Media executives say they can weather a recession

Whereas media executives are meeting with advertising leaders this week over glasses of rose on the annual Cannes Lions Worldwide Pageant of Creativity, they cannot assist however discuss concerning the disconnect between hanging out with celebrities on yachts and the creeping feeling {that a} recession is across the nook.

“It seems like a celebration right here,” NBCUniversal CEO Jeff Shell mentioned to CNBC’s Julia Boorstin from Cannes on Wednesday. “I do not know if that is as a result of most of you’re out for the primary time in a very long time or as a result of we’re within the south of France in June, however no, it does not really feel like a down market.”

However Shell did acknowledge there are warning indicators, albeit difficult ones. “The scatter market has weakened a little bit bit,” he mentioned, referring to the real-time value of TV commercials, fairly than the preset “upfront” market. “It’s extremely difficult as a result of there’s so many issues occurring.”

Macroeconomic downturns have traditionally led to a spike in layoffs all through the media trade. With recession odds on the rise and executives getting ready for an promoting income pullback within the second half of the yr, media corporations aren’t shedding individuals or furloughing staff — no less than, not but. As an alternative, trade leaders really feel their corporations are lastly lean and balanced sufficient to climate an promoting downturn with out sacrificing revenue or contracting their companies.

“Our focus has been to construct a extremely resilient, adaptable digital media firm,” BuzzFeed Chief Government Jonah Peretti mentioned earlier this month. “We thrive amid volatility. We have constructed an agile, diversified enterprise mannequin.”

“Whereas an financial downturn could have an effect on the media promoting market, we’re on monitor to realize our enterprise progress targets following a milestone yr of profitability,” mentioned Roger Lynch, CEO of Conde Nast. The corporate, which publishes The New Yorker and Vogue, turned a profit last year after many years of losing money.

A part of why smaller digital media corporations really feel ready for a recession is that they’ve already laid off a whole lot of staff previously few years, stemming from acquisitions and a want to shed prices. BuzzFeed introduced more layoffs just a few months ago.

Nonetheless, many digital media corporations make the majority of their cash from promoting — Conde Nast and BuzzFeed included. And never everyone seems to be optimistic that media corporations are out of the woods. Since going public, BuzzFeed shares have fallen greater than 80%. BuzzFeed took in $48.7 million in promoting income throughout the first quarter, about 53% of whole gross sales.

If corporations want to lower your expenses on advertising and marketing, there’s little they’ll do to keep away from taking it on the chin, Graydon Carter, founding father of subscription-based media company Air Mail and former longtime editor of Conde Nast’s Vainness Honest, mentioned in an interview.

“In case you are within the enterprise of programmatic promoting, which most digital media corporations are, you may undergo sooner or later when the economic system turns. It is merely out of your arms,” Carter mentioned. “I believe [a downturn] will probably be brutal and presumably lengthy.”

The final three recessions – the 2020 Covid-19 pullback, the 2007-09 financial crisis and the 2001 dot-com bubble bust – have all led to job loss spikes among media companies, many of which have historically lacked the balance sheets to shrug off temporary downturns in advertising. While the media industry has contracted over the past two decades, 2001, 2008 and 2020 had been the three greatest years for job losses, according to data from Challenger, Grey & Christmas.

It is pure for executives to really feel optimistic about their firm’s prospects. However their sense of “this time will probably be completely different” is not with out advantage, mentioned Alex Michael, co-head of Liontree Development, which focuses on working with rising media corporations. That is very true for smaller digital media corporations, together with newspaper and journal homeowners, which have had diversify to subscriptions, e-commerce, occasions and different merchandise to wean themselves off advert income.

“Up to now, these companies each did not have their fashions proper and weren’t totally matured,” Michael mentioned. “Now they’ve gone by waves of consolidation. There completely has been streamlining and optimization. Lots of the remaining corporations now have endemic audiences who will open their wallets in a bunch of various methods.”

There are combined emotions amongst trade individuals about how huge of a pullback media corporations may even see in promoting income.

TikTok’s head of worldwide enterprise options, Blake Chandlee, mentioned he is heard there’s been a few 2% to six% contraction in promoting spend to date, although he notes TikTok hasn’t seen it.

“I’ve talked to another people, and I believe there are another people feeling it,” Chandlee mentioned in an interview. “We’re not seeing the headwinds that others are seeing.”

Learn extra: TikTok exec: We’re an entertainment platform, not a social media network

Still, others are being cautious. Snap, the owner of Snapchat, said last month the “macroeconomic environment has deteriorated further and faster than anticipated,” causing its shares to fall 40% in a day. Meta and Twitter have instituted partial hiring freezes. Digital media corporations Insider and Vice Media are reportedly slowing down hiring.

One digital media government informed CNBC whereas a smaller slowdown could have already occurred, a 20% promoting income cutback by year-end is not out of the query.

Smith is within the course of of creating Semafor, a brand new media start-up for international information. Whereas Google and Fb have dominated the digital advert area for greater than a decade, there is a rising motion amongst some advertisers who’re diversifying advert spend away from the tech giants to assist the information trade within the face of Large Tech privateness violations and disinformation.

“It was that advert entrepreneurs actually shunned the information media, particularly with digital focusing on, due to model security. The information was tied carefully with negativity, warfare and famine,” mentioned Smith. “Now you are seeing the alternative of that — model bravery. The one true antidote to misinformation is human intervention. This can be a multi-hundred-billion-dollar pool. Even a small loosening of that group is huge, huge cash.”

Smith is not involved with launching Semafor into a possible recession. He mentioned whereas Semafor goals to attraction to varsity graduates across the globe, a wider viewers than area of interest websites with passionate audiences, even normal curiosity publications are in a greater place now than they had been 10 or 15 years in the past. He credit the broad adoption of subscription.

“When you have a look at the final 5 years specifically, whether or not it was the pandemic, or the fascination with Trump, or the rise of Spotify and Netflix, there’s been a sea change with subscription,” mentioned Smith. “There’s instance after instance of cross-category client adoption for subscription fashions for information.”

Smith carried out a client paywall for Bloomberg Information’ web site three years in the past. Right now, greater than 400,000 individuals pay for entry. Semafor, which is able to launch this fall, will begin as a free, ad-supported service and can keep that manner for “six, 12, possibly 18 months,” earlier than putting in a paywall. Some articles will all the time stay free, Smith mentioned, just like many different digital information companies.

Smith additionally mentioned the trade has morphed in methods to raised join viewers to reporters, even by down occasions. Smith is selling this enhanced bond by straight staffing expertise brokers, who will probably be tasked with pairing journalists on merchandise and occasions outdoors of Semafor’s core enterprise to broaden their attain.

“The media trade is in higher form than it was a decade in the past,” Smith mentioned. “Methods are extra wise. Digital adoption is extra ubiquitous. Fashions are clearer. Income streams are extra numerous. Executives are extra skilled. Regardless that we’re in all probability heading into a worldwide recession, I do assume the media enterprise goes to face up to among the downward stress in a stronger manner than it has previously.”

Disclosure: NBCUniversal is the guardian firm of CNBC.

WATCH: TikTok advert chief Blake Chandlee speaks from Cannes