May 12, 2020
Clarity amid Chaos: Channel-by-Channel Analysis of COVID-19’s Impact on Advertising Now and in the Future
May 12, 2020
Clarity amid Chaos: Channel-by-Channel Analysis of COVID-19’s Impact on Advertising Now and in the Future
Adjusting media plans is a way of life for marketing agencies. Besides balancing reach, frequency, and budget constraints, media professionals stay attuned to market conditions as they develop and rationalize their media mix, the collection of advertising mediums for a campaign. Despite the meticulous nature of media plans, some were bound to get swept up by the recessionary waves of COVID-19 crashing against the marketplace.
At Asher, we monitored the performance of various advertising mediums during the pandemic through daily client interactions and staying abreast of top publishers’ key financials.
The outbreak’s initial impact on advertising not only solidifies the importance of the media mix, but shows how many opportunities lie in each medium if we get creative with it.
The outbreak threw several curve balls for linear (i.e. traditional) TV, one of which being stalled production schedules for upcoming TV programming and films.
With the cancellations and postponements of several upfronts, cable and broadcast advertisers were forced to pivot to the scatter market, although the upfront model had long been called into question with the advent of programmatic buying.
As one would expect, the decline in ad sales was primarily attributed to the cancellation and postponement of billion-dollar events (e.g. Tokyo Olympics, March Madness, etc.).
Sports is a key draw for live TV and Pay TV viewing. Since sports tournaments draw larger audiences than the news, some annual plans had to be slated to the next year, or inventory had to be reallocated to programs with smaller audiences. Going with the latter was understandably too much of a loss for some advertisers, especially those heavily involved in the sports vertical, since a key asset of TV is its wide reach.
That being said, we worked with plenty of clients outside of the sports vertical that did not receive much disruption to their TV buys, and were not perturbed by using stock footage if needed. For clients with online offerings, in some cases it was an easy pivot to shift messaging and let consumers know that they could access content from the safety and convenience of their home.
So while traditional TV overall took a hit in ad spending, the impact varied widely across industries as with most situations during the pandemic.
As one would expect, over-the-top (OTT) advertising, content delivered via an Internet connection rather than a broadcast or cable provider as in linear TV, benefited from more homebound consumers.
Top streaming services like Netflix and Hulu as well as the more nascent Disney+ garnered more subscribers. As the largest media company in the world, Netflix was poised to weather the pandemic better than any other company, which reflected in its earnings of 5.77 billion (27.58% increase YoY) at the end of Q1 2020.
While some streaming services supported ads, the fact that a major streaming player, Netflix, was still ads-free during that time layered on an additional challenge for media planners and buyers. Granted, Netflix acknowledged that viewership would plateau or decline a bit amid quarantine lifts.
OOH formats at large events (sporting events, cinemas, etc.) took the largest hit as expected, despite OOH being a historically lucrative channel especially since digital out of home assets have paired with mobile device tracking.
The first areas tempting to pull from were highways, public, transit, and airports. That then called into question whether it would be appropriate to try to reallocate inventory with the new consumer movement confined to groceries, pharmacies, and gas stations.
In some cases that made sense to shift inventory, especially for point-of-purchase (POP) materials, but placing creative in those environments was more appropriate for some verticals than others.
For brands that had secured premium inventory, they had to consider whether lower traffic volume warranted OOH removal, as with lower costs a competitor was poised to swoop in and take premium inventory.
Such is one reason why Coke did not pull all their OOH inventory, but seized the cultural moment with a PSA. Coke’s digital billboard in Times Square brought a unifying message as it alluded to social distancing.
While some brands went dark with their OOH assets, others followed a similar strategy as Coke with outdoor boards saluting frontline healthcare workers or drawing attention to charitable causes.
Quick-service restaurants also leveraged OOH inventory to promote their delivery services. While traffic volume might have been curtailed, the strategic placement of the outdoor boards were primed to hit not just workers not ordered to stay at home, but anyone making trips deemed essential.
As demonstrated by brands leveraging OOH to deepen affinity, maintaining continuity is beneficial for staying top of mind and retaining customer loyalty.
Since awareness and ad recall precede brand favorability, it’s not recommended to remove the seeding process, since OOH resembles TV in its reach and awareness capabilities. For clients that weren’t in the position to start putting billboards back up yet, we helped them get the concepts down on paper as it were so that they wouldn’t miss the train when business, and inventory prices, started to pick back up.
While terrestrial radio initially took a hit, listenership did not suffer a major decline in the absence of a commute.
Nielsen conducted a study and found a surprising increase in radio listenership spread across a variety of mediums. With various devices characterizing the average household from smart speakers to laptops, there were plenty of options to stay tuned in.
Just as people have turned to their local news stations during times of crisis, radio personalities were just an antenna away from offering a similar means of solace.
Moreover, for audiences that like to tune into the radio just for music, they consumed nearly as much media as they settled into their new work from home routines. Spotify reported a 22% increase in revenue YoY in its earnings report, which equates to 1.85 billion in euros.
Despite declining ad performance in the final 3 weeks of the quarter (20%), Spotify’s ad-supported revenue clocked in at 17% growth YoY at the end of Q1 2020. The decline in ad sales was not only attributable to the pandemic but the fact that Spotify served countries that were severely affected by the crisis, including Spain and Italy.
While overall search volume increased, the drop in commercial intent resulted in fewer clicks and therein conversions. Merkel’s digital marketing report (DMR) found that Google search ad spend came out to 11% YoY growth for Q1, which was the lowest growth rate in 8 years.
Despite major advertising players like Amazon and travel companies pulling back on ad spend, Google still weathered the economic storm of COVID-19 in Q1 better than Wall Street had forecasted. Google’s total advertising revenue came out to 33.8 billion at the end of Q1, which was up from $30.59 billion the prior year. Strong performance in the first two months was key for buffeting the sharp decline in March.
As anticipated with any recessionary period, there was a marked change in user intent from discretionary to essential expenses. Luxury goods took a backseat to sanitary products and meals with long shelf lives, which was a double-edged sword for the consumer-packaged goods industry.
While it was understandable for industries like tourism to pull ad spend, there was still value in maintaining the search channel for clients who wanted to keep their paid brand traffic.
Some clients wanted to take advantage of lower CPC costs, which vary widely across industries, to run relevant promotions. Additionally, as part and parcel of the competitive PPC landscape, competitors were ready to bet on a client’s branded terms anyway in order to climb paid listings.
Following the trend of other digital channels, usage surged across social platforms as people turned to their online communities for news and comfort.
Similar to TV, audience growth did not translate to increased revenue for these platforms. Although all the major players, excluding TikTok and WhatsApp, allowed ads, the variations in the business models lead to disparities between each platform’s financial report.
For example, Twitter experienced an increase in revenue, but reported a net loss of 8 million for Q1 2020. These figures came in despite an increase in monetizable daily active users (mDAUs), which are the amount of users exposed to ads and serve as Twitter’s key metric for measuring business success. Part of the reason Twitter fared worse than Facebook was because of how much of its revenue was dependent on in-person events.
A surge in usage didn’t fully insulate Facebook from COVID-19’s effects as audiences flocked to the social giant’s non-monetized products like Messenger and Facebook Live.
The increase in engagement did yield impressive results, however, as Facebook reported an 11% increase in daily active users (DAUs) and a 10% increase in monthly active users (MAUs) over the previous year on its Q1 2020 conference call.
On the advertising front, while ad impressions increased 39%, the average price per ad dropped 16% as verticals like tourism and automotive pulled back ad spend following the first week of March. Total revenue amounted to 17.7 billion, up 18% YoY, which came as a pleasant surprise to investors.
In the wake of staffing reductions, Facebook also implemented automated ad review. Some downsides to this system were potential delays in reviews, an increase in rejected ads, delayed responses on appeals, and restrictions on certain Facebook formats.
Since many brands have pulled or decreased advertising dollars at the onset of the COVID-19 outbreak, the lowered demand leads to lower CPM costs (the same case in paid search). While some clients wanted to take advantage of the decreased competition, others maintained their current ads to avoid the delays resulting from automated ad review.
While it was necessary for advertisers and agencies to pivot with their messaging to avoid offending audiences in the wake of COVID-19, Facebook IQ advised against tests it qualified as “more contextually relevant.”
An example could be testing a new product or targeting a new audience with results that would inevitably not be indicative of typical consumer behavior. By the same token, there was an allure to test new creative while advertising costs were lower on the platform. The viability of the latter was dependent not only on vertical but audience.
For brands too financially strapped to invest in paid social, pivoting to just organic posting might have seemed like the best way to stay top-of-mind.
The primary limitation of organic posting is that your influence stays within your own circle of followers rather than tapping into a larger audience, but for some of our clients that strategy worked best within their current constraints.
While display advertising took a hit like the other channels with the pausing and cancellation of travel and entertainment spend, there were a lot of silver linings.
Even though ad revenue growth slowed, YouTube (part of Google Display Network) ads generated 4.4 billion in Q1 2020, which was a 33% increase from Q1 2019. As expected during quarantine, watch time and live streaming surged.
One key finding from YouTube’s earnings was that direct response advertising drove that growth while brand advertising declined. That point was interesting since brand advertising was a go-to strategy for many campaigns at the onset of the outbreak.
Part of the strength of display advertising is its variety of use cases. Higher-traffic areas following the shelter in place mandate included news, streaming platforms, social channels, and e-commerce sites. All of these areas thus became prime opportunities for contextual targeting.
Additionally, the increase of time spent in the home made addressable targeting all the more effective. There were also plenty of opportunities with geoconquesting campaigns, such as targeting those hungry customers waiting through drive-thru of competitor locations.
The future of the media mix
As demonstrated by how top ad publishers weathered the onset of the crisis, the funnel from awareness to conversion still needs to be in place to generate revenue, and that requires channels working in tandem with each other wherever the consumer happens to live.
Even though mediums change, advertising remains a core part of everyday life through recession and prosperity because the strategy remains: get to the core of what consumers, people, truly value.