% of the total ad industry and with major model launches delayed until the fall, expect this heavy spending category to over-index in Q4.
While Q4 ad spend is typically 40% of annual budgets, it could easily be 50%-60% in 2020. This will quite possibly be the biggest Q4 the industry has ever seen and may see for years to come.
The US reported an increase in employment in May of 2.5 million jobs, which was a sharp contrast to a decrease of 1 million jobs that economists predicted. This news has led to the stock markets rising with a misguided belief that an early rebound may be on the table.
What the unemployment data does not capture are all of the people who are currently being kept on payrolls thanks to the government relief spending. The Payroll Protection Program in the US, and similar programs like the Canadian Economic Wage Subsidy, are going to dry up in the coming weeks and that introduces the risk of a second round of massive layoffs by large employers.
The NYTimes Magazine had an excellent recent feature about the disconnect between the stock market and economic reality. The number of publicly listed companies in the US has declined by over 50% in the past two decades, from 7,500 in 1997 to 3,600 today, and with the concentration of tech stocks that over perform all other industries, the stock market simply does not reflect market reality anymore.
The reality is that between the US, Canada, the UK and Australia alone, 50 million people are unemployed today. It is hard for brands to advertise products and services with such a large share of the population unfortunately unemployed.
What is clear to every parent who has school aged children is that the education system needs to be upgraded for a 2020 era. While in our industry, we have been able to transition to work from home seamlessly, children have not been able to transition to school from home easily. This should come as no surprise though, as this is a mere reflection of our values in society. Sadly, work is more important than education.
Education, financial services, health care, retail and even government are now accelerating their digital transformations. What they would have otherwise accomplished in five years will be done in less than one year. It is impressive to see how leaders in legacy and traditional organizations have responded, with many acknowledging their digital gaps and investing aggressively in digital transformations.
Media spend will follow how businesses attract, engage and retain their customers. With more business and consumer activity coming online in the coming months, digital ad spend will follow. Businesses now have to learn how to speak to their customers in a way that’s relevant, effective and efficient. Digital media provides a proven path for this. Expect the media mix from traditional channels like print, radio, outdoor and even TV to shift more rapidly to digital channels.
Several industries are about to face a massive business model restructuring. In a post-pandemic era, the obvious categories of hotel, retail, travel, food, sports, entertainment and more have to be rethought about and rebuilt, likely from ground up.
In an era of physical distancing, the spaces and places that we have become accustomed to simply will not allow for as many people. Best case, even if capacity is cut by 50% to accommodate physical distancing guidelines, and that’s being optimistic, the prices consumers pay may double. At double the price, in the midst of an economic recession with tens of millions unemployed, most consumers will opt-out.
The net result is a business model restructuring, with more budget going directly to providing the service to customers, and unfortunately less budget going to sales & marketing to acquire customers. This trend will take a quarter or two to be realized as many of these businesses have not yet caught up to the reality that their business and cost model is now broken post-pandemic. Publishers and platforms who depend on their ad spend should anticipate significant declines in 2021 from these categories (which can be made up from other categories).
According to the US Bureau of Labor Statistics, the media industry (across agencies, broadcasters, magazines, radio and digital media businesses) lost 40,000 jobs in April, in the U.S. alone. That accounts for approximately 5% of the industry’s workforce. Once government relief packages dry up, we will likely see further reductions.
As publishers have come out of crisis management mode, they are expected to start making their next round of layoffs in the coming months. There is not a lot of selling happening right now relative to the size of their sales teams. Leaders will now be thinking about bigger structural changes for how they sell, engage with and do business with clients.
Most adtech companies are making the pivot to profitability. The Trade Desk had a 24% operating margin in Q1 2020, expect that to continue to increase. Rubicon had been operating at a small loss, expect them to report a profit this quarter or next. Criteo’s operating margin is a mere 3% and they have signaled their focus on growing that now.
There are two ways to increase profitability. Grow revenue or decrease expenses. Expect agencies, publishers, tech providers to continue to trim expenses in the months to come.
Watch how marketers accelerate their investment in CRM systems over the coming 12 months, as they look to build direct relationships with their customers and actually know who they are. This is in part a response to the coming death of the cookie and to reduce dependencies on the walled gardens.
Several B2B businesses have pivoted to become B2C businesses, across fashion, pharma, beauty, food, technology, financial services and more. These businesses have brands that are new to customers and thus are investing more aggressively in digital marketing. DTC brands have an established playbook on how to build a brand in digital efficiently and effectively, which many of these new-to-B2C businesses will adopt.
For e-commerce, DTC and new-to-B2C businesses, their first port of call may be Google, Facebook and Amazon, however they will quickly come to grips after paying skyrocketing ad rates this Q4 (watch for Black Friday in particular) that they need to diversify their customer acquisition channels beyond a few companies. This represents likely the best opportunity for everyone in digital media who is not a platform. Once a business generates all of its activity from a single channel, there becomes a strategic risk to continue to have all of their eggs in one basket. They will be open to new channels, like publishers and the programmatic web, even if they are less efficient than social feeds, in the name of diversification.
Big Tech has now become Big Bad Tech, inviting a backlash of their own staff. At a time when society is looking for leadership on the spread of misinformation digitally, we have big expectations of big tech and have unfortunately received little but big disappointment.
Twitter has taken steps that are seen as too little and too late. Snap and others have followed in their footsteps, while Facebook, rather Zuckerberg, has chosen his own road yet again. Google has been basically silent.
It is a measured approach to stay in the good books of governments, in particular leaders, to continue to be able to operate with little oversight, benefit from infinite tax loopholes and continue to misuse and abuse user data and privacy.
What is most disappointing is that companies like Facebook were built off the backs of people like you and me who have used their products and been loyal over the years, and now it feels like they have turned their backs on us when we need them most to be a platform for truth and a force for good in society.
The greed and corruption is so obvious that employees are walking out and staging internal protest. Just when Big Tech was starting to turn a corner in the public’s eye with their offers to help engineer solutions for the health pandemic, they have gone straight back to their roots of prioritizing shareholder interests over societal interests.
Brand advertisers who continue to align themselves so closely with the Big Bad Tech platforms will increasingly be questioned by their customers, employees and even shareholders, and asked if they are funding the problem or the solution of misinformation. How the platforms manage through the 2020 Elections will be a pivotal moment to watch.
Constraints are a critical ingredient in the innovation process and there are countless examples in history of how overfunded companies and campaigns flop and underfunded underdogs outperform expectations.
The pandemic has given creative teams and agencies quite possibly the biggest constraints that one can imagine. With most in lockdown, people are stuck in their homes. With travel halted, the locations available are severely limited. With physical distancing, the idea of sets and scenes with groups of people are eliminated. With an economic recession, creative and marketing budgets are slashed. With people losing their lives, the need to be tone-sensitive is clear. With a social crisis, the risks have never been higher to upsetting customers. I do not know what other constraints one could place on the creative industry.
The innovation from these constraints have been many. DIY creative that challenges conventional notions of who is qualified to produce creative. Authentic creative that does not look professionally produced because it is not, is proving to be effective. Real-time creative that is adapted based on what customers are thinking, feeling and saying.
Production costs have gone way down and will likely stay down. What was once spent in producing high-end creative will now be spent in testing creative, in real-time, on a variety of platforms and using data to inform even more creative decisions. Expect to see creative intelligence platforms popup everywhere for brands in the coming year.
Gone are the days of big stage industry conferences, and more importantly, business travel. Pre-pandemic, location mattered and business leaders who were in New York, London and other media capitals had an advantage with greater access to decision makers. Location is not practically irrelevant, with everyone now being more open to connecting with anyone who can help them, regardless of where they may be.
As I wrote in a reflection last week, The Truth About Productivity (link below), we have an obsession with productivity, not only as a measure of our collective progress as a society, industry or business, but also as a measure of self-worth for the individual professional. There is a difference between working a lot and being productive. We may be working a lot, especially in this time, that does not mean that we are being productive.
How we work will change as we open our eyes to the humble truth that our people are tired. They are tired of being in lockdown. They are tired of the doom and gloom headlines. They are tired of the screen.
We have yet to really prioritize mental and emotional wellbeing in our industry. When we see examples of it, it is seen as the exception and not the norm. To retain talented people within the digital media industry, this has to change. We have to work less and that means making smarter decisions as leaders about what we invest in and what we choose not to invest in.
In this time of rapid change, we have the opportunity to lead change, in a direction that is aligned with our values and our vision for a better future for society and the industry. I hope that we continue to choose to lead, not lag, the industry and look for more ways that we can collectively be useful and helpful to society, especially at a time when it needs it more than ever.