Delegates queue at the Cannes Lions International Festival of Creativity, Cannes, France, June 2019
As media execs meet advertising executives for a glass of rose at this week’s 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 creeping sense that a recession is around the corner .
“It feels like a party here,” NBCUniversal CEO Jeff Shell told CNBC’s Julia Boorstin in Cannes on Wednesday. “I don’t know if that’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, it doesn’t feel like a market downturn.”
But Shell acknowledged there are warning signs, albeit complicated ones. “The scatter market has softened a bit,” he said, referring to the real-time cost of television advertising rather than the default “upfront” market. “It’s very complicated because so many things are happening.”
Macroeconomic downturns have historically fueled a surge in layoffs across the media industry. With the odds of a recession rising and executives bracing for a drop in ad revenue in the second half of the year, media companies aren’t laying off or furloughing employees — at least not yet. Instead, industry leaders feel their companies are finally lean and balanced enough to weather an advertising slump without sacrificing profits or contracting their businesses.
“Our focus has been to build a truly resilient, adaptable digital media company,” said Jonah Peretti, BuzzFeed’s chief executive, earlier this month. “We thrive amidst volatility. We have built an agile, diversified company business model.”
Jonah Peretti, Founder and CEO of Buzzfeed; Co-founder of the Huffington Post
Courtesy of Ebru Yildiz/NPR
“While an economic downturn could impact the media advertising market, after a milestone year of profitability, we are on track to meet our business growth goals,” said Roger Lynch, CEO of Conde Nast. The company, which publishes The New Yorker and Vogue, turned a profit last year after many years of losing money.
One of the reasons smaller digital media companies feel prepared for a recession is that they have already laid off hundreds of employees in recent years as a result of acquisitions and a desire to cut costs. BuzzFeed announced more layoffs just a few months ago.
Still, many digital media companies make most of their money from advertising — including Conde Nast and BuzzFeed. And not everyone is optimistic that the media companies are out of the woods. Since the IPO, BuzzFeed shares are down more than 80%. BuzzFeed earned $48.7 million in advertising revenue in the first quarter, about 53% of total revenue.
If companies want to save money on marketing, there’s little they can do not to flip it upside down, Graydon Carter, founder of subscription-based media company Air Mail and former longtime editor of Conde Nast’s Vanity Fair, said in an interview.
“If you’re in the programmatic advertising business, which most digital media companies are, you’re going to suffer at some point when the economy turns. It’s just out of your hands,” Carter said. “I find [a downturn] will be brutal and potentially long.”
Media Layoffs in Recessions
The last three recessions – the year 2020 The retreat from Covid-19, the financial crisis of 2007/09 and the bursting of the dot-com bubble in 2001 have all led to a surge in job cuts at media companies, many of which historically have not had the balance sheets to absorb temporary slumps in the economy to mitigate advertising. While the media industry has shrunk over the past two decades, 2001, 2008 and 2020 were the three years with the largest job losses, according to data from Challenger, Gray & Christmas.
It’s natural for executives to be optimistic about their company’s prospects. But their sense of “this time will be different” is not unfounded, said Alex Michael, co-head of Liontree Growth, which specializes in working with emerging media companies. This is especially true for smaller digital media companies, including newspaper and magazine owners, who have had to diversify into subscriptions, e-commerce, events and other products to wean themselves off of advertising revenue.
“In the past, both of these companies didn’t have the right models and weren’t fully mature,” Michael said. “Now they have gone through waves of consolidation. There was absolute rationalization and optimization. Many of the remaining companies now have an endemic audience that will open their wallets in a variety of ways.”
How bad could it be?
There are mixed feelings among industry participants about how big the pullback in advertising revenue by media companies could be.
Blake Chandlee, TikTok’s head of global business solutions, said he’s heard adspend is down about 2% to 6% so far, though he notes TikTok hasn’t seen it.
“I’ve spoken to some other people, and I think there are some other people who are feeling it,” Chandlee said in an interview. “We don’t see the headwinds that others see.”
However, others are cautious. Snap, the owner of Snapchat, said last month the “macroeconomic environment has continued to deteriorate, and faster than expected,” causing its shares to fall 40% in one day. Meta and Twitter have partially imposed hiring freezes. Digital Media Company insider and Vice Media are reportedly slowing down hiring.
A digital media executive told CNBC that while a minor slowdown may already have occurred, a 20% cut in ad revenue by the end of the year isn’t out of the question.
Find the right model
The key to surviving a recession is having a product that resonates with a specific audience, said Liontree Growth’s Michael. Digital media companies and magazines that had too broad a reach couldn’t keep up during the economic downturn because brands didn’t have a passionate user base.
“Advertisers asked what do you stand for?” said Michael. “What are you selling for?”
There has also been a “relaxation” among ad buyers willing to take money from Facebook and Google for moral reasons, said Justin Smith, former CEO of Bloomberg Media.
Smith is in the formation process Semafor, a new global news media startup. While Google and Facebook have dominated the digital advertising space for more than a decade, there is a growing movement among some advertisers to diversify their ad spend away from the tech giants to support the news industry in the face of data breaches and big tech disinformation.
“In the past, advertising marketers really shunned news media for brand safety, especially with digital targeting. The news was closely associated with negativity, war and famine,” Smith said. “Now you see the opposite of that – brand boldness. The only true antidote to misinformation is human intervention. This is a multi-hundred billion dollar pool. Even a little loosening of this group is big, big money.”
Smith isn’t interested in leading Semafor into a potential recession. He said that while Semafor aims to target college graduates around the world, a broader audience than niche sites with passionate audiences, even general interest publications are in a better place today than they were 10 or 15 years ago. He credits the subscription’s widespread adoption.
“If you look at the last five years in particular, whether it’s the pandemic or the fascination with Trump or the rise of Spotify and Netflix, subscription has changed a lot,” Smith said. “Example after example of consumer adoption across categories for subscription models for news.”
Smith implemented a consumer paywall for the Bloomberg News website three years ago. Today more than 400,000 people pay for access. Semafor, which launches this fall, will launch as a free, ad-supported service and stay that way for “six, 12, maybe 18 months” before a paywall is installed. Some articles will always remain free, Smith said, similar to many other digital news services.
Smith also said the industry has shifted to better connect audiences with reporters, even during downtime. Smith drives this increased engagement by directly hiring talent agents who are tasked with bringing journalists together on products and events outside of Semafor’s core business to expand their reach.
“The media industry is in better shape than it was ten years ago,” Smith said. “Strategy makes more sense. Digital acceptance is more ubiquitous. models are clearer. Sources of income are more diverse. Executives are more experienced. Even though we’re probably headed for a global recession, I think the media business will withstand some of the downward pressure more than it has in the past.”
Disclosure: NBCUniversal is the parent company of CNBC.
WATCH: TikTok advertising chief Blake Chandlee speaks from Cannes