The boss cuts the budget drastically, is the advertising industry "dead"?

Brand advertising and performance advertising are like heaven and hell.

"Affected by the epidemic, all our offline event resources have been cancelled."

At 22:49 on the evening of February 17, Li Xiang received a notice of order cancellation and delay from his clients. As a project manager of a subway advertising media in Shenzhen, he told Tech Planet: "The epidemic has had a huge impact on the advertising industry, especially subway media."

"For example, a leading company in the daily care industry had originally made a cooperation plan with us to do a schedule for the "March 8" Women's Day. Due to the impact of the epidemic, their series of supporting marketing activities have been cancelled, and offline subway media placement has also been postponed to May or June due to too few people. This order caused us to lose nearly 100,000 yuan, and all the schedules were disrupted."

Specifically, Li Xiang's company mainly cooperates with large and medium-sized enterprises, and most contracts are signed on a monthly basis. Due to the severe impact of the epidemic, the cancellation or postponement of orders is concentrated in offline physical industries.

In order to cope with market fluctuations, Li Xiang told Tech Planet, "We will maintain the signed customers to reduce the impact, and at the same time develop new customers in the fields of online education, gaming and entertainment. On the one hand, our development direction is shifting to this type of enterprise, and on the other hand, they also have their own needs to be released."

Not only Li Xiang, but millions of employees in the advertising industry are facing a test. In this test, most advertisers have been impacted to some extent, but of course, there are also some opportunities.

The advertising industry is expected to remain weak

The outdoor advertising industry was the first to be affected.

Image source: Internet

"It's better not to watch this ad." NetEase Yanxuan temporarily replaced its promotional ads from February 23 to February 29 with public welfare content. Many Weibo users discussed and forwarded the message: "Give a thumbs up to NetEase planners" and "Reverse operation, which is good."

The adjustment of NetEase Yanxuan’s advertising strategy and the response indirectly show that during the epidemic, the effectiveness of outdoor advertising has been greatly affected, and it is difficult for advertisers to achieve their original marketing goals such as promotions through advertising.

This means that the business of advertising companies will be greatly affected. On the first day of resuming work, Xinchao Media, which focuses on elevator advertising, announced a layoff of 500 employees and a 20% salary cut for senior executives. As a leading company in outdoor advertising, Focus Media's stock performance was poor, hitting the lower limit on February 3, which also reflects that investors are not optimistic about its development during the epidemic.

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In response to the stock decline, Focus Media also predicted that the recovery of its advertising demand will be delayed, and believed that there is a high probability that Q1 revenue will record negative growth and the revenue turning point will be delayed, especially since cinema media advertising has been hit hard.

In terms of mobile advertising, the overall impact in January and February was relatively small, which may be due to risk hedging and the delayed impact of the epidemic.

Statistics from App Growing show that the number of mobile advertising showed a downward trend during the Spring Festival, but it was not entirely due to the impact of the epidemic. "Many advertising optimizers will test high-quality materials in advance before the long holidays, and maintain regular delivery or reduce delivery during the Spring Festival to avoid losses caused by unstable traffic." Taking the 2019 Spring Festival as an example, the overall number of advertisements delivered during the period was also significantly lower than before the Spring Festival.

The above and below pictures show the fluctuation trend of advertising during the Spring Festival in 2020 and 2019. Image source: App Growing

But at the same time, the business of many local advertising agencies has been severely damaged. A local agent of ByteDance's Massive Engine told Tech Planet: "Our overall business volume has declined during the epidemic. This is because most of the clients of regional agents are small and medium-sized enterprises, and many of them are unable to resume work. Most of our clients need to direct traffic to stores or participate in offline activities organized by clients to place advertising content. Now they cannot go out, so their business has been greatly hampered."

After Sina released its Q4 2019 financial report, CICC published a securities research report stating: "Sina's advertising business is expected to remain weak, mainly because the major advertiser categories of Sina's portal and Weibo, such as 3C, automobiles, and entertainment, performed weakly. In the first half of the year, some top advertisers may have postponed their advertising due to the impact of the COVID-19 pandemic."

Overall, the impact of the epidemic on the advertising industry as a whole is still very large. Moreover, the advertising industry is a post-cycle industry, and the impact of the epidemic on advertising is delayed, and the specific time when the epidemic will end seems difficult to determine now. Therefore, we will have to wait at least 1-2 months before we can draw a more accurate conclusion.

The barometer of business development: "The boss cut the budget by 500,000 yuan"

Whether it is online advertising or offline advertising, as a barometer of corporate development, changes in advertising undoubtedly directly reflect the development trends of the company. Because the advertising industry is an industry with high growth elasticity, if a company is in a downturn, cutting advertising spending is often the preferred way to reduce costs.

According to research data from United Credit Rating, the "three pillars" of investment, consumption, and exports will all be greatly impacted by the epidemic in the short term. From an industry perspective, offline physical industries and service industries will be greatly impacted, especially the catering, tourism, aviation, film and television industries.

From the changes in the number of advertisements placed, we can clearly see the industries that have been hit hard. App Growing advertising intelligence shows that since January 24, except for Ctrip Travel, the leading tourism accommodation industry has basically suspended large-scale advertising.

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In addition to industries whose businesses have been affected, some advertisers have also cut their advertising budgets out of "concern." Zhang Yan’s company makes home appliances. Its cash flow remains healthy and its sales are similar to before the epidemic. But because the duration of the epidemic cannot be predicted, the boss decided to save money.

She told Tech Planet: "The budget given at the beginning of the year was quite high, but now it has all been recalculated. For one project, the budget for the second party was originally 800,000 yuan, but now the boss has decided to cut it to 300,000 yuan."

Not only are customer budgets decreasing, but due to the impact of the epidemic, many customers are unable to pay their media dues on time. Media owners, advertisers, advertising management companies and other upstream and downstream companies in the industry chain are all suffering from the pressure of unstable cash flow. The Guangdong Advertising Association even called on media owners to provide advertising companies with credit and account policy support during special periods and to delay payment of media funds.

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The gaming, cultural and entertainment industries seem to be much more prosperous. Data from App Growing shows that during the Spring Festival, the proportion of advertisements in the gaming industry, culture and entertainment increased significantly. The proportion of advertisements in the culture and entertainment industry increased from 14.8% to 18.45%, and the proportion of advertisements in the gaming industry increased from 14.19% to 16.85%.

This reflects the rapid development of some industries during the Spring Festival. For example, data from Questmobile shows that game time and game revenue increased significantly during the 2020 Spring Festival.

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Crisis and opportunity coexist: "We will expand enrollment in April"

The epidemic has little impact on online business, and industries such as short videos, games, remote work, and online education may usher in more development opportunities. The long-term impact of the epidemic on the economy remains to be seen, but what is certain is that the "onlineization of industries" has quietly accelerated.

For some advertisers, new opportunities have quietly arrived, and the acceleration of "industry onlineization" has prompted more advertisers to prefer digital advertising service providers.

90% of BlueFocus's operating revenue comes from digital marketing. On February 4, BlueFocus responded to the impact of the epidemic on the company's business, saying that the epidemic has promoted the online placement of advertisements such as games, short videos, and overseas sales. It is expected that advertising-related revenue in January 2020 will increase significantly compared with the same period last year.

Previously, the company’s interactive platform stated that short video revenue in 2019 increased nearly 10 times compared to 2018. The company continues to be optimistic about the short video business, which will be the company's second business line with a value of over 10 billion yuan in the future.

Performance advertising represented by video advertising is indeed ushering in opportunities, especially large companies are tapping into the traffic dividend of short videos. For example, Leo Group announced that the amount of advertising spent on TikTok's Bytedance Engine during the 2020 Spring Festival increased by more than 300% year-on-year.

"The number of advertisers using mini programs has doubled, and the number of inquiries about mini program advertising has increased eightfold." Shi Wenlu, founder of Aladdin Mini Program & Xiaomeng Advertising, told Tech Planet: "The epidemic has led a large number of traditional Chinese companies to embrace the Internet, especially mini programs, especially education, traditional retail, and gaming companies. The epidemic has greatly promoted the growth of mini program advertising."

Image source: "2019 Mini Program Internet Development White Paper" jointly released by Aladdin Mini Program Statistics Platform and Aladdin Index
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On December 20 last year, Shi Wenlu predicted that the current DAU of Mini Programs has exceeded 330 million, and may exceed 450 million by the end of December 2020. But now, just over a month later, the DAU of the mini program has exceeded 450 million.

"Our overall working hours are increasing, and more areas require internal training. We plan to expand recruitment after April."

People working in the advertising industry said that even if not affected by the epidemic, advertising spending in hot industries will increase. But there is no doubt that the epidemic has brought some new opportunities.

Although some advertising service providers have tasted benefits during the epidemic, the overall situation is still very serious. A senior advertising industry practitioner told Tech Planet: "After the epidemic is over, customer demand will increase, but this process is slow. There may be a wave of retaliatory consumption after the epidemic is over (i.e., no advertising guidance is needed). Some companies have cut their annual budgets a lot due to the epidemic, and the industry's transaction volume this year is expected to be lower than last year."

But the impact of the epidemic will be short-lived. Winter will eventually pass and spring will eventually come.

Author: Tech Planet

Source: Tech Planet (ID: tech618)