Deep Breath: Ad Spend Could Be Another Coronavirus Victim

The ripples from the coronavirus are moving fast as markets everywhere feel the weight of the disease on supply chainsOpens a new window and general operations due to quarantines, travel bans and fear of crowded places.

Now, many experts are warning that the advertising industry could take a heavy hit this year depending on how successfully the virus is contained.

“U.K. broadcaster ITV became one of the first to raise the alarm, when it warned Thursday that the impact of reduced advertising spending from the leisure and tourism industry would hurt its outlook,” explains the Wall Street Journal’s Ann Isaac.

ITV’s forecast of a 10% dip in advertising revenue caused an 8.5% drop in the company’s share priceOpens a new window .

Similarly, Eric J Savitz writesOpens a new window , “Wall Street analysts have begun cutting their estimates for Google-parent Alphabet on expectations that the company is going to see a big drop in advertising revenue from travel-related businesses as both business and personal travel plans are slashed on virus fears.”

Indeed, with the coronavirus pandemic already affecting ad spend in the tourism industry, many are wondering just how severe the impact could be if the situation worsens.

For example, if major events such as the Olympics or the UEFA Champions LeagueOpens a new window soccer final got canceled, ad spend across the board would be cut.

Clearly it’s serious enough that the advertising industry is paying attention.

Speaking to Isaac, Emilie Stevens, an analyst at financial service company Hargreaves Lansdown, concluded that “falls in ad spending are a sign companies are finding things tougher…It’s one of the first types of spending to go when companies need to cut back.”

It’s about containment

Ultimately, ad revenues could bounce back. Again, it all depends on how effectively the virus is contained.

On one hand, in its Global Ad Trends report, the World Advertising Research Center (WARC) said that advertising spend could be pushed to later in the year as long as the crisis remains contained.

On the other, though, James McDonald, managing editor of WARC Data, also admitted to CNBC that “a major disruption from coronavirus could lead to long-term restrictions on movement and large gatherings. That would impact spending in areas such as cinema, the out-of-home advertising market and even radio, since so much of radio is consumed during commutes.”

In fact, this spending dip already is affecting some advertising agencies. Share prices of JCDecaux of France, the world’s largest out-of-home advertising company, are down 26% this year.

That said, market response hasn’t been altogether bleak as the majority of companies adopt a “wait-and-see” approach.

In China, for instance, a survey by Dentsu Aegis Network found that although nearly half of businesses in the country said the coronavirus outbreak had notably or severely slashed sales, just 7% had halted ad spend entirely.

Meanwhile, in China and the wider Asia Pacific, research showsOpens a new window that company strategy shifts in general are for the short-term: 61% are making changes for the near-term and just 9% are preparing longer-term plans.

And back home, as Megan Graham points out for CNBCOpens a new window , “some areas that have been hard-hit in the stock market are still spending on advertising.”