Battle for the ad dollar

Industry outlook is challenging to everyone

Remember the one from Brooklyn-born designer Kenneth Cole? “Millions are in uproar in #Cairo,” he tweeted in early February 2011. True. Because they allegedly had heard about his fashion company’s “new spring collection”, the gifted marketer blared on. Triple ouch.

Every year, there are some advertising campaigns that backfire badly. Most can be attributed to cultural ignorance/insensitivity in combination with stupid timing. Cole’s was in that class, although a few grades below Coca-Cola’s epic miscalculation of first Israeli and then Arab sensitivities that led to the brand’s 23-year Arab boycott from 1968 until 1991. As far as marketing communications blunders that hurt foreign brands in the Middle East and North Africa, one cannot assess if and how much Cole’s tweet damaged Kenneth Cole Productions beyond the large immediate outcry that it generated in 2011, since the company delisted in September 2012 and henceforth had no obligation to publish results.  

Some marketing mistakes are clearly costlier than others but in general, these blunders come and go and do surprisingly little damage to the advertising industry’s profitability. The profession has become more accountable – even if that is mainly due to scandals, litigation, bad press and the arrival of digital consumer power, it also seems rooted in the will to improve. Lying to the educated consumer is the big no-no of today. Cigarettes don’t improve your health, shampoo doesn’t make you irresistible, wearing sports shoes does not make you lose weight, food is just food and there is no one drug that cures all cancers. Moreover, marketing success doesn’t grow on trees. Therefore agencies have learned to steer away from lying to the customer and from deceiving the advertising client.

Grand ideas

At the same time, however, the advertising industry has an existential need to tell stories that are bigger than life. That’s why the right deodorant and the even more flavorful toothpaste get you your dream partner, why every detergent, mobile phone and breakfast cereal is far superior to last year’s version, why every hamburger looks much better in the ad, et cetera. The knowledge that people will respond positively to embellished tales of beauty, goodness and well-being is deeply engrained in the ad industry’s DNA. Advertisers on their end always want more return for every dollar they spend on campaigns. The problem for the marketing communications profession is that the two mandates of not telling a lie and delivering a great, funny, enchanting and profitable narrative are contradictory.

[pullquote]The smallness of the revenue pie sheds harsh light on the economic viability of even prominent audiovisual networks and practically all print media[/pullquote]

Agencies seem to have embraced life within this contradiction so thoroughly that they often perceive and describe matters in their own industry through bifocal lenses with very different focuses. Like now. Judging by the numbers, the Lebanese advertising market is drifting in very dangerous currents.

This danger is not prima facie because of the mind blowing discrepancies between billings according to rate cards and estimates of real advertising sales revenues achieved by local audiovisual, print, outdoor and digital media suppliers. This gap is so customary and currently so accepted that regional ad market researchers Ipsos Media CT in their report on Lebanon, published last month in trade magazine Arab Ad, just specify what they assume to be the correct inflator for each advertising medium. It is apparently useless to fuss about the fact that these inflators range from 50 percent in the cinema category to almost 1,600 percent in television, meaning that 2015 rate-card billings of $1.62 billion in Lebanon must be revised lower, much lower – namely to an estimated $190 million.

That amount is equivalent to not more than 0.4 percent of Lebanon’s Gross Domestic Product which has been estimated at $47 billion in 2015. In the context of the country’s fragmented media landscape, with many outlets that each cater to very partisan target groups, the smallness of the revenue pie sheds harsh light on the economic viability of even prominent audiovisual networks and practically all print media.      

The danger hidden beneath the disinflated ad spend figures is that this estimate contains too much ambiguity for making a proper assessment of the industry’s health or sickness. Real advertising purchases in 2014 and 2015 could have been even lower than the Ipsos Media CT estimates of $188 million and $190 million. Directors of media planning agencies – the experts in assessing the advertising clients’ demand and purchases of media supply – work with the numbers but cannot actually confirm their accuracy.

Cloudy outlook

At Mindshare, a media planning agency that is part of WPP, the world’s top marketing communications conglomerate by annual revenues ($19 billion in 2015), the Lebanese market is judged to have been below published estimates in the past two years. Ghada Hmedeh, who manages a portfolio of luxury business from the Beirut office, tells Executive that by Mindshare’s assessment, Lebanese ad spend in 2014 was similar to 2013 and reached about $180 million in each year. “We have estimated a decrease of about 20 percent and I would say from looking at all the numbers that 2015 was closed at around $150 million,” she says.

[pullquote]Lying to the educated consumer is the big no-no of today[/pullquote]

Wilson Issa, the managing director for the Levant at market-leading planning agency VivaKi, part of the global Publicis conglomerate, gives an opinion when asked if he considers the $190 million figure for 2015 to be the real one. “Let’s put it this way: if [advertising spend] is flat, that means it is shrinking. Even if spend remained the same in 2015 versus 2014, it means that efficiencies have shrunk,” he says.

According to Issa, it is not a good signal if overall spending on advertisements is stable, because it coincides with shifts into digital marketing and this investment then necessarily is at the expense of traditional media, such as print. He observes, “Media owners were tremendously challenged in 2015. Overall budgets are more or less the same [in 2016 to date], but in a scenario where you know that you need to increase your efforts on digital, this is bad news for certain media owners.”

Beyond being worrisome for traditional media, stagnancy of advertising markets is not sustainable for the entire industry if it goes on for extended periods. “Absence of increase for one or two years is understandable, but if the lack of growth goes on longer, it is alarming,” he says.

This, however, makes 2016 something of a year on the edge. Advertising budgets of multinational clients are not something that the Lebanese media planners can bank on, because the national market is part of their regional planning and a small one at that. Given that regional economic growth outlooks are subdued and Lebanon is steeped in uncertainties, local spending by multinational clients might be at levels unchanged from previous years but increases are unlikely.

Expanded spending from regional and local clients is not much of a prospect either, given absent or minimal domestic GDP growth expectations and necessary adjustments to lower oil revenues in energy exporting countries. The advertising industry numbers of 2015 show that most Arab advertising markets reflected the tighter economic realities with drops in spending.

[pullquote]The advertising industry numbers of 2015 show that most Arab advertising markets reflected the tighter economic realities with drops in spending[/pullquote]

The outlook of further drops in regional ad budgets is therefore very concrete, even if such a downturn at this time does not directly translate into contractions of the Lebanese market, as it did in the 2008/9 burst of the real estate bubble and crisis of financial markets in the Gulf Cooperation Council (GCC). In terms of impact, the prospect of another year of no advertising growth in Lebanon is something that large and well-positioned media agencies will be able to weather but this may not be the case for everyone, says Carole Hayek, the Lebanon general manager of planning agency Optimedia, which she established in 2004 under the Publicis umbrella from Beirut.

Hope for the future?

“The problems will be affecting mainly small and medium advertising agencies, independent ones. Lebanese agencies can easily survive another difficult year but I am not so sure about small agencies,” explains Hayek, who is also vice-president of the Lebanese Advertising Association. Moreover, the resilience is limited, she admits. A lack of growth beyond 2016 would be hard to stomach. In that case, “I personally think that there will be a difficult moment for the entire industry,” she says.

The best-case scenario for the local market, in the view of Mindshare’s Hmedeh, would be a boost from a new Lebanese president. A successful election in the near future would cause a number of local advertising clients to activate campaigns in response to the upswing in national sentiment over an end to the presidential crisis, she says, but even in that scenario, her best-case expectation is for a stable market. “If we can have elections, we can optimistically look to a similar performance as last year; otherwise we might be facing another drop [of the same magnitude as in 2015],” she says.  As to markets where Beirut-based agencies could become newly active, she sees Iran as a tentative potential, based on research undertaken there by companies in the Lebanese marketing communications industry.

[pullquote]The stagnancy of the Lebanese market is not helping with the recruitment problem but the market will remain on the maps of multinational clients[/pullquote]

For Hayek, the industry’s current problem is exemplified in a lack of agency recruitment that makes local doors hard to enter for new Lebanese talent. In terms of improvement options, she sees the potential as dependent on factors in the Near East region. The stagnancy of the Lebanese market is not helping with the recruitment problem but the market will remain on the maps of multinational clients, she says: “Improvement is not on the near horizon but things cannot continue like this. This market has good potential and I am optimistic that things will change. Once there is political stability in countries around Lebanon, things will change drastically.”

In Issa’s view, the market will sustain itself because some advertisers always see an opportunity to invest into more marketing and improve their positions when competitors react to an economic trough by lowering their marketing budgets. In this sense, his worst-case scenario for 2016 is for overall budgets to remain at the level of 2015, as he expects withdrawals by the cautious type of client to be balanced by the expansionary minded ones. He says, “This is why I am telling you that advertising in a way regulates itself. Both breeds of clients, however, want more [return] for the same [marketing investment] or more for less. That is the challenge for the advertising agencies and the media suppliers as a whole.” That now seems to be the optimistic view.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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