Month: August 2020

“We are now paying more state taxes and are in more states,” said Stacie Boney, president of Milwaukee, Wis.-based full-service agency Hanson Dodge, adding that employees have relocated to California, Illinois and Michigan in recent months. “I meet with our head of finance every Wednesday and it feels like it’s on the agenda each week, ‘Is there anyone moving to another state?’” 

As employees have started to realize that the proximity to the office is not as important in a largely remote work world, they are starting to reevaluate where they live and make considerations for their families, according to HR execs at agencies. Creating a fixed policy as to whether or not someone can move elsewhere is difficult for agencies as it is not only dependent on the employee and their role within the agency but also where they are moving and whether or not the agency is able to manage the backend costs of that shift. 

“Employees don’t understand the financial implications of it,” said Charlene Wong, vice president of talent management and culture at Phoenix, Ariz.-based full-service agency OH Partners. “The oneus goes back to HR to communicate to employees the legalities behind it.”

In recent months, OH Partners has had an employee request to move closer to family members outside of Arizona. If the employee did so, the agency would have terminated a full-time contract with the employee and worked on a contract basis instead leaving the employee liable for paying for their own healthcare and other benefits can . While the shop is also set up in Nevada, adding other states to the mix isn’t financially viable for the agency, according to Wong.  

“We as employers, we have to have an address [for employees] that is lived in and worked in and we have to be withholding the proper state taxes,” said Wong. “For Arizona we have state taxes, but for certain states you don’t have state taxes. The employees have to understand that. It also ties to insurance, 401(k), etc. Employees have to understand the financial ramifications and that it hits the bottom line.” 

For agencies that have allowed employees to move elsewhere, agency HR execs say that employees need to give HR time to set up employer identification numbers in a state, business IDs and unemployment ID numbers so that the agency is set up to pay that employee once they move. Per Hanson Dodge’s head of people and operation Kelly Klawonn, that can take time as there are backlogs in different states. 

“There’s an administrative backlog at the states so getting your administrative paperwork done in a decent amount of time has proven difficult,” said Klawonn. “We have a new employee in New York but there’s a backlog at the state. We’re ready to go, but the state itself might be slow.” 

Aside from state income and business taxes, different states have different requirements with regard to vacation time and state-mandated sick time as well as different employee laws that agencies will have to consider. Still, even with the backend issues that come up, agency HR execs say that they have to change their thinking on remote employees in different states unless they want to lose out on talent. 

“Pre-pandemic most companies operated with like 10% workforce that was remote and 90% were in the office,” said Chris Sinclair, vp of people and culture at PMG. “Now, more progressive agencies are thinking there’s going to be a full range with people come in once a week or once a month or once a quarter. The workforce will be more mixed in the future and doing so will be necessary to attract talent.”

To be fair, Europe’s data protection laws are still murky, differently interpreted and fully understood by very few people. But wonky data laws are just one of many hurdles for U.S. publishers to scale in order to conquer international expansion — and those hurdles are stacking up.

Over the last five or so years, a number of U.S. digital media darlings journeyed to the U.K. and beyond, fuelled by venture-capital funding with sights set on global expansion to match projections of hockey-stick growth. But the reality has been tough going. 

This week, BuzzFeed announced the sale of its German bureau to Ippen Digital, the joint venture is similar to its agreement with Yahoo in Japan, where the editorial team retains its independence. BuzzFeed now has five owned international bureaus. Business publisher Quartz had to close its London office after ad sales halved in May. Over the years, HuffPost has closed a handful of international bureaux, like in Germany in March 2019. It currently has 12 editions around the world with 60% of readers coming from outside of the U.S.

The difficulties from the ongoing coronavirus pandemic mean agencies and analysts are braced for more retreats. While the reasons vary, just as the models of expansion did, there are similar hardships that impact all publishers. Mainly, advertising-funded models are not flexible enough when that revenue stream dries up. And digital behemoths like Google and Facebook suck up the majority of digital advertising growth. 

“Everybody is fighting the existential truth that there’s not enough money to go around,” said Dan Wood, managing partner at Mediacom. “With the dominance of Google, Facebook and Amazon, the rest are left to pick through the carcass for what remains, and it’s getting even more challenged. That’s the reality of the digital ecosystem that we’re in.” 

Cost-cutting mode 

While advertising trends are broadly improving — global digital ad spending will achieve 2.4% growth this year, the lowest on record, according to eMarketer — they aren’t doing so quickly enough to mitigate the losses. There has been a £50 million ($65.65 million) swing in 2020 profit expectations for BuzzFeed, according to reports. When making those tough decisions, media companies will lean toward closing non-core domestic operations. 

“None of these digital media business models are insulated, they’re too dependent on discretionary client spend,” said independent media analyst Alex DeGroote. “It’s unclear if investors will be prepared to invest in these businesses if losses spiral, so cost-cutting is the only way.”

This pandemic-charged downturn differs from the earlier financial crises of 2001 and 2008 since every economy is battered, so any gains from growth in other regions are immediately hampered. But economies aren’t impacted equally. In the U.K., mobility is poor relative to other European countries, according to The Economist’s ‘Sick man of Europe report’. With that, recovery will likely lag compared with others.

Platforms over publishers

At its height, Vice noisily purported to be the voice of youth culture. Now, brands are falling over themselves to align with platforms, namely TikTok, not just for its innovations in social video but for reaching a broad spectrum of audiences. 

“The claim of anyone publisher to say that now is just not credible,” said Wood. “What we can say about younger audiences is that they refuse to define themselves by any media brand.”

Due to a rise in domestic social-first digital publishers over the years — such as LadBible, JOE Media and Jungle Creations — taking a more localized lead in publishing branded content for channels like Facebook, the clout of Vice and others isn’t what it used to be, say agency executives. Despite that sentiment, Vice announced in June Vice World News, a global expansion of its news offering across TV, digital and audio. 

U.S.-borne publishers have also lagged in developing formats and series that can repeat, say execs. “If a client calls me up looking to launch a content piece or looking for partnerships, some brands get really excited, but they only do it once and not again,” said Alvi. “They are good ideas but how many times can you repeat it?”

There have, of course, been many wins. BuzzFeed impressed media and agency executives by launching a pair of Tasty-branded food products with brands Nestle and McCormick in 2019. But product creation and licensing is more complex than a media buy, and clients find these examples conceptual and hard to deliver. And now, when agencies have to be even more shrewd about where they place clients’ money, a return to booking more of these deals is a long way off.

Local content at a premium

The power of local content and commercial teams shouldn’t be underestimated, but it’s not without investment. “The biggest issue with VC-funded U.S. publishers is content,” said Alvi. “They all had great content but plastered it all over thinking they could get global audiences based on U.S.-led content. But the U.K. audience was less than 10%.”

The U.K. seems a natural step into global expansion because there’s no language barrier. But adjusting ad budgets for a much smaller market can make the margins untenable. Hiring people in the U.K., France or Germany comes with up to three-month notice periods, in terms of redundancies. A U.K.-based agency executive contacted for this article recalls how U.S. publishers complained about tightly bound restrictive European employee laws. 

“It’s easy to hire people but hard to trim the fat,” the exec said.