In order to keep costs down, many companies are cutting their advertising budgets as one of the first measures given the high energy costs and economic uncertainty.
If companies that dominate the majority of the advertising market are pessimistic, this is symbolic for the entire industry. “We are very worried about 2023 in view of the recessive economic data, inflation and lower consumer sentiment,” says Andreas Schubert, President of the Central Association of the German Advertising Industry. The ZAW is the umbrella organization of 43 associations from the advertising industry.
However, ZAW General Manager Bernd Nauen does not want to write off the entire year 2023 just yet. If energy prices stabilize and dying ends in Ukraine, the advertising market could recover in the second half of the year – “a black zero is then possible”.
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A stumbling block is the uncertainty in many markets. “Risks can be taken into account, but uncertainty cannot,” says Nauen. Therefore, many advertisers would drive on sight.
The economic developments are doubly noticeable in the advertising industry: On the one hand, companies suffer from material shortages. That’s why they don’t even advertise products that they won’t be able to bring to the market in the foreseeable future. On the other hand, consumers are groaning under the high prices for food and energy – and are asking for fewer products. Companies price in the lower sales and therefore often do not place any advertising.
Advertising industry above pre-corona level
The advertising industry accounts for around 1.3 percent of German economic management, and its companies employ a total of around 900,000 people. The industry has been under pressure since the outbreak of the pandemic. In 2020, the German advertising market lost seven percent – and thus more than the economy as a whole. In 2021 there was an increase of 5.5 percent.
This year, the advertising industry is likely to grow above the level of the pre-Corona year 2019. According to preliminary data, the ZAW assumes that the market will grow by 2.8 percent to 48.7 billion euros, as the Handelsblatt learned in advance. In 2019, the market volume was still 48.3 billion euros.
The reason for this year’s plus is the continued disproportionate growth in digital advertising. The ZAW expects an increase of at least seven percent. However, national or European companies benefit little from this, while large American or Chinese platforms such as Alphabet or Tiktok benefit more.
The TV market is one of the advertising losers this year. According to the Association of Private Media, the industry expects a minus of six percent in this area. Private television is particularly affected by this. RTL boss Thomas Rabe recently said: “Looking at the fourth quarter, we assume that the difficult environment on the advertising markets, especially in Germany, will continue.”
However, ZAW President Schubert estimates that the advertising market in the public service segment should grow slightly this year. Figures from the market researcher Nielsen already showed in the spring that more TV viewers trust public television in times of crisis. Such a seriously assessed environment also attracts more advertising customers.
Agencies complain about budget cuts
Advertising agencies are also an indicator of the mood in the advertising market. In a recent survey by the General Association of Communications Agencies (GWA), 78 percent of them said that they had already been confronted with budget cuts or that they had been announced. Advertising agencies are service providers for companies in all sectors. However, the economic uncertainties are currently affecting almost all companies.
So says Florian Haller, head of the Serviceplan agency group, which with 5,000 employees is the largest owner-managed communications agency group in Europe: “For me, the current situation is like a perfect storm.”
The decisive factor will be how the consumer climate will develop. That can only be said reliably in a few months, says Haller. According to market researcher GfK, the consumer climate reached an all-time low in the autumn, but has recently stabilized at a low level.
Despite the decline in advertising spending, Haller currently sees “much more stability in the advertising market than you would have thought two months ago”. The advertising expert is “cautiously optimistic” for the first quarter.
In 2022, Serviceplan benefited from catch-up effects. Serviceplan closed the postponed fiscal year at the end of June with a plus of 28 percent.
Overall, however, the mood in the advertising industry is historically bad. On a scale of one to eight, the ZAW members surveyed rated the current situation at 2.5 points. Before Corona, it was always around five points – and even shortly after the outbreak of the pandemic, the mood was better than now.
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