Media companies face hit as advertising recession looms

Commercial broadcasters are likely to be hit harder than advertising agencies as recession hits the sector next year, according to an analysis be Berenberg.

Berenberg says that while a strong first half this year “has somewhat de-risked this year’s numbers”, it sees “cracks emerging” as consumer confidence tumbles and expenditure declines across multiple sectors.

Berenberg predicts negative economic growth in a number of western markets next year, leading to a forecast 5% decline in global media spending in 2023, despite a predicted uplift in China.

Analysts Sarah Simon, Jamie Bass and Saim Saeed predict that media companies such as broadcasters will be harder hit than advertising agencies.

The trio argue that agencies are protected to some extent by the fact that they are no longer compensated based on a percentage of media spending and because larger groups have diversified into adjacent activities such as PR, business transformation and software implementation, with only around two thirds of business activity correlated to advertising expenditure.

“By contrast, media owners (e.g. broadcasters) are directly affected by cuts to advertising spending,” they said.

Berenberg says that the financial results of large agencies Publicis and WPP will not see a huge impact from loss of revenue to operating profit.

“The vast bulk of the two agencies’ operating costs are represented by headcount and this has historically been flexed according to the performance of the top and bottom line,” they said.

Berenberg predicts that Publicis in particular will bounce back quickly from the downturn.