After the storm
Ad execs talk to Damien Venuto about rebuilding the creative sector post lockdown
The pain felt across the media industry always offered a hint of what was coming for the advertising and creative sector.
As advertising spending collapsed, it was only a matter of time until the nation’s ad agencies had first-hand experience of the chaos a pandemic can cause.
Data from researcher SMI shows that advertising spending in New Zealand dropped 38 per cent to below GFC levels during April — bringing a sharp conclusion to what was shaping up as a year of growth for the industry.
While the ad sector has thus far avoided a Bauer-level apocalypse, there have been salary reductions and dozens of job cuts in agencies large and small over the past two months.
Advertising agencies face a unique set of challenges in that their fates are inextricably linked to those of their clients. Portfolios stacked with tourism clients, for instance, were hit far harder than those with government or consumer goods names on the roster.
Tourism, airlines and entertainment businesses all saw their advertising spending drop by more than 95 per cent from the figures recorded a year earlier.
The devastating impact this has had on ad agencies operating in this space serves as a reminder of the way the economy functions as a chain reaction — quickly passing one business’ pain on to other organisations.
With a wide spread of clients across various categories, Colenso BBDO managing director Scott Coldham saw first-hand how the Covid-19 storm blew through corporate New Zealand, tearing down some businesses and leaving others unscathed.
“Internally, we refer to a day in April as Covid Wednesday. It was the moment we began to understand the extent of the impact,” Coldham tells the Weekend Herald.
“We’re fortunate enough to work across a number of sectors, so we had some clients who were going strong and others who were doing it really tough.
“We didn’t see a 38 per cent drop in spend, but we definitely felt top line revenue drop and we felt certain clients become more cautious. We’ve had to look at how we navigate that, like every business has.”
Coldham says the biggest issue wasn’t the loss of business during that period, but rather all the unknowns that Covid-19 threw into the mix.
“Normally, when you lose a piece of business or something, there’s a timeframe attached to it. You know the value of that piece of business, you know the teams that were employed on that piece of business. It’s way more black and white.
“But with Covid, we didn’t really know. We had to try to prepare for the worst and then try to navigate that storm as best we possibly could, with as few casualties as possible.”
This didn’t end with the lockdown. Despite signs of the economy recovering, ad agency fortunes are still hostage to the confidence of the businesses they work with. Companies remain cautious and their advertising spending will stay conservative for as long as the uncertainty persists. The challenge for Coldham now is to identify the opportunities that are worth betting on in this strange new world.
“It has been challenging at times, but I think we’ve learned a lot,” he says. “I think smart agencies and smart brands will come out of this, maybe a bit leaner, but with a different perspective on the world. So I think there is a silver lining to all this.”
Are we there yet?
The process of rebuilding the advertising industry will not involve a onesize-fits-all approach. FCB chief executive Paul Shale reminds the Weekend Herald that the challenges across every sector will vary.
“The main point is that Covid-19 has not hit clients equally — some were not too affected, some have bounced back quickly, and some will take time to rebuild,” he says.
“The big ‘tell’ will be how the fourth quarter of 2020 and the first quarter of 2021 shape up as imminent
redundancies hit and dampen the 2020 economy.”
Like many of his industry compatriots, Shale has had to make tough calls in letting staff members go and rethinking the structure of his agency.
“We’re restructuring comparably to what we’ve heard from other agencies and not as much as we had originally thought, perhaps because our management team have taken a voluntary pay cut of up to 20 per cent.”
While no cuts are ever good, Shale says he’s focused on strengthening aspects of the agency that will make it more resilient in coming years.
“We’re doubling down on the work we did in 2019 to focus on the convergence of creativity, data-led insight, and media,” he says.
Shale also believes that Covid-19 has simply accelerated many of the trends that were already apparent in the background.
“Agency consolidation may occur but I think it’s more likely that we’ll see more freelancers, more project collaborations, and more small specialists.”
The rise of freelance and project work will be good news for those on the hunt for jobs at the moment, but it also raises the question of employment security and could create incentives for advertising talent to look elsewhere at industries that offer more stability.
The problem is that with the lingering impacts of Covid-19 — and its uncertainty — some ad agencies might be reluctant to take on full-time staff simply because no one knows what will happen next in the coming months.
Forecasts out the window
Covid-19 is a global issue — and while New Zealand has done a good job of bringing it under control, the international figures remain staggering.
The number of people already killed by the pandemic is quickly approaching 500,000 and many nations are now enduring a second spike in new cases.
Even in our veritable safe zone, we’ve seen in the last week that our degree of separation from the virus is only one or two bureaucratic mishaps.
This isn’t lost on businesses — or their marketing departments. So much of advertising is contingent on the mood of the moment. If people aren’t confident that things will remain on solid ground tomorrow, then they’re far less likely to splash out on a big marketing campaign today.
This has made it incredibly difficult for agencies to forecast how the rest of their year might go. Whereas bosses could previously look as far 12 or 18 months into the future, they’re now setting far humbler targets.
“We’re constantly re-forecasting, given the volatility,” says John Baker, the managing director of independent agency Lassoo.
“Monthly was about as far as we could see before level 1 and now we are extending our horizon to three months. Beyond that still feels like crystal ball gazing.”
Following a “hard hit” during the lockdown, Baker says there has been some decent progress but he won’t take any bets on when things will return to 2019 levels.
“Our May was slightly ahead of April and June has picked up, but we still have a way to go before we would be operating at what we might have considered to be normal levels,” he says.
“The medium-term outlook as far as we can tell still looks soft, despite pockets of what might be short-term buoyancy.”
For Baker, one of the positives to come out of all this uncertainty has been the increased focus from government and corporate New Zealand on small to medium-sized businesses — and he hopes to see this continue.
“Anything that supports SMEs by way of tax relief, reduction in compliance and stimulatory fiscal policy will deliver dividends for New Zealand by way of employment and economic wellbeing,” he says.
“The highly successful health response to Covid-19 required direct and massive government intervention. The response to the economic challenges requires different government behaviour which is more about creating the framework for increased economic activity and getting out of the way of business to deliver the growth we need.”
The more things change
Depending who you ask, the advertising industry has either changed entirely or all the same rules still apply.
As is often the case with hyperbolic analyses, the truth lies somewhere in between.
It’s clear that Covid-19 has exposed some of the frailties of organisations across the country.
“This has had an impact which is broader reaching than financial,” says TBWA chief executive Catherine Harris.
“Even sectors doing relatively well have still had big strains placed on their resources and culture. We are aware our people and our partners are feeling the strain of the increased demands of tougher financial conditions and leaner budgets — and this is off the back of months of very real personal stress.”
Harris argues that it will take much more than fixing the balance sheet to ensure agencies — and businesses — navigate through this turbulent time.
“Agencies will need to innovate and expand their influence with partners or they will shrink,” she says.
“This will be the case for many businesses across a variety of sectors, who will either adapt and focus on how to grow their current position — or they will lose share to those that do. If your focus is managing your 2020 gap through cost management versus building your future share, your competitors will take you on and win.”
In the aftermath of every storm, there are always those who are willing to pick up the pieces. And they’re often the ones to rebuild for the future.