On Thursday, 4th August, the Bank of England made the unprecedented move of cutting the interest rate to 0.25% -- a record low and the first cut in the interest rate since 2009. It appears that Brexit is starting to bite -- and Enders Analysis suggests that the wider economic effects are trickling down into the ad industry: “Early signs are of companies scaling back investment in advertising in July, with large declines in retail and banking. We expect increased volatility in budgets, an accelerated shift to digital as its flexibility and low cost appeals, and generally a resort to more tactical advertising options. At this point, we expect a flat to slightly negative year in 2016 for TV in real terms and have adjusted downwards our prediction for 2017 to a range of -6% to flat.”
So what does this mean for digital media companies?
Retail is one of the largest sectors for online advertising, so a dip in spend in this sector is worrisome. However, the prediction also suggests a flight to digital, as it is a more flexible and affordable medium. So it looks like retail’s cutbacks will fall on more traditional media.
Clearly it’s a mixed picture -- companies looking to take advantage of the flight to digital will have to ensure they are making businesses cases that deliver clear ROI. This will be a relatively easy argument for performance marketing or retargeting companies that are able to show clear and quick ROI.
For those working in the growing field of digital brand marketing, it will be a harder case to make as brands tend to be wary of investing in brand building campaigns that are far harder to measure using short-term metrics. Many of today’s leading brands became market leaders by investing in marketing while their competitors were cutting back, P&G famously says “we have a philosophy and a strategy, when times are tough, you build share.” Research from Millward Brown points to three reasons why this is the right strategy. First, if your brand is investing in marketing while everyone else is cutting back, you’ll have a greater share of voice and therefore market share. Second, this advantage will continue post-recession as you’ll have built a strong brand that is more entrenched. Third, any new product launch will have greater prominence for cheaper clicks and is more likely to be successful.
Mobile video views are booming, according to Zenith’s online video forecast. Globally, we will spend an average of 19.7 minutes a day viewing online videos on our mobile devices -- 39% up on last year’s figures. Brands will not want to miss out on this bounty while their competitors are making hay, so digital media companies that specialise in mobile video should ensure that they are making a clear economic case for investment.
The greater risks of Brexit for digital media companies don’t reside with the success of their customers, but with how well the companies are set up to deal with adverse economic conditions.
During 2008 and 2009, many big advertisers extended their payment terms to suppliers. Digital advertising companies need to be ready for another such an extension of terms and ensure they have enough working capital so they don’t end up having to slow their growth just to support their clients. Post-Brexit, the early signs are showing that UK and EU-based companies will find it harder to get funding, so European companies looking for investment may want to seek alternatives to VC capital and a growth strategy that isn’t predicated on VC money.
Brexit doesn’t have to mean bust for digital media companies. Play your cards right and it actually presents an opportunity -- but only if your own house is in order.