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S&P Podcast – Economic Recovery Will Guide US Ad Market

The COVID-19 outbreak has taken a major chunk out of the advertising market, with sales plummeting in April.

How the economy — buffeted by soaring unemployment — recovers and marketers' sense for the timing of its rebound will not only shape ad sales in the months ahead, but for the upfront market for the 2020-21 TV season, speakers said in the latest episode of "MediaTalk," an S&P Global Market Intelligence podcast.

Jon Steinlauf, chief U.S. advertising sales officer at Discovery Inc., which saw ad sales decline 20% year over year in April, said it is a "fragile quarter," with week-to-week fluctuations of money coming in and out of the marketplace. Discovery's overall expectation: Sales will improve in both May and June to some extent.

Since the pandemic ushered in sheltering-in-home mandates, Steinlauf said six to seven of the top 12 categories, which represent 80% of the company’s U.S. ad business, have been stable, three are split and three others are completely shut down. "That's not terrible," he said.

Ad spending by companies in the tech, telco, financial, streaming services, home-improvement and household cleaning sectors, as well as various food segments and essential retailers, including grocery stores, Home Depot, Walmart and Petco, has remained good, according to Steinlauf.

In addition to tough times for tourism, films, retail and restaurants, there have been reports of cancellations from companies like General Mills, Domino's and Pepsico. Scott Robson, an analyst at Kagan, a research unit within S&P Global Market Intelligence, said it was surprising to hear such companies have "pulled back as people are still eating and drinking, some more than they were before the crisis started. But I think those will bounce back."

He pointed to the fast-food category as doing well, and that streaming services like Warner Media LLC's HBO Max and NBCUniversal Media LLC's ad-supported Peacock "have provided some fresh ad revenue."

Conversely, he said the absence of sports has been a big blow to the gambling websites that were expected to spend a lot on ads, as legal sports betting has been approved by an increasing number of states.

The sports market and attendant advertising have been particularly hard hit by the pandemic. CBS (US) and Turner Sports coverage of 2020 March Madness college basketball tournament was canceled by COVID-19 just days before its scheduled tipoff.

“That was when everybody was just in shock, and nobody was really talking about re-spending March money,” said Steinlauf. Now, he said ESPN (US) and Warner Media's TNT (US) are missing out — unless there is a hard court reboot — on an estimated $1 billion in combined ad revenues from the NBA playoffs.

But the biggest casualty of the pandemic is the Tokyo Olympics, which have been rescheduled to next summer.

"NBCUniversal was expected to bring in about $1.2 billion in ad revenue for the Olympics, which is obviously going to be a big blow to the overall market," said Robson, who is interested in how the programmer will creatively fill in those hours, especially with Peacock taking flight. “I think other media companies will be able to see advertising declines lessen during that two-week period.”

Steinlauf said 20% to 30% of those dollars will return to the marketplace because "you have advertisers who want to launch campaigns, launch movies, and they want to go back to something more normal than what we've seen lately."

Under normal circumstances, the upfront — the period in which content providers look to sell linear and digital schedules to ad agencies and their clients ahead of the upcoming TV season — would be poised for its key transactional period, as most commitments are made from late May into July.

Robson believes that with much uncertainty in the market and with pilot season on hold, there’s likely to be a bigger push for scatter, with marketers securing schedules much closer to programming's air date, as more companies hold off on making budget commitments.

He also foresees scatter, which traditionally carry significantly higher costs, and upfront pricing converging. Given the market dynamics, he said there is increased potential for the adoption of new currencies and monetization against audiences, rather than the traditional method of transacting against dayparts and broader demos.

"That's something that has been needed in the industry for a while now, and maybe this might be a push to get that happen," he said.

MediaTalk Podcast · Episode 11 - How COVID - 19 Has Reshaped The Advertising Industry

Listen on Soundcloud or Apple Podcasts.

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