Why are ad sales slowing down before the economy hits?

Not all truisms are true, but one is pretty true for the advertising industry. That said, as the economy goes south, it’s the advertising market that’s the first to be affected.

The idea behind this is pretty simple. When a company needs to cut costs, it’s much easier to cut advertising budgets than anything else, such as employees. As such, media practitioners have been trained to expect their advertising dollars to disappear following the economic shock. For example, in the Great Recession of 2008, advertising spending dropped by double digits the following year. Or in the spring of 2020, when ad spending came to a complete standstill for weeks while the world struggled to cope with the pandemic.

But now we see something else. Ad spend growth slowed or stopped across industries and media for most of this year. A very obvious example of this can be seen at publicly traded companies like Snap, which recently laid off his 20% of staff and blamed the ad market for “significantly slowing down.” Or you can ask someone who runs a privately held media company off the record how their business is doing. One of them said this week, “I’m glad I run a private company” that doesn’t have to publish results.

But while the ad market is booming, the economy in general is…okay.or at least, mixed.

Yes, inflation is rising, stock markets are falling, and there are many dire warnings about the future. Even so, they still continue to spend.

What is the reason for the disconnection and what happens next? I have asked people throughout the media and advertising industry. They all agree that something is wrong. No one agrees on why.

Now let’s look at some arguments.

Even if people around you don’t see it, it’s actually bad. And they will get worse. So you better stop spending now.

This theory makes sense, but is a bit counterintuitive. Because we need to believe that the people responsible for buying ads are proactive, not passive.

But if you’re going to accept it: expensive things like cars that have become much more expensive due to inflation, or like phones and other consumers, because of supply chain swells. If it’s about selling something much more difficult to manufacture or obtain in electronics — your business is already under pressure. Either you’re struggling to sell what you have, or you just can’t get enough stock. So why spend money promoting it now?

“They say, ‘If you can’t get enough product on the shelves, and there’s no supply, why spend money now to increase demand?'” the publisher told me this week. and added that we will spend more in the fourth quarter. “

Apple’s fault. Or tik tok. or crypto. or VC.

This is satisfying for many people in the media. One reason is that you can blame big tech companies, Tech-Funded Exuberance, or both. But the point is, it’s someone else’s fault.

If you want, you can blame Apple for rewriting their digital ad tracking rules. This has made traditional digital advertising much more difficult and costly, and has hit Facebook and Snap’s advertising business particularly hard. Now he could be one culprit, he’s TikTok, but he’s guilty of two different things. On the other hand, it is taking advertising dollars away from other digital his outlets. Last year he made $4 billion. Also, advertising has inspired two of his main competitors, Facebook and YouTube, to clone his TikTok, which for now has a lot of engagement but minimal ads. The whole market is depressed.

You could also simply point to the bursting of the latest tech bubble. The era of cryptocurrencies is over for now, so the torrent of advertising like OpenSea and Crypto.com is slowly slowing down. Numerous VC-backed startups told to grow as quickly as possible and not worry about the ‘runway’ (funds to run the company) because they could always raise more money if needed The same is true for The VC funding market is booming right now, and companies that thought cash was king and could market their path to success are looking for other ways to survive.

It’s a structural issue.

This isn’t very popular among the people I’ve spoken to because it at least partially involves blaming the media business. The way people buy ads and the types of ads they buy have changed over the past decade or more. As such, the advertising business is susceptible to rapid reversals.

In the old days, ads were often bought before they were placed. The television industry, for example, has built an entire calendar around pre-selling ads. In spring’s “Upfront,” TV networks show off shows they plan to run for the next year, and media try to convince his buyers to secure his year’s worth.of ad purchases

Now, however, the majority of ad spending has moved to digital, with large platforms and smaller players emphasizing that buyers can buy inventory at any time. No buy ads

Publishers expected at least half of their revenue to come from annual media purchases, but that number has steadily declined over the years, said Rich Antoniello, former CEO of Complex Networks. told to “Now we buy quarterly or monthly. And we buy Facebook and Google campaigns campaign by campaign” – you can do this for even shorter periods of time.

This flexibility worked very well for publishers when things were going well, like in the past few years when everything was bought online and had extra money to fund those purchases. Did. Now we are looking at the downside.

relax. It’s just a hangover.

This is by far the most optimistic argument, and one we hear almost as often as the clouded view. Yes, things are slower than they have been in the last two years. But over the past two years they have been maddeningly unsustainable.

said Kate Scott-Dawkins, global director of business intelligence at GroupM, a major ad buyer. She explained her point by providing handy charts that track revenue and ad spend for digital companies.

Yes, downward and rightward charts constitute optimism in today’s media business. But it also shows how historically strange the past two years have been.

Again, I’m not sure which of these arguments is correct, but I expect the final unsatisfactory answer to be “all of the above”, but at least a little.

Either way, the impact is the same. Less spending on media outlets means less revenue. In other words, the media needs to cut people and products (things we see, hear, and read every day) or question users. To pay more money out of your own pocket to take back the slack.

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