Advertising is sometimes referred to as the canary in the economic coal mine, an early warning indicator of deteriorating, or surging, fiscal health.
The theory: If the economy turns bad, with a dip in ad spend, then the general economy will follow.
The most common definition of recession is a technical recession, following two consecutive quarters of negative growth in real GDP.
By this definition, Australia had not recorded a recession for 29 years.
However, it’s a different story when it comes to advertising. According to the latest SMI numbers there have been seven consecutive months of downturn this year.
August saw a fall of 6.3% of media agency bookings, July dropped 7.8%, June fell 1.1%, May -5.3%, April -5.6%, March -6.6% and February -6%.
(Edit: AdNews learnt after publishing that the SMI data automatically updates and changes after initial publication. The updated numbers are February -0.6%, March +0.9, August -2.1, May -2.9, June -3.7.)
But is an advertising recession a legitimate concept? Opinions are more complex and not entirely negative.
While this period of decline is largely dictated by traditional channels (print, news and linear TV), it is coupled with growth in specific sectors (outdoor, search, social, digital video, digital audio and cinema) which can indicate resilience and potential areas of recovery within the advertising market.
The term recession is more indicative of a shrinking investment in some advertising channels than the broader economic implications tied to a traditional recession, says Prophet chief data officer John Strumila.
“Historically, the advertising market is cyclical, often reflecting broader economic cycles,” Strumila said.
“During economic downturns or periods of uncertainty, businesses may reduce their advertising budgets as a cost-cutting measure. However, history also teaches us that the advertising market can, and usually does, rebound.”
But anecdotally media experts across the industry told AdNews they have never seen the sector in such decline and change over the past 12 months.
This could be the result of the economy levelling out from historic years of excess spending during COVID.
Pearman Media director of strategy and research Steve Allen is not convinced a media recession is happening.
“SMI’s first and second quarters are barely negative. Added to which SMI only covers approximately 40% of the overall media market investment,” Allen said.
“Never-the-less SMI pretty much mirrors overall market dynamics.”
The Australian population has grown 2.32% in the past year, but retail sales per capita have also fallen over the past 4 quarters, which could point to a retail recession in the same logic.
“In Australia over the past 4 or 5 decades, there has been no correlation between the various features of the Australian economy and media marketing expenditure,” Allen said.
“Whilst it is generally true that strong retail sales (in a lowish and consistent inflation environment) historically boosts media marketing investment, the same is not true of low retail sales; advertisers tend to pull back more in difficult trading conditions. Clearly they become concerned, cautious, and conservative
“These dynamics we are witnessing now is a self-fulfilling slowdown in media advertising investment, but not an advertising recession!”
However, Schwartz Media chief executive officer Ben Shepherd agrees the industry is in a recession.
“We are nearing two years of macro declines so you could potentially be even more bearish and call it a depression if it sustains through Q4. And that isn't even adjusted for inflation,” Shepherd said.
“Marketing science has shown that those who hold the line in down markets see benefits once the bounce occurs.
“It's a wait and see in terms of one - which advertisers did legitimately hold the line and two - if the science will be proven right if/when we emerge from the current cold conditions.”
For Next&Co head of strategy Nick Grinberg a strict definition is not relevant but rather the acceptance of a ‘downturned’ market is.
“Whether you call it a recession or a downturn, you can see the ‘output’ of our industry - in this case ad spend - has been sliding,” Grinberg said.
“But mature advertisers have really shifted their focus onto proving out the effectiveness of their advertising. We are seeing a sentiment that brands still want to be out there running ads in market – they just are more concerned with effectiveness.”
Maybe SMI is not the correct data to determine an advertising recession
Ad markets by nature are far more volatile than GDP and so larger swings are to be expected.
Magic head of growth Sarah Baskerville argues business confidence is a more prominent driver of ad spend and more comparable than GDP.
“Business confidence has however taken a plunge to -4% in August, its lowest point year to date, so we are likely feeling the impact of this,” Baskerville said
“Ordinarily I would heed the warning that SMI is signalling here, however this is no ordinary window of time we are peddling through so broader context is needed before we hit the panic button and put the recession stake in the ground.
“The market is back by a whisker on a year that banked the second largest ad spend on record. Despite its scale, 2023 was also in decline to the largest year on record driven by a surge in ad spend post COVID thanks to excess savings followed by a subsequent excess in consumer spending.
“COVID has distorted the market and we are still very much moving through a post-COVID era, so it’s difficult to determine the baseline from which to judge today's performance.
“A normalisation to pre-COVID levels was inevitable so our annually geared spreadsheets are not so grim when we look more holistically at the health of the market.
“Aussies no longer have an unprecedented bank of savings at their disposal and in the face of surging inflation and high interest rates we are going to see a curb in consumer cash flow.
“As global economies flirt with recession and wrestle political unrest, you might argue that the current climate is showing signs of strength to be holding up on these historic years of excess spending.”
There is plenty to learn from the past
The industry has experienced a down period driven by tough economic conditions many times from the Great Depression, World War II, the Global Financial Crisis and COVID.
And what we historically see after is a strong rebound that would sustain for a prolonged period. So the industry remains hopeful.
“In the UK we saw earlier this year some growth (even if it was a decline when inflation was backed out) which is promising,” Shepherd said.
Specifically the dot-com downturn of the early noughties and the Global Financial Crisis of 2007/2008 can teach us many lessons right now, says Spinach GM and media director Ben Willee.
“The first lesson we learned is that it’s a bit like wrestling a porcupine in a balloon factory – tricky, prickly, and potentially catastrophic if not handled with care,” Willee said.
“The key when wrestling is flexibility and training. The biggest danger is doing nothing.
“Keep your eye on the long game, stay flexible, and make sure you're ready to take advantage of the upturn when it comes.”
Here’s how to stay nimble according to Willee:
Revisit your key performance metrics: Ditch the vanity metrics. Focus on what truly drives your business forward. It’s not about how many likes you get but how many conversions you achieve.
Get flexible: Often when the market is soft, advertisers hold back. However, good results are not just about holding back. Consider making medium-term commitments to key channels. Media owners love to be in committed relationships with their clients and will offer plenty of benefits in return. These benefits include access to no-charge activity, upgrades, integrations, and most importantly, reduced cost per thousand.
Negotiate with hard data: If you’re testing new mediums and approaches, there’s no better time to invest in attribution modelling. Now’s the time to be apply data-driven marketing. There are many methods to mathematically prove the causation between advertising, sales, and awareness. The cost of doing this is getting cheaper, and it’s much easier to secure additional budget if you can qualify the likely impact of your media spend. Better still, it’s a great way to protect yourself from the CFO who is looking for bottom-line savings.
Supply chain transparency: I don’t want to talk out of school, but we’re seeing huge amounts of wastage in this area. Ensure every dollar spent is accounted for and delivering value. Transparency in your supply chain is more crucial than ever.
Do some crystal ball gazing: We know that Netflix, Amazon, and Disney will all be putting quality video inventory into the market in the back half of the year. All that extra supply is going to impact the price of video. Anticipate these changes and adjust your strategies accordingly.
Plan for the upturn: This isn't the time to panic; it’s the time to plan. Remember, all things that go down need to go up. And, as history has shown, periods of downturn are often followed by periods of growth. Flexibility in negotiation strategy is key. Start thinking now about how you will respond when things turn around. The decisions you make now can impact the long term.
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
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