Brian Wieser, Global President of Business Intelligence at GroupM, takes us on a journey of discovery through the macroeconomic influences that are shaping the media and advertising industry today and will influence its future. These words were collected during the Cannes Lions in June 2022.
The world is facing an era of uncertainty, which many are pessimistic about – how do you see the current situation?
I dare say that I am normally a bit cynical. This is due to me observing that in good years, people are likely to be a little too optimistic about certain things and I try to bring them back down to earth. These days however, I find myself in the odd position of being the optimistic one. Take consumer sentiment for example. In the United States, the Michigan sentiment survey, is currently lower than it was during the global financial crisis. The situation is not that bad.
How do we assess where we are at this moment in the economic cycle?
We try to look at economic variables and try to correlate them with advertising. Sure, you can find correlations, but a correlation is not causation, at best it is usually a proxy for something that is happening. And importantly, if you do look at correlations, the relationships between different variables can change over time. If they are proxies, they become weaker or stronger. Admittedly, this is more an art than science in the short term. I would argue that if you have no other basis for a longer- term forecast, use the GDP.
But here is the thing, in many countries, you will find that there is almost no correlation between the GDP and advertising.
Now, the GDP is not a bad barometer if you think of a steady nominal growth rate – like 4% or 5% for a given country – unless you have got a reason to believe there is a structural decline or increases in advertising in that market. When you can point to these reasons, or whatever secular factors that are causing variation relative to that number, that is what should drive that long-term number. In the short-term “feel” can be as good a way to anticipate where the market is going.
If we were to look at the data of my forecast called “This Year, Next Year”, you will see that in December 2021, we forecast 9.7% growth for 2022 on a global basis. If you look at our data now, it says 8.4%. There are a couple of variables; now is that a worse number than we said? Yes, but that is the short way of answering it. Keep in mind, China’s 20% of the global advertising market is down from 10% growth in December to 3% now, and that right there explains it all.
What about Europe? What can we expect this year? And which medium, sectors and industries are the drivers?
In most countries in Europe, we have high single digit growth expectations for advertising. Now keep in mind, there will be real underlying inflation adjusted economic growth. In lieu of any other variable to inform our views, this means that there is basically some growth. Inflation – in our view – is basically additive. It is not negative unless inflation causes interest rate tightening to such a degree that it contracts economic activity. We are arguing that the rising of interest rates will not contract economic activity in a meaningful way. Economies around the world can still tolerate more interest rate hikes without causing contraction activity. With that said, if you are a typical marketer, often your advertising budget is based on a percentage of the revenue model. The majority would say that we are seeing inelastic demand trends from consumers. There is a tolerance for higher prices, and this allows manufacturers to pass those costs along. If you know that a company will see 5% to 9% revenue growth, most of them will increase their advertising budget by that level.
In many countries, you will find that there is almost no correlation between the GDP and advertising.
From a macroeconomic point of view, are we in a period of adjustment? We have been living with zero or negative interest rates for over ten years and now must adjust again to levels we had before.
That is one of the many tricks in trying to anticipate how the world will evolve. Nobody has ever seen anything like this. There has never been this pace of quantitative tightening paired with this kind of inflation, together with impossible to identify, permanent versus temporary changes in consumer behaviours. There are so many oddities in the data, which is why I come back to the idea of “feel”. You know that you can take any set of data and torture it enough to tell you what you want. But your “feel” will ultimately be a better guide. However, it is critical that that feel is independently formed. Look at the raw data yourself. Do not just assume that because everyone else says we are going to have a recession that we will have one – although it is true that we could talk ourselves into one.
For critical issues, where everyone seems to have a defined view, only believe something is happening because you have gone to the underlying data to form your own conclusions. That is, frankly, how most analysts should forecast.
RTL AdConnect is merging with the media side of smartclip and G+J i|MS to form RTL AdAlliance, a global media sales champion – what do you think of that?
The problem of organising businesses as national champions is that you are investing against a single market. This is a problem when the competition that is coming from America is investing against a global opportunity.
When we look at the sheer scale of investment, it is massive. You will see good original content, whether it is from Germany, or France, or South Korea playing well globally. Meanwhile, it is harder for German, French or South Korean companies to invest as much in individual programmes because they are only able to generate returns from their relatively smaller markets. At the same time, marketers are increasingly oriented around global opportunities. Now, to be clear, the vast majority of budget today is at a country level, but the opportunity should be to apply best practices in learning and figuring out what works and doesn’t work in one place or another. Global marketers are more advantaged than single country marketers. marketers are more advantaged than single country marketers.
From an agency perspective, do you see that mirrored? Are clients looking for a global centralised approach rather than a decentralised one? And how do you see the relation between the global and the medium and smaller enterprises?
Clients tend to pick agencies on a minimum regional basis and often on a global basis. The marketer who wants consistency of service is more likely to want a global agency. For your last question, let us circle back to the debate we were having about whether economic activity correlates to advertising. Everyone has seen local politicians say something like “small businesses are the lifeblood of the economy”.
It is not true anywhere, that small businesses are taking share of an economy. Large businesses – and for this you can use OECD data or any other consistent measure – take share of economic activity for better or for worse. Take it as it is: large takes share. However, small businesses have new opportunities to operate globally which are better than they ever were before. Digital platforms are disproportionately well suited to help them do that, which is a positive thing. It is consistent with the evolution of business as a much more global industry except for China.
You know that you can take any set of data and torture it enough to tell you what you want. But your “feel” will ultimately be a better guide.
Do you believe that the current situation will affect the agency world? And if so, in what way?
Agencies always adapt. The thing that is unique about them is they are inherently human – for better and for worse – they are human. And humans are more adaptive and adaptable than most things. Which means that agencies are not dependent on a product that is not people, so the world can change – and so can agencies.