Even at the beginning of March, Udo Mueller, the founder of one of Europe’s biggest outdoor advertising groups, was describing the market reaction to coronavirus as “hysteric”.
“In every average influenza wave in Germany, 25,000 people are dying,” the chief executive of Ströer told analysts. “And now we have 140 people infected in Germany from 80-something million people. I don’t think that in two or three months, anybody [will be] talking about it any more.”
Just a few weeks on, the coronavirus pandemic has dealt a devastating blow to the so-called “out of home” sector, a once resurgent industry dependent on busy roads, packed urban centres and transport hubs.
Mr Mueller has been forced to backtrack, with the crisis forcing Cologne-based Ströer to scrap its 2020 guidance and tell investors it would consider revisions to dividend payouts. Other operators have taken drastic action, cancelling dividends and drawing on revolving credit lines.
The defensive measures are likely to be the start of a wrenching period with a significant portion of the world’s population largely confined to their homes.
Advertisers are pulling back on the $40bn they were predicted to spend on ads across big cities and transport systems in 2020. Douglas McCabe at Enders Analysis said widespread quarantine measures had effectively “put a pause button [on the] entire outdoor advertising sector”.
Known as the oldest form of marketing, outdoor advertising was seen as a steady-but-dull business that drew its heritage back to the shop signs of the ancient world. But groups such as Ströer, JCDecaux and Clear Channel Outdoor are now at the front line of the marketing industry’s battle to weather an unprecedented shock to the global economy.
While the precise impact is impossible to predict, overall ad spending fell by about 11 per cent globally during the last “advertising recession” of 2019, according to figures by GroupM, the media buying agency.
Analysts at Macquarie Research note that about a fifth of global expenditure is generated by sectors, such as leisure and travel, that have been devastated by coronavirus. If those clients halve planned spending while others shave 10 per cent from campaign budgets, the overall hit would be about 18 per cent, they estimate.
Outdoor-focused companies will bear the brunt and are already scrambling to manage costs and shore up their balance sheet.
Clear Channel, whose share price has tumbled 75 per cent in a month, said last week that it was tapping $150m from its revolving credit facility.
JCDecaux, the world’s biggest out-of-home advertising group, last month unveiled sweeping measures which included cancelling the payment of dividends, cutting discretionary spending and reducing employee hours. The French group also withdrew guidance predicting a 10 per cent hit to revenues, issued at the beginning of March.
“We are now facing a global recession which is likely to be worse than the downturn during the 2008 financial crisis with the advertising market being hit badly,” said Jean-François Decaux, co-chief executive.
The family-owned group is also looking to renegotiate rental deals with airports, port authorities and train stations where it runs more than 1m advertising panels. Speaking in early March, Mr Decaux said the rent on many airport contracts represents more than 70 per cent of revenues.
Digital technology has been the big growth driver for the industry in recent years, with expensive investments in high-tech billboards allowing eye-catching adverts to be sold and rotated much faster than physical posters.
But relatively new entrants are now exposed, especially in the UK, the world’s most digitised outdoor advertising market.
In 2018 media group Global bought a portfolio of outdoor advertising companies to secure almost a third of the UK market, including the London Underground contract.
Global declined to comment on whether the company would try to renegotiate its rental agreements in the wake of train station closures and reduced traffic. A Transport for London spokesperson said: “We will in due course work with our advertising agents to assess the impact of these measures.”
For those groups that do survive, there is also a bigger question on the horizon: will ad spending flow back to out of home sites if public behaviour is permanently altered by the crisis?
Brian Wieser, global president of business intelligence at GroupM, said there was a need to “look beyond the period directly in front of us”. If there were “waves of people working from home” in future, that would lessen the relative appeal of the outdoor advertising, he said.
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The pandemic may be a prompt for consolidation. “We will see some market contraction that will create, obviously, some opportunities,” Mr Decaux told investors in March. “It is clear that our balance sheet is there to help us to take advantage of opportunities when they may come.”
Last week Clear Channel announced the sale of its stake in Chinese subsidiary Clear Media for $253m to a consortium including JCDecaux, a sign that the French group is trying to expand despite the crisis.
An executive at one prominent outdoor advertising group insisted “it wasn’t all doom and gloom”, pointing out that Americans were still driving past billboards on highways and in supermarket car parks. But he added: “This is the biggest single shock to the business world that most of us have seen in our lifetimes.”
Additional reporting by Leila Abboud