16 BARRON’S April 6, 2020
zapping billions in ad dollars from
media income statements, and endan-
gering the future of media businesses
regardless of form.
The reason is simple: Even the most
prominent ad buyers lack reasons, and
often the means, to buy ads. Global
travel is on hold; for airlines, hoteliers,
cruise lines, casino operators, and car-
rental firms, there are no products to
promote. With auto factories shut,
there is little need to push cars. With
movie theaters closed, there are no film
trailers. And aside from grocery stores,
pharmacies, and large box-store chains,
most retailers are shuttered. Mean-
while, many of the small and medium-
size businesses that buy online ads are
struggling to stay solvent.
In terms of comparable periods,
history won’t be much help. When the
Spanish Flu hit in 1918, the first com-
mercial TV broadcast was still more
than two decades away. During the
financial crisis, digital advertising was
still in its infancy. J.P. Morgan analyst
Doug Anmuth notes that in 2008, digi-
tal advertising was roughly 12% of the
overall ad budget, so share gains
helped to offset some of the overall
weakness. Now, he says, digital adver-
tising is 55% of overall budgets.
“The digital business has changed
so much in 12 years,” says David Co-
hen, president of the Interactive Adver-
tising Bureau, or IAB, an online-ad
industry trade group. “It’s very hard to
draw any clear connections between
then and now.”
The industry is grasping for clues.
Ad agency Magna now sees linear-TV
The Internet Can’t
Save Advertising
The advertising world is in crisis, and the maturation of digital ads means
there won’t be an industry bright spot like there was in 2008
A
cross the media landscape,
advertising is disappearing,
one more casualty of the
global economic shutdown.
New technology won’t be
a savior; this is an equal-
opportunity problem
across print, TV, digital, radio, and
outdoor advertising. Advertisers are
quickly slashing or pulling budgets,
canceling or reducing campaigns,
By ERIC J. SAVITZ
spending dropping 12% in 2020, in-
cluding a 20% drop in the first half,
with a more modest 2.5% decline in the
second half. The firm sees a relatively
quick bounceback, withoverall ad
spending up 4% next year, when opti-
mists are counting on a flood of delayed
events like the Olympics to bring ad-
vertisers back into the fold.
IAB surveyed nearly 400 ad buyers
about the state of the industry, and the
results are grim. Nearly three-quarters
of those surveyed say the current ad
downturn will be worse than the finan-
cial crisis in 2008. About a quarter of
those surveyed by IAB have pulled all
of their advertising through the second
quarter. Another 46% are reducing
their ad spend for the same period.
Some of the respondents expect condi-
tions to improve at least a little in the
second half.
Digital spend for the March-to-June
period will be down 33%, according to
the IAB survey. Traditional media
spend is expected to be off 39%.
Investors aren’t waiting around for
the actual numbers. They’ve already
punished ad-supported businesses.
Barron’s analyzed more than two dozen
publicly traded companies: digital
media sites, ad agencies, publishers,
radio broadcasters, TV businesses, and
cable operators. Through this past
Thursday’s close, the average stock in
the group was down 46% from the
market’s Feb. 19 peak, about twice the
decline of the S&P 500 index. Nearly a
third of the companies in the group
have fallen by more than half.
Here’s how the shutdown is affect-
ing specific ad sectors:
Digital Advertising
Michael Levine, an analyst with Pivotal
Research, is particularly worried about
how the shutdown is affecting small
businesses, which he estimates account
for 40% to 45% of Facebook ’s (ticker:
FB) revenue and 50% to 55% of
Google’s revenue. If the economy is
locked down as long as two months, he
thinks the failure rate of small busi-
nesses could be as high as 30%.
Both Facebook and Twitter
(TWTR) have already warned that
they will take a hit from the down-
turn. Alphabet ’s Google (GOOGL)
no doubt is seeing the same effects,
but so far hasn’t discussed the matter.
Facebook’s disclosure was on the
vague side. The social network said in a
blog post that it has “seen a weakening
in our ads business in countries taking
aggressive actions to reduce the spread Illustration by Matthew Chase