Can media companies survive the recession? Executives say yes

Delegates wait in line at the Cannes Lions International Festival of Creativity, Cannes, France, June 2019

Kan Lions

While media managers Meeting with advertising leaders this week Over cups of roses at the annual Cannes Lions International Festival of Creativity, they can’t help but talk about the disconnect between hanging out with celebrities on yachts and the creepy feeling that a recession is imminent.

“It’s kind of like a party here,” NBCUniversal CEO Jeff Shell told CNBC’s Julia Burstin in Cannes on Wednesday. “I don’t know if it’s because most of you are out for the first time in a long time or because we’re in the south of France in June, but no, I don’t feel like the market is bearish.”

But Shell acknowledged there were warning signs, albeit a complex one. “The scattered market has weakened a little bit,” he said, referring to the real-time cost of TV advertising, rather than the pre-determined “upstream” market. “It’s very complicated because there are so many things going on.”

Periods of macroeconomic downturns have historically led to a sharp rise in layoffs across the media industry. with Recession odds are rising And as executives bracing for a dip in ad revenue in the second half of the year, media companies aren’t laying off people or furloughing employees — at least, not yet. Instead, industry leaders feel that their companies are finally lean and balanced enough to weather a decline in advertising without sacrificing profits or contracting out their businesses.

“Our focus is on building a truly flexible and adaptable digital media company,” BuzzFeed CEO Jonah Peretti said in advance this month. “We thrive in the midst of ups and downs. We’ve built a graceful and diverse style business model.”

Jonah Peretti, Founder and CEO of Buzzfeed; Co-founder of the Huffington Post

Courtesy of Ebru Yildiz / NPR

“While the economic downturn may impact the media advertising market, we are on track to meet our business growth targets after a remarkable year of profitability,” said Roger Lynch, CEO of Conde Nast. The company that publishes The New Yorker and Vogue, I made a profit last year after many years of losing money.

Part of the reason small digital media companies feel ready for a recession is because They have already laid off hundreds of employees In the past few years, the result of acquisitions and the desire to eliminate costs. Announced BuzzFeed More workers were laid off just a few months ago.

However, many digital media companies make the bulk of their money from advertising – including Conde Nast and BuzzFeed. Not everyone is optimistic that media companies are out of trouble. Since it was introduced to the public, BuzzFeed Shares are down more than 80%. BuzzFeed generated $48.7 million in advertising revenue during the first quarter, about 53% of total sales.

If companies are looking to save money on marketing, there isn’t much they can do to avoid being taken into account, says Graydon Carter, founder of Airmail subscription based media company and former editor of Conde Nast’s Vanity Fair, in an interview.

“If you’re into automated advertising, which is what most digital media companies do, you’re going to struggle at some point when the economy turns. It’s simply out of your hands,” Carter said. “I suspect [a downturn] It’s going to be tough and maybe long.”

Media layoffs in recessions

The last three recessions COVID-19 The downturn, the 2007-2009 financial crisis, and the crash of the internet bubble in 2001 – led to spikes in job losses among media companies, many of which have historically lacked the balance sheets to ignore the temporary contraction in advertising. While the media industry Have contracted over the past two decades2001, 2008 and 2020 were the three biggest years for Job losses, according to data from Challenger, Gray and Christmas.

It is natural for executives to feel optimistic about their companies’ prospects. Their sense of “this time it’s going to be different” is not without merit, said Alex Michael, co-chair of Liontree Growth, which specializes in working with media startups. This is especially true for smaller digital media companies, including newspaper and magazine owners, who have diversified subscriptions, e-commerce, events, and other products to weed out advertising revenue.

“In the past, these companies didn’t have their models in place and didn’t fully mature,” Michael said. “They’ve now gone through waves of consolidation. There has definitely been a simplification and improvement. Many of the remaining companies now have endemic audiences who will open their portfolios in a range of different ways.”

How bad could it be?

There are mixed feelings among industry participants about the scale of the decline media companies might see in advertising revenue.

Blake Chandlee, head of global business solutions at TikTok, said he’s heard there’s a 2% to 6% contraction in ad spend so far, though he notes TikTok hasn’t seen it.

“I’ve talked to some other people, and I think there are other people who feel that,” Chandley said in an interview. “We don’t see the headwinds that others do.”

Read more: TikTok exec: We are an entertainment platform, not a social network

However, others are cautious. Snap, owner of Snapchat, He said last month “The macroeconomic environment has deteriorated more and faster than expected,” causing its shares to plunge 40% in one day. dead and Twitter Partial hiring has been suspended. digital media companies from the inside And the Deputy Media It is said to slow down hiring.

One digital media executive told CNBC that while a smaller slowdown may already have occurred, a 20% cut in ad revenue by the end of the year isn’t out of the question.

Get the right form

The key to overcoming the recession is having a product that resonates with a specific audience, said Michael of Liontree Growth. Digital media companies and magazines with a very wide opening were unable to compete during economic lulls because brands did not have enthusiastic user bases.

Advertisers asked, What is your position? Michael said. “What are they selling for?”

Justin Smith, the former CEO of Bloomberg Media, said there is also a “dilution” among ad buyers willing to move money away from Facebook and Google on ethical grounds.

Smith is in the process of being established semaphore, A new media startup for world news. While Google and Facebook have dominated the digital advertising space for more than a decade, there is a growing movement among some advertisers who are intent on ad spending away from tech giants to support the news industry in the face of Big Tech’s privacy violations and disinformation.

“It used to be that ad marketers really avoided the news media, especially with digital targeting, due to brand integrity,” Smith said. “The news was closely associated with negativity, war, and famine.” “Now you’re seeing the opposite — the bravery of the brand. The only real antidote to disinformation is human intervention. This is a pool of hundreds of billions of dollars. Even a small dilution of that group is big, big money.”

Smith is not interested in launching Semaphore into a possible recession. He said while Semaphore aims to attract college graduates worldwide, a broader audience than niche sites with enthusiastic audiences, even general interest publications are in a better place now than they were 10 or 15 years ago. Extensive adoption is attributed to underwriting.

“If you look at the past five years in particular, whether it’s the pandemic, the fascination with Trump, or the rise of Spotify and Netflix, there’s been a drastic change in subscription,” Smith said. “There is example after example of consumer adoption across categories of news subscription models.”

Smith implemented an unpaid consumer wall for the Bloomberg News website three years ago. Today, more than 400,000 people pay for access. Semaphore, which launches this fall, will start as a free ad-supported service and will remain that way for “six, 12, maybe 18 months” before the paywall is installed. Smith said some articles will always be free, similar to many other digital news services.

Smith also said the industry has turned to ways to better connect the public with reporters, even in times of disruption. Smith promotes this improved association by hiring talent agents directly, who will be tasked with pairing journalists on products and events outside of Semaphore’s core business to expand their reach.

“The media industry is in better shape than it was a decade ago,” Smith said. “Strategies are more sensible. Digital adoption is more pervasive. Models are clearer. Revenue streams are more diverse. And CEOs are more experienced. Although we may be heading into a global recession, I think the media business will withstand some of the downward pressure in a stronger way than it has been.” In the past “.

Disclosure: NBCUniversal is the parent company of CNBC.

Watch: TikTok advertising chief Blake Chandlee speaks from Cannes

.