Over the past few days, I have been reaching out to industry friends to ensure they are doing well, and if affected, how we can help as we face this brave new world.
In many exchanges, people are quick to say “Lots of people with spare time to spend on Watchmojo…” or “The business looks pretty contraction-proof from the outside.” Sure, I rather grow the business in fair ways than rely on a GLOBAL PANDEMIC (some levity is needed at these times), but I also reiterate that all businesses will be affected, just some immediately and more profoundly, others slowly but over time. As with all shocks, they all have one thing in common: they accelerate the natural course of events. Wars, famines, disease – that is what they do.
But since I have found myself repeating this in emails, I thought I’d gather those thoughts and summarize it here.
Stating the Obvious: Not All Categories Will Be Affected The Same Way
Since mid-March when social / physical distancing efforts were emphasized, schools shut down and so on, indeed viewership has grown. Of course, that doesn’t mean revenue has grown commensurately, and that’s because even in normal times, in near term, ad demand does not meet growth in ad inventory supply. Of course, these are not normal times, so with a few marketers stopping advertising ASAP, you have seen softening in fill rate and eCPMs. Of course, April 1 is the judgment day, where we will see how profound the fall may be. I think some will be more hit than others. The end of March not only marks the end the month but also Q1, where a lot of ad campaigns will end. Right now, for example, you still see ads for Trivago on TV or online, but clearly, there’s zero demand for travel… so that campaign when completed will not resume. I will leave the deep analysis of the travel industry to the experts at Skift (whom are covering the carnage from the front lines) but the entire travel industry will be uprooted: does Airbnb survive this? Airbnb ramped up investment in Q4 2019 leading up to a possible 2020 IPO. You can expect them to have $0 new bookings with practically every single existing booking not delivered (i.e. Liabilities) being refunded. They say their balance sheet can withstand this shock, but if the shutdown in travel continues, Airbnb is not exactly a $31 billion company. They may survive, but as a much smaller player without the laissez-faire environment it’s benefitted from? Does Barry Diller’s Expedia group fall apart, or does it leverage its balance sheet to go out and further consolidate the market.
Not All Platforms React The Same Way
Twitter has already acknowledged weakness, I think that’s normal as news has a challenge to monetize around scandals… you’re seeing that quite a bit with news sites registering record traffic, but low monetization.
We all want to wish that advertising continues, but that’s simply not the case. Google search revenue may also take a hit, since Travel alone accounts for 10-15% of ad dollars; that whole category is gone. Bookings group has already effectively confirmed they are scaling back on expenses and there’s no demand for international travel now.
For video, it’s nuanced. On YouTube, we anticipate viewership to grow, continued weakening in fill rate and thus eCPM but wishful thinking aside, there will be a flight to safety and quality and Google/YouTube is as “quality/safety” as there is in video. The challenge is the delta between inventory supply and demand. According to a small survey by IZEA (949 participants) 66% said their general social media usage would increase if they were confined to their homes due to coronavirus. IZEA also broke it down by platform: 64% of respondents said their usage of YouTube would go up; 63% said usage of Facebook would go up; Instagram, 43%; Twitter, 34%; Pinterest, 33%; Snapchat, 25%; LinkedIn, 15%; TikTok, 12%; and Twitch, 10%.
All About Demand vs Supply
As YouTube remains both an informational and entertainment platform, I suspect YouTube will not see a material softening. Meanwhile Snap – which has emerged as our second platform, surpassing Twitter and Facebook – has more control on the supply of video views as Discover is not an open platform. I also suspect that Snap’s brand-friendly DNA will encourage marketers to stay the course. Disclaimer: I own shares.
I personally find that comparisons to 2008, 2001 or even 1987 are misguided. Some are saying it won’t be as bad as last 2008, but the recovery is not automagically going to happen. This economist‘s take is that we’re headed for a Depression; The Atlantic suggests more unemployment than we faced during the Great Depression of 1929 (30%+ vs 24% then).
This is a brave new world. Long term, all Covid does is dramatically bring up the timeline for the shift to digital. Amazon will grow its dominance in eCommerce, as will Google in advertising. Just think about the impact this will have on the dam finally breaking and that $75 billion TV ad market flowing online. As upfronts are cancelled, the “shmoozing” part of the traditional ad buying universe dissipates.
How Quickly Things Change
Earlier this year, I expanded on then the “New World Order” (NWO) in the media landscape, creating new opportunities for entrepreneurs, executives, incumbents and challengers (read | watch). This NWO was forcing/encouraging legacy media companies blowing up their traditional business models and embracing Direct-to-Consumer (DTC) Advertising-on-Demand (AVOD) and Subscription-on-Demand (SVOD) business models, throwing into question the long term viability of their old way of doing things. When YouTube launched, a lack of economic incentive discouraged old media companies to embrace the Web, creating a vacuum for entrepreneurs. Over the past fifteen years, YouTube and Netflix disrupted Hollywood. A few years ago, it was rumored that the Walt Disney Company pursued acquisitions of digital natives Vice and Buzzfeed. Today, Disney’s focused on transforming its business to a Direct-to-Consumer model, leveraging its traditional IP assets. At the time, I asked whether traditional media’s one-time interest in digital natives like Buzzfeed/Vice would return, or if ship has sailed. The question was how the game would unfold where some media companies have content but lack audience, and others have audience but need a lot of content.
Massive Shift in Media Landscape
If you fast forward a few months, it’s actually more about which companies have the balance sheet to weather the storm. Others who seemed untouchable, like Disney, now face a weird near-term threat where multiple business lines are disrupted: theatrical releases which they dominated in, theme parks which was a flow of high margin revenues, and cruises which may have been given a near-mortal blow (even if health concerns are addressed, boomers’ purchasing power has been decimated by the stock market rout). Disney recently raised $6B in debt! Six billion. In debt! Overnight, the most valuable and stable media business faces an existential crisis. We’re not suggesting that Disney’s business is at risk in the long-term, we’re just saying that all bets are off as companies will need to dramatically return to the drawing board.
Diversification & Risk Management
Companies whom like LiveNation or Cirque Du Soleil sought to double down on their core business, focusing only on their existing segments (i.e. live entertainment) may start to take a very different look at risk management. In fact, the concept of diversification and portfolio management will become a more pertinent area of management and business as an entire generation of professionals will walk away with lessons of being too concentrated in one area alone, exposing themselves to a level of risk that was once limited to the Risk Factors section of business plans, but Covid has spilled onto their every day lives.
Make sure you follow our Brave New World series on ContextTV, where we will be tracking government reaction and policy, enterprise’s initiatives and entrepreneurial ingenuity that will seize on the opportunities from this market dislocation.