The Australian media industry isn’t out of the woods yet, with data on agency ad spend clearly showing the ability of Amazon to reshape retailer marketing budgets.
According to advertising spend data reviewed by Business Insider, the media sector has had a brutal start to the financial year, with steep declines in marketing spend from agencies across a range of categories further squeezing already-pressured media businesses that have been forced into significant cost-cutting drives over recent years.
The Standard Media Index (SMI) data shows recent months have falls in digital advertising spend in some categories, just as many media companies have been counting on digital revenue growth to offset falls in spend in other areas, especially printed newspapers and magazines.
October saw falls in agency advertising spend by retail companies — which are key clients for many media companies — described by one agency CEO as “unprecedented”, and likely attributable in part to marketers hoarding budgets in order to respond to Amazon’s coming launch in Australia.
Spend by retailers through agencies last month was a whopping $17.4 million lower than October 2016; at $77.5 million, it was a fall of more than 18% compared to the previous year, and will have been punishing for media companies which rely heavily on ad dollars from retail clients.
There are limitations to the SMI data, as it only captures marketing budgets spent through agencies. Recent years have seen a significant shift in the media industry where clients are more frequently dealing direct with publishing companies and broadcasters, meaning increasingly large chunks of spend are not captured. (One senior publishing industry executive who spoke to Business Insider sounded a note of caution on the SMI data, saying it was a significant mismatch with internal revenue figures.)
The index remains, however, a strong gauge of overall advertising activity and shows year-on-year declines running to tens of millions of dollars in some categories which are unlikely to be fully accounted for by these industry changes.
The data shows spending across the year on newspapers has continued to fall sharply. Total spend from January to October through agencies on newspapers was $102 million, down 24% on the same period in 2016. As a gauge of the speed of the declines over the medium term, the $312 million spent from January to October on newspapers this year compares to $912 million over the same period in 2011.
However, it is the falls in spend from retailers — a core client base for many media companies — that underline the potential for Amazon to cause enormous disruption not just to the retail sector but to the media industry as well.
Newspapers have also seen a drop of more than 40% in agency spend by general retail clients to $4.7 million. For magazines, the news was even worse. Spend in October by general retailers through agencies more than halved from an already small $1.9 million to just over $900,000.
Toby Barbour, CEO of agency Starcom Australia, part of the Publicis Media Group which manages in excess of a billion dollars in client spend, said the scale of the reduction in advertising spend by Australian retailers was “unprecedented” and was a dramatic reversal of recent trends.
“In the 2017 financial year, retail advertisers increased their ad spend by $90 million to $672 million, the biggest growth of any sector, so to see a decline of 20% year on year in October clearly demonstrates a big shift by retail marketers. Retailers could be potentially amassing their marketing funds for the imminent arrival of Amazon.
In a reflection of the scale and speed of the change and its potential for disruption, Barbour said Publicis Media was “developing proprietary research to measure the ongoing brand impact of Amazon in Australia and are closely monitoring brand and media activity”.
SMI ANZ Managing Director Jane Schulze said it was highly unusual for the retail sector’s advertising expenditure to fall at this time of year, as more than a third of all retail advertising historically occurs in the fourth quarter, in the lead-up to Christmas.
“Retail category ad spend has fallen 20% from October 2016 levels, which represents a record year-on-year decline in the ten years of SMI data reporting. Interestingly, industry feedback suggests retailers are stockpiling their marketing budgets in preparation for the imminent launch of Amazon in Australia,” she said.
After years of layoffs and industry restructuring — the national media union estimates some 2500 jobs have been lost in the past five years — the trends in digital spending growth suggest further casualties are likely as companies are forced to cut costs or consolidate.