As we are all well aware, the impact of the coronavirus is being felt acutely across a broad spectrum of economic sectors and on a global scale. Aside from the devastating human impact, the gravity of the situation from a purely economic perspective – and indeed the duration of the economic downturn – is as yet unknown. Digital advertising – like almost every other industry – has been rocked by the pandemic. We take a look below at how the crisis has influenced some of the adtech sector’s key players.
More eyeballs online
At first glance, and on some level, it would appear that the “lockdown” imposed by governments across Europe and indeed the rest of the world would offer the perfect conditions for increased internet traffic – and therefore for digital advertising. People cooped up at home, with no outdoor options for entertainment and interaction are inevitably likely to spend more time online.
Latest figures released by Comscore show this to be true – demonstrating unsurprising huge surges in internet activity as people have adapted to life indoors. The UK for example has seen a massive 54% increase in online visits to News/Information sites – this is based on a comparison between the final week in March and a “normal” week in January before the virus had significantly spread and impacted the behaviour of the European internet users measured. In Italy, where the impact of the virus has been particularly severe, there has been a massive 68% jump in online visits to New/Information sites. Internet usage across the continent has soared, and while visits to “Retail” sites have increased the least – as consumers remain tentative about their spending in uncertain financial times – visits to Social Media sites have soared by nearly 40% in the UK and as much as 51% in Spain.
Figures indicate this huge surge in traffic has continued to be maintained throughout April as many countries have seen lockdown periods extended into May and beyond and with no immediate sign, in the UK at least, of restrictions being fully lifted, internet traffic is unlikely to decrease significantly anytime soon.
Brand safety considerations
At a very basic level, in theory increased internet traffic means more visitors to publishers’ pages, more eyeballs on advertisements, an increase in brand ad spend and therefore increased digital ad revenues. However, the picture in reality is a lot more nuanced – due partly to the interesting issue of brand safety. Consider for example one widely used brand safety tool – keyword blacklisting. This is a method frequently utilised by brands/advertisers to ensure their ads do not appear alongside editorial content which may be offensive or unsavoury. The advertiser (or the agency acting on their behalf) will provide a “blacklist” of keywords to ensure their ads do not appear adjacent to any content containing those words.
In light of the current pandemic, many advertisers have in certain instances perhaps been over-cautious in blocking the placement of their ads next to content containing words such as “coronavirus” “crisis” or “pandemic”. This has understandably had a huge impact on the number of ad placements and therefore the revenues received by publishers – given the sheer volume of current genuine news articles and editorial content containing these keywords. Latest figures from IAS have suggested the number of ads blocked in the past month soared over 2000% when compared with January and February. The keyword blocking tool alone does not distinguish between the “blocked” words or phrases being used on well-respected, trusted news sites or on other less trusted news sites or blogs. It can therefore be a blunt instrument without also being utilised in conjunction with “whitelists” – these are lists provided by an advertiser, which set out specifically selected, typically high quality, news sites on which it is comfortable for its ads to appear.
Advertisers are clearly in a quandary at present – on the one hand wanting to prevent their advertising from appearing adjacent to serious or grave content which may seem incongruous with the idea of frivolous consumption or otherwise negatively impact their brand, yet on the other hand still needing to be visible to consumers and drive much-needed sales at a time of financial difficulty for many businesses. Advertisers are understandably nervous – huge amounts of money and time are spent building positive brand associations among consumers – this could be undone where a brand’s ad is repeatedly appearing next to or associated with hard-hitting and depressing editorial content covering the horrors of the pandemic – no matter how well-respected the journalism itself may be. Many advertisers will take the view that there is no direct harm in being over-cautious, even if brand safety tools like keyword blacklisting can be at times blunt or clumsy.
For many advertisers, the luxury of choosing whether to continue to advertise next to such content or not will be taken out of the hands of the marketing teams – with funds instead diverted internally elsewhere to cover other unexpected costs or retain key staff.
There is some debate about whether advertisers have a moral duty to support publishers – and quality journalism – by continuing to provide ad revenue. This is probably overstating things slightly in the context of what is fundamentally an economic transaction – but it is clearly incumbent on advertisers to take a more nuanced and balanced approach to brand safety during these “trying times” in order to get the greatest efficiency from its ad spend and to ensure publishers are not squeezed to the extent they are no longer around to provide quality inventory once the crisis is over. Other key players in the industry have already made moves to try to ease the burden on publishers – Google, for example, has recently agreed to waive its ad serving fees for Google Ad Manager for publishers for the next five months, in an attempt to help cut publisher costs and allow a bit of breathing space during these rough times.
Reduction in ad spend, but potential opportunities for advertisers
Brand safety tools are just one contributing factor to what, no matter what metric or data source you look at, is a sharp and significant reduction in advertising spend. Advertisers are, in many cases understandably displaying a general nervousness about committing usual volumes of money to ad spend in such uncertain times (whether through choice or necessity) – especially when many consumers are tightening their belts.
For certain advertisers however, the current situation offers an opportunity – as demonstrated by the latest figures published in a report by PubMatic. Advertisers from the “Hobbies & Interests” sector for example are capitalising on people’s desire for entertainment during lockdown, with many people deciding to learn new hobbies or rekindling old ones as a way of passing the time. Ad spending from “Hobbies & Interests” brands has increased by some 31%, when comparing the last and first weeks of March, while over the same period Travel advertisers have understandably reduced their spend by a massive 90%. Interestingly, “Food & Drink” brands have also increased their spend over this period as many of us are tempted to increase spending in this area in supermarkets or online during the lockdown. Exact statistics on the increased demand for the “drink” element of that category – especially from parents of young children since the closure of schools – have yet to be produced.
On a more serious note, the huge reduction in ad spend can be seen as an opportunity for advertisers who are in a secure enough position to spend. There is a significant volume of ad inventory now available at substantial discounts – and which – with thoughtful and nuanced targeting – could be utilised to advertisers’ advantage. Some, such as P&G have publicly stated they are seeing this as an opportunity to “double down” and will be increasing ad spend to strengthen its market position. As many of us will have seen, other advertisers are creating specific campaigns centred around or referring to the current crisis – trying to put a positive spin on things, focusing on the community element or otherwise offering free products or discounts in order to build brand image and loyalty longer term. This is of course a fine line to tread, often risking the wrath (particularly on social media) of those who may see it as a ploy to profit from or otherwise cynically capitalise on the crisis.
Strain on the industry
Ultimately of course the reduction in ad spend has also put significant pressure on the publishers at the end of the adtech chain – many of whose existence relies heavily on advertising revenues. For some publishers, narrow margins mean even a slight decrease in ad spend could tip the balance and mean the difference between being able to continue operating and bringing down the shutters. The risk for editorial content and high-quality, respected journalism – much needed at such an uncertain time – is clear. Efforts are being made by publisher collectives to appeal to the advertisers for support and to take a less cautious, or rather more nuanced, approach rather than pulling the plug completely. If too many respected publishers do not survive this crisis, the high quality inventory will simply not be available for advertisers once life begins to return to normal.
Similarly, as less money is injected from the advertising end of the eco-system, so too less money flows through to the other players sitting between the advertisers and the publishers at the other end of the chain, including the agencies, DSPs, exchanges, SSPs, DMPs. Each will take a hit on its revenue as ad spend decreases – which could ultimately result in human cost in the form of redundancies, lay-offs and furloughing of staff.
Despite upticks in certain categories as discussed above, the trend for overall ad spending continues to head downwards, putting particular strain on another pressure point in the market – namely the relationships between advertisers and their agencies and DSPs. As advertisers seek to reduce spending or row back on minimum ad spend commitments for the quarter or the year, many are hurriedly referring back to their contractual commitments to see what is possible and, crucially, how compromises can be reached and relations maintained.
As in any “ecosystem” this inevitably too has effects further down the chain, with many SSPs – anticipating non-payment from buyers – seeking to lengthen payment terms with publishers. Contracts between SSPs and publishers will often contain “sequential liability” clauses allowing the SSP to clawback, or be refunded for, revenue paid to a publisher which it does not end up receiving from a buyer (whether due to genuine bad debt, conscious non-payment due to fraud or otherwise). This effect is already being felt as SSPs move to ensure they are not “caught in the middle” – with, once again, publishers ultimately bearing the brunt. It is fair to say that strain on commercial relationships and the contracts underpinning them is being felt across the industry.
Wider industry impact
This crisis has rocked adtech and forced entities throughout the ecosystem to focus on watching costs and tightening belts like never before. Issues that were already present and hotly debated and negotiated in the industry, such as transparency or ad fraud, suddenly take on even greater importance as every penny and pound matters and must be squeezed as efficiently as possible. As prominent commentator Ratko Vidakovic puts it, “no company can afford to waste anymore”.
In the medium term, there is a suggestion we may see an increase in M&A activity across the industry, with more stable larger entities acquiring struggling competitors and PE firms weighing up companies in strife who may be considering offers they would normally not countenance. It remains to be seen how much of this anticipated activity actually comes to pass over the coming quarter.
Looking longer term, the effects of this crisis on the industry are even harder to predict. Many are suggesting the economic downturn caused by COVID-19 will be worse than the financial crash of 2008 – the only semi-suitable comparator of recent times. Reviewing ad spend statistics from around that time, we saw a huge drop off followed by a slow and steady recovery over the next few years with spend nearing a return to 2008 levels by 2012/3. This is a crude measure but it does indicate that the effects of this unprecedented pandemic will inevitably be felt for years to come. While the effects are significant, digital advertising is undoubtedly here to stay and many believe the predicted “bounceback” in consumer confidence and spending once life begins to return to normal will at least go some way to offset the current dip and bring things back onto an upward trend sooner rather than later. At a time when the rise of digital ad spend seemed inexorable though, it is clear COVID-19 has dealt the adtech industry a significant blow in the short term at least – but, as we have seen, has also created opportunities for the strongest players to emerge from it in an even better position.
Rob Powell is an associate in the Bristows adtech team. For any adtech related queries, whether COVID-19 related or otherwise, please feel free to get in touch with Rob or another member of the Bristows team: Mark Watts, Jamie Drucker, Martha Crnkovic and Paul Jordan.