Can media companies survive a recession? Executives say yes

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

Cannes Lions

As media execs are meeting advertising leaders this week with glasses of roses at the Cannes Lions International Festival of Creativity, they can’t help but speak about the disconnect between hanging out with celebrities on yachts and the eerie feeling that a recession is upon us. close by. the corner.

“It feels like a party here,” NBCUniversal CEO Jeff Shell told CNBC’s Julia Boorstin from Cannes on Wednesday. “I don’t know if it’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 bear market.”

But Shell acknowledged that there are warning signs, albeit complicated ones. “The dispersion market has weakened a bit,” he said, referring to the real-time cost of TV commercials rather than the predefined “upfront” market. “It’s very complicated because there are so many things going on.”

Macroeconomic recessions have historically led to an increase in layoffs across the media sector. With the odds of a recession increasing and executives bracing for a fall in ad revenue in the second half of the year, media companies aren’t laying off people or laying off employees — at least not yet. Instead, industry leaders feel that their companies are finally lean and balanced enough to weather an advertising downturn without sacrificing profit or shrinking their business.

“Our focus has been on building a truly resilient and adaptable digital media company,” BuzzFeed Chief Executive Jonah Peretti said earlier this month. “We thrive amid volatility. We’ve built an agile and diverse company Business model”.

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

Courtesy of Ebru Yildiz/NPR

“While an economic downturn could affect the media advertising market, we are on track to meet our business growth goals after a remarkable year of profitability,” said Roger Lynch, CEO of Conde Nast. The company, which publishes The New Yorker and Vogue, turned a profit last year after many years of losing money.

Part of the reason smaller digital media companies feel prepared for a recession is that they’ve laid off hundreds of employees in recent years, stemming from acquisitions and a desire to cut costs. BuzzFeed announced more layoffs just a few months ago.

Still, many digital media companies make most of their money from advertising — including Conde Nast and BuzzFeed. And not everyone is optimistic that media companies are out of the woods. Since going public, BuzzFeed’s stock has dropped more than 80%. BuzzFeed brought in $48.7 million in ad revenue during the first quarter, about 53% of total sales.

If companies are looking to save money on marketing, there’s little they can do to avoid it, Graydon Carter, founder of subscription media company Air Mail and a longtime former editor of Conde Nast’s Vanity Fair, said in an interview.

“If you’re in the business of programmatic advertising, like most digital media companies, you’re going to suffer at some point when the economy changes. It’s just out of your hands,” Carter said. “I think [a downturn] It will be brutal and possibly long.”

Media layoffs in recessions

It’s natural for executives to feel optimistic about their company’s prospects. But the feeling that “this time will be different” is not without merit, said Alex Michael, co-head of Liontree Growth, which specializes in working with emerging media companies. This is especially true for smaller digital media companies, including newspaper and magazine owners, who have diversified into subscriptions, e-commerce, events, and other products to get rid of ad revenue.

“In the past, these businesses didn’t have their models right and weren’t fully matured,” Michael said. “Now they’ve gone through waves of consolidation. There’s absolutely been simplification and optimization. Many of the remaining companies now have endemic audiences that will open their wallets in a number of different ways.”

How bad could it be?

Getting the model right

The key to weathering a recession is having a product that resonates with a specific audience, said Michael of Liontree Growth. Digital media companies and magazines that had a very wide openness were unable to compete during economic lulls because the brands did not have passionate user bases.

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

There has also been a “loosening” among ad buyers willing to withdraw money from Facebook and Google on moral grounds, said Justin Smith, former CEO of Bloomberg Media.

Smith is in the process of establishing Semafor, a new media company for global news. While Google and Facebook have dominated the digital ad space for more than a decade, there is a growing movement among some advertisers who are diversifying the tech giants’ ad spend to support the news industry in the face of privacy breaches and misinformation. from Big Tech.

“It used to be that advertisers really avoided news media, especially with digital targeting, because of brand safety. News was closely tied to negativity, war and famine,” Smith said. “Now you’re seeing the opposite of that – branded bravery. The only true antidote to disinformation is human intervention. This is a pool of several hundred billion dollars.

Smith is not worried about throwing Semafor into a possible recession. He said that while Semafor aims to attract university graduates worldwide, a wider audience than niche sites with passionate audiences, even general interest publications are in a better place now than they were 10 or 15 years ago. . He credits the widespread adoption of the signature.

“If you look at the last five years in particular, whether it’s the pandemic, or the fascination with Trump, or the rise of Spotify and Netflix, there’s been a sea change with the subscription,” Smith said. “There are examples after examples of cross-category consumer adoption for news subscription models.”

Smith implemented a consumer paywall for the Bloomberg News website three years ago. Today, more than 400,000 people pay for access. Semafor, which launches this fall, will start as a free, ad-supported service and stay that way for “six, 12, maybe 18 months” before installing a paywall. Some articles will always remain free, Smith said, similar to many other digital news services.

Smith also said the industry has turned to ways to better connect audiences with reporters, even in downtime. Smith is furthering this enhanced bond by directly hiring talent agents, who will be tasked with pairing journalists on products and events outside of Semafor’s core business to broaden its reach.

“The media industry is in better shape than it was a decade ago,” Smith said. “Strategies are more sensible. Digital adoption is more ubiquitous. Models are clearer. Revenue streams are more diverse. Executives are more savvy. of downward pressure more strongly than in the past.”

Disclosure: NBCUniversal is the parent company of CNBC.

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