Digital platforms have faced an ongoing stream of negative news over the past sixteen months, with brand safety problems, measurement “errors,” illegal targeting and political advertising and the presence of fake news, among other ills. These and other concerns have recently become amplified.
Last week at the World Economic Forum, echoing comments from their economic competitors, Google and Facebook were described as “menaces” by investor and philanthropist George Soros. Furthermore, Facebook was compared to the tobacco industry and described as needing regulation by Salesforce.com CEO Marc Benioff.
As another example, the world’s largest public relations firm Edelman published its annual Trust Barometer survey, which provided several illustrations of the decline in trust of digital media platforms. Further, over the weekend, The New York Times published an extensive article primarily documenting how influencers buy followers on Twitter (although this practice is not unique to Twitter), serving to further illuminate the seedy side of digital media.
Stocks within the sector have appeared to be mostly immune from these concerns so far, largely because revenue growth (for Facebook and Alphabet at least) has continued to outpace investor expectations. We wanted to update our perspective on whether large brand marketers will eventually react, and so reached out to a number of practitioners within marketing organizations across a wide range of categories in recent days.
My takeaway is that as long as there is no expectation of a negative brand impact from running ads on those platforms and as long as near-term user or usage trends are not impacted by negative news, ad budget plans will not change in any meaningful way.
To illustrate where budget changes may or may not occur, we have observed that marketers will not typically give a second thought to running ads on social media platforms adjacent to brand-unsafe text-based content if it occurs in a feed. However, they do harbor concerns about ad units they consider to be directly associated with certain types of video-based content (including illegal acts, sex and/or violence) via pre or mid-roll video ad units. This explains why there was a reduction in spending on YouTube by many brands last year (albeit one that was not identifiable to investors because of Alphabet’s limited disclosures).
More generally, as long as there is no broadly held perception that consumers’ opinions of marketers’ brands are negatively impacted by their presence on digital media platforms, marketers mostly will not change their budget allocations. In some ways this is similar to what did and did not happen to television: from its earliest days there have been concerns around television’s negative effects on people and society. Those concerns did not appear to limit growth of the medium, although advertisers came to express preferences for certain types of content on that platform, and it is likely that something similar will continue to occur with digital media.
Investors should not entirely ignore the noise such as that which came out of Davos this past week. However, it seems that other risks will continue to warrant more attention, such as regulatory moves, decelerating growth due to market saturation and rising costs associated with investments in content and infrastructure.