Can media business endure an economic crisis? Executives state yes

While media executives are consulting with marketing leaders today over glasses of rose at the yearly Cannes Lions International Festival of Creativity, they can’t assist however discuss the detach in between socializing with celebs on luxury yachts and the sneaking sensation that an economic crisis is around the corner.

“It feels like a party here,” NBCUniversal CEO Jeff Shell stated to CNBC’s Julia Boorstin from Cannes onWednesday “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 down market.”

But Shell did acknowledge there are cautioning indications, albeit complex ones. “The scatter market has weakened a little bit,” he stated, describing the real-time expense of television commercials, instead of the pre-programmed “upfront” market. “It’s very complicated because there’s so many things going on.”

Macroeconomic declines have actually traditionally caused a spike in layoffs throughout the media market. With economic crisis chances on the increase and executives getting ready for a marketing earnings pullback in the 2nd half of the year, media business aren’t laying off individuals or furloughing workers– a minimum of, not yet. Instead, market leaders feel their business are lastly lean and well balanced sufficient to weather a marketing recession without compromising revenue or contracting their services.

“Our focus has been to build a really resilient, adaptable digital media company,” BuzzFeed Chief Executive Jonah Peretti stated previously this month. “We prosper in the middle of volatility. We’ve developed an nimble, varied company design.”

“While an economic downturn may affect the media advertising market, we’re on track to achieve our business growth goals following a milestone year of profitability,” stated Roger Lynch, CEO of CondeNast The business, which releases The New Yorker and Vogue, made a profit in 2015 after several years of losing cash.

Part of why smaller sized digital media business feel ready for an economic crisis is they have actually currently laid off numerous workers in the previous couple of years, coming from acquisitions and a desire to shed expenses. BuzzFeed revealed more layoffs simply a couple of months back.

Still, lots of digital media business make the bulk of their cash from marketing– Conde Nast and BuzzFeed consisted of. And not everybody is positive that media business run out the woods. Since going public, BuzzFeed shares have actually fallen more than 80%. BuzzFeed took in $487 million in marketing earnings throughout the very first quarter, about 53% of overall sales.

If business are aiming to conserve cash on marketing, there’s little they can do to prevent taking it on the chin, Graydon Carter, creator of subscription-based media business Air Mail and previous long time editor of Conde Nast’s Vanity Fair, stated in an interview.

“If you are in the business of programmatic advertising, which most digital media companies are, you’ll suffer at some point when the economy turns. It’s simply out of your hands,” Carter stated. “I believe [a downturn] will be ruthless and perhaps long.”

The last 3 economic downturns– the 2020 Covid-19 pullback, the 2007-09 financial crisis and the 2001 dot-com bubble bust – have all led to job loss spikes among media companies, many of which have historically lacked the balance sheets to shrug off temporary downturns in advertising. While the media industry has contracted over the past two decades, 2001, 2008 and 2020 were the three biggest years for job losses, according to data from Challenger, Gray & Christmas.

It’s natural for executives to feel optimistic about their company’s prospects. But their sense of “this time will be different” isn’t without merit, 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, which have had diversify to subscriptions, e-commerce, events and other products to wean themselves off ad revenue.

“In the past, these businesses both didn’t have their models right and weren’t fully matured,” Michael said. “Now they’ve gone through waves of consolidation. There absolutely has been streamlining and optimization. Many of the remaining companies now have endemic audiences who will open their wallets in a bunch of different ways.”

There are mixed feelings among industry participants about how big of a pullback media companies may see in advertising revenue.

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

“I’ve talked to some other folks, and I think there are some other folks feeling it,” Chandlee said in an interview. “We’re not seeing the headwinds that others are seeing.”

Read more: TikTok exec: We’re an entertainment platform, not a social media network

Still, others are being cautious. Snap, the owner of Snapchat, said last month the “macroeconomic environment has deteriorated further and faster than anticipated,” causing its shares to fall 40% in a day. Meta and Twitter have instituted partial hiring freezes. Digital media companies Insider and Vice Media are apparently decreasing hiring.

One digital media executive informed CNBC while a smaller sized downturn might have currently taken place, a 20% marketing earnings lowering by year-end isn’t out of the concern.

The crucial to weathering an economic crisis is having an item that resonates with a particular audience, stated Liontree Growth’sMichael Digital media business and publications that have actually had too broad an aperture have not had the ability to contend throughout financial lulls since brand names have not had enthusiastic user bases.

“Advertisers have asked, what do you stand for?” statedMichael “What are they selling against?”

There’s likewise been a “loosening” amongst advertisement purchasers ready to move cash far from Facebook and Google on ethical premises, stated Justin Smith, previous CEO of Bloomberg Media.

Smith remains in the procedure of developing Semafor, a brand-new media start-up for international news. While Google and Facebook have actually controlled the digital advertisement area for more than a years, there’s a growing motion amongst some marketers who are diversifying advertisement invest far from the tech giants to support the news market in the face of Big Tech personal privacy infractions and disinformation.

“It used to be that ad marketers really shunned the news media, especially with digital targeting, because of brand safety. The news was tied closely with negativity, war and famine,” statedSmith “Now you’re seeing the opposite of that — brand bravery. The only true antidote to misinformation is human intervention. This is a multi-hundred-billion-dollar pool. Even a small loosening of that group is big, big money.”

Smith isn’t interested in introducing Semafor into a possible economic crisis. He stated while Semafor intends to interest college graduates around the world, a broader audience than specific niche websites with enthusiastic audiences, even basic interest publications remain in a much better location now than they were 10 or 15 years back. He credits the broad adoption of membership.

“If you look at the last five years in particular, whether it was the pandemic, or the fascination with Trump, or the rise of Spotify and Netflix, there’s been a sea change with subscription,” statedSmith “There’s example after example of cross-category consumer adoption for subscription models for news.”

Smith executed a customer paywall for Bloomberg News’ site 3 years back. Today, more than 400,000 individuals spend for gain access to. Semafor, which will introduce this fall, will begin as a complimentary, ad-supported service and will remain that method for “six, 12, maybe 18 months,” prior to setting up a paywall. Some short articles will constantly stay complimentary, Smith stated, comparable to lots of other digital news services.

Smith likewise stated the market has actually changed in methods to much better link audience to press reporters, even through down times. Smith is promoting this improved bond by straight staffing talent scout, who will be entrusted with pairing reporters on items and occasions beyond Semafor’s core company to expand their reach.

“The media industry is in better shape than it was a decade ago,” Smith stated. “Strategies are more sensible. Digital adoption is more ubiquitous. Models are clearer. Revenue streams are more diverse. Executives are more experienced. Even though we’re probably heading into a global recession, I do think the media business is going to withstand some of the downward pressure in a stronger way than it has in the past.”

Disclosure: NBCUniversal is the moms and dad business of CNBC.

ENJOY: TikTok advertisement chief Blake Chandlee speaks from Cannes