Understanding the business impact of COVID-19

Four months after the WHO declared COVID-19 to be a pandemic, we are starting to understand the impact of the crisis on the UK’s economy. While lockdown is cautiously easing across the nation, businesses’ recovery remains uncertain. 

Latest figures show that Britain’s economy has shrunk by a quarter since the pandemic began and that it has rebounded more slowly than expected in May - up just 1.8% month-on-month - casting doubt on hopes for a sharp ‘V’ shaped recovery. 

So what does this mean for the ad industry? The latest IPA Bellwether report for Q2 2020 shows that the pandemic has driven a record decline in marketing budgets, with the net balance of firms cutting marketing budgets falling to -50.7%, with almost 64% of respondents having registered a decrease in spending compared to the first quarter. 

Accordingly, 72.4% of businesses are pessimistic about financial prospects, compared to just 6.4% that were optimistic. However, the report’s authors IHS Markit suggest “a robust recovery in macroeconomic conditions during 2021 as businesses move closer to operating at full capacity”.

While these forecasts reflect the challenges being faced by businesses across our industry, our tracking of select IAB member companies indicates that the outlook is a mixed picture, with cautious cause for optimism. 

Those companies that reported Q2 results showed an average -9% decline in revenues for Q2 2020 vs Q2 2019. This was a substantial improvement on the -32% that was previously predicted for the same period in April 2020. 

The picture, however, is not uniform with media owners that participated in the study performing better than ad tech companies and those turning over less than £20 million. Looking ahead, an overall +4% year-on-year revenue increase is predicted in Q3 2020.  

While this provides a useful snapshot of how our members are coping with the economic fallout of COVID-19, the uncertainty of the current situation remains paramount. Following years of consistent growth, digital advertising is now facing a far more challenging landscape. As ever, we will continue to work closely with our members across the industry to help them navigate this period and to increase our collective understanding of the economic picture.