What’s going on in advertising?

The recent Q2 earnings reporting season for publicly traded media and tech companies was a wealth of datapoints around the impact of macroeconomic uncertainties on advertising spend across the digital and legacy media ecosystem.

As always, the tone varied significantly depending on what side of the tech vs. content aisle you’re on. The Silicon Valley platforms (Facebook, Google/YouTube, Snapchat) sounded grim while offering outlooks of their decelerating growth. The Hollywood and Madison Avenue owners and buyers of media (Paramount, WPP) appeared much more upbeat and quick to highlight the growth coming from the shiny new markets they’ve, typically, acquired their way into. Meanwhile, certain sub-segments, e.g. connected TV (Innovid, Trade Desk), are growing their share of the pie so rapidly that the industry-wide headwinds seem barely noticeable.

We found the commentary provided by the various companies inconsistent for the purposes of analyzing the true symptoms of the respective slowdowns. For instance, Snapchat offered the fact that direct response advertising is often first to get cut in a recession as an explanation for their challenges. The trouble is: generally speaking, the data does not support this, Facebook and Google’s commentary was in direct contrast, and Snapchat’s breed of direct response is known to be much less potent for sales conversions than the traditional definition.

It should come as no surprise that companies will talk their own book. Ultimately each of the organizations has unique characteristics which make comparisons inherently apples to oranges.

From the perspective of investors or lenders to owners/managers of content ad inventory, we believe times like these call for a return to first principles: in a downturn, advertising providing better sales outcomes as well as clearer attribution should always find a floor first. Therefore, publishers and platforms that offer inventory towards the bottom of the sales conversion funnel should prove more defensible. Simultaneously, incremental attribution improvements within a medium (e.g. shifting from broadcast TV ads to targeted connected TV ads) should also drive continued reallocations of the pie, insulating share takers from macroeconomic challenges.