Month: April 2020

“Anyone who’s been following China closely the last few months would have gone through this phase of horror. And then fear, and then more fear. And then finally optimism,” said Brian Wieser, global president, business intelligence, GroupM. “We saw the future in the past. And towards the end of February, they could see that light at the end of the tunnel. They really did do as much as they could to hibernate the economy.” 

To be clear, publishers are mostly reeling from the shocks of the virus devastating ad revenue: an executive at a large digital publisher said it’s seeing 30% lower CPMs on coronavirus pages versus non-coronavirus pages. In a Digiday poll of 50 publishers, 86% said advertising had been negatively impacted by coronavirus, (27% branded content, 18% commerce and 6% subscriptions). In another study, 88% of publishers expect to miss forecasts this year as a result. 

“It’s tough, globally, for everyone. At the moment it would be wrong to say that the green shoots are balancing that out,” said the first publishing executive who expected three signed contracts last week. “Teams of commercial salespeople are resilient and pragmatic, and we are having a number of challenging conversations; our job is to use our expertise to guide our clients around how best to benefit from our highly engaged audiences and what the most appropriate messaging is at this time.” 

Advertising conversations always center on the audience size and the messaging, but like with most current ways of working, they have got harder. News publishers especially are seeing record traffic months but some consider it gauche to crow about how well business is doing during pandemic panic. For campaigns that are still active, agencies and publishers are modifying the message with their ad partners to make sure it’s appropriate. 

“I’ve heard of examples of cars which are focusing more on their hygienic qualities and their capacity to filter air, which might be a somewhat important thing under normal circumstances, but more important now,” said Wieser. The second publishing executive said that oil and gas companies like Shell and BP are dialing up their sustainability pledges in their communications. 

In China specifically, the signals are there of an economy getting back on its feet, albeit in different ways. Tech giant Huawei went ahead and launched its latest handset, P40 Pro on Mar. 26 (without the launch event). Shanghai Fashion Week partnered with Chinese e-commerce giant Alibaba’s online marketplace Tmall to live-stream its entire runway show Mar. 24. New skincare and beauty products are springing up to repair and alleviate ‘mask face,’ said Wieser. EMarketer revised its ad spend forecast for China Mar. 17 down form 10.5% growth to 8.4% growth, the slowest since it started tracking ad spend in 2011. Yet, more positively, China’s official manufacturing index jumped to a record 52 according to Mar. 31 figures for the month, after precipitous drops in February.

“They are all coming back. I’m not exactly surprised but I am really encouraged,” said the first publishing exec. “The third biggest car manufacturer in China is a client. Over WeChat this week they mentioned that manufacturing mode has been on full tilt since mid-February. They are back to business, and they are all doing something for the national effort by producing 600,000 face masks a day.”

According to this exec, the three campaigns are all from separate nation brands eager to get the message out that their country is open for business. According to the exec, these brands had advertised with the publisher before. The campaigns plan to run for roughly six weeks across TV and digital, which is fairly typical, he said.  

The blows to advertising are sector-specific. Technology, consultancy, law and accountancy are still active, according to news publishers. The number of business-to-business branded content campaigns were down 9%, compared with the weekly average, for the week ending Mar. 29. That’s the least decline compared with other sectors like retail, banking and travel, according to branded content research firm DM Squared. Research from CNBC International’s branded content arm, Catalyst, found 90% of business leaders believe brands who advertise during the crisis will be in a stronger position when the economy picks up.

Times like once-in-a-generation-crisis set everyone searching for signs from other scenarios, like financial downturns, to learn lessons from. In 2008, Millward Brown shared evidence that 60% of the brands cut TV ad spend for 6 months saw ‘brand use’ decrease 24% and ‘brand image’ decrease 28%. Brands that cut their ad budget at a higher rate relative to their competitors were at a greater risk of share loss, according to Kunal Gupta, CEO of tech platform Polar, which works with publishers on branded content ad solutions. 

Arguably, for an advertiser with flexibility in their budget, the best approach is to keep spending and they could come out stronger. 

“The reality is most brands don’t do this,” said Wieser. “They judge themselves, and they set expectations to be judged, on a shorter-term basis so they’ll tend to react on that basis.”

Now, as WarnerMedia’s incoming CEO, 48-year-old Kilar has been asked to oversee the overhaul of one of TV’s biggest companies as it shifts its business to streaming. The odds of success for an established company like AT&T-owned WarnerMedia may be higher than when Kilar formed now-defunct mobile video startup Vessel to take on YouTube, but for a media conglomerate owned by a 135-year-old telecom giant, so are the stakes.

The media industry has already been in a state of upheaval in recent years as audiences see fewer movies in theaters and cancel their traditional TV subscriptions in favor of streaming. Then came the cataclysm of the coronavirus outbreak.

“Every media company has to transform, and the pandemic has forced the issue. It’s accelerated the need for that transformation to take place,” said Eunice Shin, a partner at consulting firm Prophet.

Kilar’s experience at Hulu, in particular, suits him to the new role amid that transformation. At Hulu, he had strike a balance between running a company jointly owned by three TV companies — ABC, Fox and NBCUniversal — while building a streaming service effectively meant to divert viewers away from their linear networks. Kilar is no stranger to managing big egos.

That experience can be valuable as he now must navigate how to transition WarnerMedia’s TV and movie businesses from linear TV and theatrical releases to streaming without upending its revenue or upsetting its executives.

“Having been the guy who was able to negotiate the power structures at three giant networks is certainly a good training ground,” said Alan Wolk, co-founder and lead analyst at consulting firm TVRev.

Nonetheless, WarnerMedia’s announcement that Kilar will be the one managing that transformation may have surprised people inside and outside the company. Kilar has seemed largely absent from the media picture since selling the latter company to Verizon in 2016 and leaving in 2017.

“What exactly has he been focused on since Vessel?” asked Chris Erwin, principal and founder at strategy advisory company RockWater and who had negotiated talent deals with Vessel while at digital video networks Big Frame and AwesomenessTV. 

Kilar’s LinkedIn profile lists him as a member of the boards of directors at Univision, online real estate firm Opendoor, online investment service Wealthfront and nonprofit organization Habitat for Humanity. Other than his involvement with Univision, however, his connection to the current media landscape is unclear. That could be beneficial.

“When you look at all of AT&T and WarnerMedia and these longstanding executives that have been around for so long, I think Jason could provide a good shock to the system and some fresh thinking that will probably serve the company well and shake things up,” said Erwin.

Shaking things up may not be what the WarnerMedia executives working under Kilar will want to hear, though. While respected in the industry for his work building Hulu and his attempt at rivaling YouTube with Vessel, Kilar is not considered a titan on the level of former News Corp. exec Peter Chernin or former Disney exec Tom Staggs, both of whom had been reportedly approached for the WarnerMedia CEO position. 

However, Kilar’s product prowess could complement the media savvy of the executives who will be working under him, and as happened at Hulu, his appetite for upheaval could inspire WarnerMedia employees as they duke it out with the likes of Disney and Netflix in the streaming wars. Despite having led Hulu, founded Vessel and served on the boards of DreamWorks Animation and Univision, Kilar has a reputation for being more of a product executive than a media executive. That experience creating and operating direct-to-consumer streaming products like Hulu and Vessel may be more valuable to WarnerMedia than having a media maven at the top.

“He’s very consumer-focused, and that’s going to be really important. All of these services need to remember that nobody is automatically going to subscribe to them. That’s something that AT&T has struggled with on its [streaming pay-TV services]. It’s been focused on the price and not customer service,” said Wolk.

Besides, WarnerMedia already has a roster of seasoned media executives in entertainment and direct-to-consumer chairman Robert Greenblatt, HBO programming head Casey Bloys, Warner Bros. boss Ann Sarnoff, news and sports chief Jeff Zucker as well as Turner and HBO Max content boss Kevin Reilly and Warner Bros.

“What’s really interesting to me is [AT&T president and COO] John Stankey put someone from the tech world at the helm of a traditional entertainment company. That’s a big statement on where the focus of the company needs to be and in a positive way,” said Shin.

Kilar’s tech résumé has its blemishes. Vessel never lived up to its billing as a potential YouTube rival and was shut down by Verizon. And as successful as Hulu had been under Kilar — generating $695 million in revenue in 2012 and attracting 3 million paid subscribers — it has flourished following his departure, closing 2019 with 30.4 million subscribers (Disney, which took full ownership of the streamer in 2019, does not disclose Hulu’s revenue). Nonetheless, Kilar’s ambition to shake up the TV and streaming industries and take on established company could be better realized within a major incumbent like WarnerMedia.

Even though Kilar takes the reins of WarnerMedia after its flagship product has already been developed, his experience at Hulu and Vessel will likely serve to inform the future development of HBO Max. As a subscription-based service that will pull programming from WarnerMedia’s various media arms, including HBO, Warner Bros. and Turner’s properties, HBO Max’s initial iteration draws closest comparison to Disney+, which similarly relies on The Walt Disney Company’s library of movies and TV shows. However, WarnerMedia’s long-term aim for HBO Max is much broader.

“We’re basically unbundling to re-bundle,” said AT&T COO John Stankey, who has been overseeing WarnerMedia following AT&T’s acquisition of Time Warner, at Recode’s Code Media conference in November 2019. “At some point there will be platforms that re-aggregate and re-bundle. We’d like the platform ultimately to be a place where re-aggregation occurs, and that doesn’t just mean our content.”

In addition to carrying content from other media companies, AT&T plans to eventually make HBO Max available on the same platform as its streaming pay-TV service, Stankey said at the streamer’s launch event in October 2019. That sounds less like Disney+ and more like an amalgam of Disney+ and Disney-owned Hulu.

But WarnerMedia may not need to stop there. Given the importance for streaming services to appeal to every member of the household, Kilar could use his experience at Vessel striking deals with video creators to seek out ways for YouTube, Instagram and TikTok stars to distribute their videos on HBO Max. 

Instead of angling for exclusive or first-window rights to those videos and expecting their fans to pay to tune in — which has yet to prove a successful strategy — WarnerMedia could simply look for a selection of popular creators to cross-post their videos to HBO Max as free bonus content. “If mom and dad are already paying for HBO Max, that’s key. That’s the big difference,” Wolk said.

Now, this crisis will accelerate all of that further, meaning the end of the marketing department and the CMO role as we know it. 

It’s already begun: In recent weeks, restaurants, airlines and tourism boards as well as major marketers like Airbnb and Coca-Cola, among others, have slashed marketing in the name of coronavirus. While advertising during the crisis may simply be seen as tacky and cause a backlash, it’s also the best way to keep cash on hand.

As marketers press pause or reduce their advertising spend in this moment, those CFOs who’ve seen marketing as a cost center for years end up with a test case to prove that marketers can do more with less. After all, reducing marketing overhead is a standard approach: After the 2008 recession, major marketers like Unilever and P&G slashed agency rosters and cut budgets drastically.

“At every company, the CFO is in control,” said Nancy Hill, founder of Media Sherpas and former 4A’s president. “Cash is king right now and protecting the cash position is what every company will do. But it has a ripple effect across every part of the ecosystem.” 

And as CFOs take the reins at brands, they’re about to have proof, potentially first-hand seeing how those brands can continue to turn a profit without marketing, or at least, marketing significantly less. It will be hard to convince them to return to the spending levels prior to this crisis. And for the agency partners who’ve cut deals to help clients during this moment, it will be even harder to get those brands to pay what they had previously. 

For one agency that has been negotiating extended payment terms and reduced fees to help clients in the weeks and months ahead the lasting impact of doing so is a worry. “The long-term effects of what that does to your psychology where [people] think, ‘Well, they can operate cheaper,’ that’s not great,” said the exec. “I hope they do the right thing and come back because we helped them out. But there’s no guarantees.” 

While marketing and agency executives say it’s too soon to say definitively what will happen when we do return, there’s a sense of worry that they will be charged with doing more with less. But some believe that out of that push there will be innovation. 

“While this is accelerating the sentiment of doing more with less, less is a loaded term,” said Hill. “What it’s going to do is bring about a different way of working. Whether that costs less money or not is too soon to tell but it will definitely be different.”

Whatever that difference may be, it’s hard to imagine the CMO role returning to what it once was, especially in the weeks and months to come.

3 Questions with Goodby Silverstein & Partners’ Jeff Goodby

Over the course of the agency’s history you’ve weathered quite a few storms. How do you manage an agency in a crisis?

People compare what’s going on to 9/11 but it’s really different. Right now, we’re not just going to work from home, we’re inventing new ways of working from home. The most important thing is to maintain contact with each other. We have to be working on and thinking of ways to keep our company ready and useful for our clients. 

Can you give us an example of a new way of working?

Obviously, we’re doing a lot of Zoom calls but we’re also learning how to produce things using Zoom. We’re producing a lot of content ourselves. Since this started over three weeks ago, we’ve already shot almost 18 commercials. We’re making things for our clients and thinking of new ways to do it. It’s people shooting themselves, it’s animation and it’s all sent to an editors’ house to put together. We’re using iPhones, having actors shoot themselves in different locations and cutting it together. We’re thinking of new ways to make things together that would’ve never been thought of if this hadn’t happened. 

As more companies start to make layoffs or furlough people, how should they plan for this?

You should try to keep as many people as possible because this is going to end. This is not like losing a client where you have to reorganize the business to go forward. This is something that everybody has to share company-wide. There has to be a kinship. You have to keep as many people as possible together in the boat for when the curtain lifts and we go back. When you’re running a company and paying for things in people’s lives, you have to take great care and adjust the company to take care of as many people through this situation. 

Streaming ahead

Twitch is having a moment. The streaming platform, which had been growing in popularity in recent years, especially with the rise of e-sports, but the platform hit new heights in March, per data from streaming analytics site SullyGnome.

“It has been a milestone month for streaming with Twitch growing from 982 million hours watched in February to over 1.1 billion hours in March,” said Doron Nir, CEO of livestreaming tools and services provider StreamElements. “While this 20% growth has gotten a huge boost by stay-at-home mandates, now that more viewers and creators are discovering the power and appeal of live social video, we expect the medium to maintain some of this new momentum beyond the current crisis.”

Quote of the week

“No one will ever ask for a ‘viral’ video in a creative brief again, but we will all pay much greater attention to the ‘force majeure clauses,’ in all contracts.” — Matt Wurst, managing director of North America at Revelation on one of the biggest second-order effects of the pandemic.

“M&A is a function of confidence,” he added. “Uncertainty is not the friend of deals.”

The first three months of the year were already a particularly slow quarter for M&A in the U.S. media and martech space before the coronavirus crisis really took hold. The total number of deals taking place was down 40% in the first quarter of 2020 compared with Q1 2019, according to LUMA Partners.

The prolonged coronavirus crisis has shifted the entire M&A process online. Out with the handshakes and long lunches and in with the Zoom invites and digital secure document signing.

“We have whole roadshows going on via video at the moment, where people do engage and plan for it properly,” said Simon Nicholls, partner at advisory and investment firm GP Bullhound. A question lingers: “Will people invest in companies and complete deals without having ever met them face to face?”

For deals in the earlier stages, it’s now important to remain flexible to keep the process ticking along, according to Roddy Moon, managing director for the technology, media and telecoms group at KPMG Corporate Finance.

“Firm bid deadlines are going out of the window,” said Moon. For example, when KPMG sent information memorandums out to prospective investors for one of its deals on Mar. 16, the bank opted not to include the bid process letter as usual.

“You’ve got to give people more time,” Moon added. “There’s a lot more guiding through this time period. Normally you reserve the business updates you do in a normal process because you don’t want to create unnecessary noise, or give imperfect information.” In such a fast-moving situation, it’s now important to over communicate.

For companies that have substantial capital, there is some upside to the unfolding coronavirus situation as it wears on: It’s a buyer’s market. Companies in more precarious financial positions, which are burning through cash, may be forced to sell in capitulation deals. And if companies file for chapter 11, acquirers can cherry pick the pieces they want at bargain prices. Bankers said they also expect private equity firms to continue to be active dealmakers in the media and marketing space this year — though bigger acquisitions that require leverage are mostly on hold.

Some deals in the advertising and media space that were already close to the finish line are continuing — albeit at different timescales — M&A experts said. Taboola’s planned acquisition of Outbrain, announced in October last year, is currently being probed by the Department of Justice’s antitrust department, The Wall Street Journal reported last week. A person familiar with the process confirmed the DOJ was looking into Taboola’s assertions that it competes for ad dollars beyond the narrow content recommendation space and with larger digital players such as Google and Facebook.

The CEOs of ad tech companies Rubicon Project and Telaria are thanking their lucky stars that their transaction kicked off at the turn of last year, rather than in 2020 as the global coronavirus pandemic began to escalate.

The deal, described as a merger — although Rubicon now owns the majority of the combined company’s shares — was announced in December and officially closed last week.

“I imagine if we had started the conversation in January and the deal wasn’t done, both boards would say, ‘It’s still a great idea, but boy! Muscle through this storm and let’s talk about it [after],” said Michael Barrett, Rubicon Project CEO. “We were extraordinarily fortunate it was signed, sealed and delivered into it, rather than trying to gestate into it.”

Still, that’s not to say the pandemic hasn’t been disruptive for the combined entities. At a macro level, advertising spending has cratered, stock markets have tumbled and there’s the human aspect of keeping employees safe to consider. More specific to this deal, Rubicon and Telaria’s sales and marketing approach as a unified company has been delayed. The company had planned to reveal its new name in the coming months and use the Cannes Lions Festival in June as its main marketing launchpad. Cannes organizers Ascential said last week the festival will not take place this year.

With $140 million in cash on the balance sheet, the new Rubicon-Telaria plans to make further acquisitions down the line.

“A lot of small, pre-revenue tech tuck-ins that couldn’t make it are going to be incredibly cheap,” said Mark Zagorski, former Telaria CEO and president and COO of the combined company.