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

Cannes Lions

While media executives are assembly with promoting leaders this week over glasses of rose on the annual Cannes Lions International Festival of Creativity, they can’t assist however speak concerning the disconnect between hanging out with celebrities on yachts and the creeping feeling that a recession is across the nook.

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

But Shell did acknowledge there are warning indicators, albeit difficult ones. “The scatter market has weakened a little bit,” he mentioned, referring to the real-time value of TV commercials, slightly than the preset “upfront” market. “It’s very complicated because there’s so many things going on.”

Macroeconomic downturns have traditionally led to a spike in layoffs all through the media trade. With recession odds on the rise and executives getting ready for an promoting income pullback within the second half of the 12 months, media firms aren’t shedding folks or furloughing workers — not less than, not but. Instead, trade leaders really feel their firms are lastly lean and balanced sufficient to weather an promoting downturn with out sacrificing revenue or contracting their companies.

“Our focus has been to build a really resilient, adaptable digital media company,” BuzzFeed Chief Executive Jonah Peretti mentioned earlier this month. “We thrive amid volatility. We’ve built an agile, diversified business model.”

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

Courtsy of Ebru Yildiz/NPR

“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,” mentioned Roger Lynch, CEO of Conde Nast. The firm, which publishes The New Yorker and Vogue, turned a revenue final 12 months after a few years of dropping cash.

Part of why smaller digital media firms really feel ready for a recession is they’ve already laid off a whole bunch of workers prior to now few years, stemming from acquisitions and a need to shed prices. BuzzFeed introduced extra layoffs simply a few months in the past.

Still, many digital media firms make the majority of their cash from promoting — Conde Nast and BuzzFeed included. And not everyone seems to be optimistic that media firms are out of the woods. Since going public, BuzzFeed shares have fallen greater than 80%. BuzzFeed took in $48.7 million in promoting income throughout the first quarter, about 53% of complete gross sales.

If firms wish to lower your expenses on advertising and marketing, there’s little they can do to keep away from taking it on the chin, Graydon Carter, founding father of subscription-based media firm Air Mail and former longtime editor of Conde Nast’s Vanity Fair, mentioned 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 mentioned. “I think [a downturn] will be brutal and possibly long.”

Media layoffs in recessions

The final three recessions – the 2020 Covid-19 pullback, the 2007-09 monetary disaster and the 2001 dot-com bubble bust – have all led to job loss spikes amongst media firms, a lot of which have traditionally lacked the stability sheets to shrug off non permanent downturns in promoting. While the media trade has contracted over the previous 20 years, 2001, 2008 and 2020 have been the three largest years for job losses, based on knowledge from Challenger, Gray & Christmas.

It’s pure for executives to really feel optimistic about their firm’s prospects. But their sense of “this time will be different” is not with out advantage, mentioned Alex Michael, co-head of Liontree Growth, which makes a speciality of working with rising media firms. This is particularly true for smaller digital media firms, together with newspaper and journal house owners, which have had diversify to subscriptions, e-commerce, occasions and different merchandise to wean themselves off advert income.

“In the past, these businesses both didn’t have their models right and weren’t fully matured,” Michael mentioned. “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.”

How unhealthy might it’s?

There are combined emotions amongst trade individuals about how massive of a pullback media firms may even see in promoting income.

TikTok’s head of worldwide enterprise options, Blake Chandlee, mentioned he is heard there’s been about a 2% to six% contraction in promoting spend thus far, although 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 mentioned in an interview. “We’re not seeing the headwinds that others are seeing.”

Read extra: TikTok exec: We’re an leisure platform, not a social media community

Still, others are being cautious. Snap, the proprietor of Snapchat, mentioned final month the “macroeconomic environment has deteriorated further and faster than anticipated,” inflicting its shares to fall 40% in a day. Meta and Twitter have instituted partial hiring freezes. Digital media firms Insider and Vice Media are reportedly slowing down hiring.

One digital media govt advised CNBC whereas a smaller slowdown might have already occurred, a 20% promoting income cutback by year-end is not out of the query.

Getting the mannequin proper

The key to weathering a recession is having a product that resonates with a particular viewers, mentioned Liontree Growth’s Michael. Digital media firms and magazines which have had too huge an aperture have not been capable of compete throughout financial lulls as a result of manufacturers have not had passionate person bases.

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

There’s additionally been a “loosening” amongst advert consumers prepared to maneuver cash away from Facebook and Google on ethical grounds, mentioned Justin Smith, former CEO of Bloomberg Media.

Smith is within the course of of creating Semafor, a new media start-up for international information. While Google and Facebook have dominated the digital advert house for greater than a decade, there’s a rising motion amongst some advertisers who’re diversifying advert spend away from the tech giants to help the information trade within the face of Big Tech privateness violations 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,” mentioned Smith. “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 is not involved with launching Semafor into a potential recession. He mentioned whereas Semafor goals to attraction to varsity graduates across the globe, a wider viewers than area of interest websites with passionate audiences, even basic curiosity publications are in a higher place now than they have been 10 or 15 years in the past. He credit the huge adoption of subscription.

“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,” mentioned Smith. “There’s example after example of cross-category consumer adoption for subscription models for news.”

Smith carried out a shopper paywall for Bloomberg News’ web site three years in the past. Today, greater than 400,000 folks pay for entry. Semafor, which can launch this fall, will begin as a free, ad-supported service and can keep that approach for “six, 12, maybe 18 months,” earlier than putting in a paywall. Some articles will at all times stay free, Smith mentioned, much like many different digital information companies.

Smith additionally mentioned the trade has morphed in methods to raised join viewers to reporters, even by way of down occasions. Smith is selling this enhanced bond by instantly staffing expertise brokers, who can be tasked with pairing journalists on merchandise and occasions outdoors of Semafor’s core enterprise to broaden their attain.

“The media industry is in better shape than it was a decade ago,” Smith mentioned. “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 mother or father firm of CNBC.

WATCH: TikTok advert chief Blake Chandlee speaks from Cannes


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