A report from investment bank Berenberg says that the Coronavirus pandemic is wreaking havoc on television advertising.
The bank’s note says that while it is still too early to assess how badly marketing spend will be affected in FY 2020, it is clear that the initial response to the virus has been a rapid fall-off in advertising activity. The bank says that the decline in advertising spending in FY 2020 “is likely to be materially worse than that which occurred in previous downturns”.
Indeed, the bank’s report makes very gloomy reading, saying “Our conversations with European television buyers confirm that there was a significant deterioration in spending the second half of March as various countries entered lockdown, jobs were cut, and normal consumption patterns fell off a cliff. However, some advertisers did choose to continue with pre-booked campaigns, given their desire to avoid late cancellation penalties. More than one media buyer suggested that the second half of April could thus worsen as penalties fall away. Indeed, while it appears that Q1 will have ended down by a mid-teens percentage, the prevailing view among the buyers to whom we spoke was that Q2 could be down by 40-50 per cent.”
The bank adds that the reduction in spending is widespread. The bank has already reduced its financial estimates across the whole sector, and highlighting specific industries such as travel/leisure, autos and retail as likely to reduce the most.
“Thus far, according to our sources, the reductions have been across the board: travel began cutting earlier than most subsectors, but even relatively stable industries like FMCG have stopped advertising, or cut back significantly. At this (relatively) early stage, it is hard to discern an obvious pattern in terms of trends, although we maintain our view, for the moment, that the aforementioned sectors will show the sharpest reductions in advertising,” says Berenberg.
The bank stresses that while below current consensus, it believes its estimates are realistic. “We have assumed a mid-teens decline for broadcaster advertising revenues in 2020, which is worse, in most cases, than that recorded in the global financial crisis of 2008/9, and certainly lower than consensus (although the latter continues to fall). While we do not expect the 40-50% declines seen in Q2 television advertising to continue, our concern is that when advertisers dip their toe back into the market, consumers will be watching less television as they make the most of being able to go outside. We are also concerned that broadcasters that rely on pre-recorded drama and series will struggle to deliver the same quality of programming, given their inability to produce that content at present. That could affect audiences during the commercially important fourth quarter. We maintain our ‘Hold’ recommendations on Mediaset, Mediaset España, ProSiebenSat.1, Atresmedia and ITV.”