Greater sovereignty or smaller budgets: With polls tight ahead of the EU referendum, what would Brexit mean for the marketing and advertising industries?
On 23 June, adland will have a tough decision to make – whether to be at a party in Cannes or a polling booth in Britain.
It is hard to assess the impact Brexit would have on the marketing and advertising industry, and its outlook on the issue is predictably varied. Firms differ in size, skill requirements, reliance on data, and the cross-border nature of their clients’ businesses.
Last month, a survey by Mailjet found that 31.3 per cent of senior marketers from across the UK think that Brexit would be good for their business, 41.7 per cent said it wouldn’t, and a whole 27 per cent weren’t sure. So what would happen if we voted to leave?
Budgets
“Whenever things are uncertain, people cut marketing budgets,” says Johnny Hornby, chairman and chief executive of The & Partnership. Some agencies are anxious that clients will slash their marketing spend in the short term, while they wait to see how their supply chain is affected, and whether import or export tariffs slim down their margins.
It is impossible to assess how long it would take for the dust to settle, but WPP boss Sir Martin Sorrell is not optimistic. “I know clients will close plants. Jobs will go,” he told an audience at Advertising Week Europe (AWE). “The question is how long that will go on for.”
The industry itself is revising down growth forecasts for this year. According to the Institute of Practitioners in Advertising’s (IPA) most recent Bellwether report, sentiment has fallen to its lowest level since 2013. The extent of this revision shouldn’t be exaggerated; budgets are still expected to increase by 3.3 per cent in 2016, but the pace is more sluggish than had been expected.
Paul Smith, the senior economist at Markit who authored the report, said that this was “probably not helped by uncertainty around EU membership”, but did not imply that this was the only risk in play.
There is little doubt that UK markets will be shocked in the immediate aftermath of a vote to leave. And it will be difficult for clients to discern how much market movements are being influenced by Brexit, and not a larger cocktail of global risks, namely slowing Chinese economic growth.
The heads of some multinational agencies have said that they won’t be waiting around for the UK to rebound. Last week, Ogilvy & Mather worldwide executive director Paul O’Donnell told The Drum that none of his clients has increased their budgets this year, and that it “would not invest further in [its] UK business in a non-EU environment.”
Despite this, the industry’s mergers and acquisitions market has shrugged off any perceived threat. In the first quarter of the year, 38 UK deals were agreed – an 81 per cent increase on last year, according to Results International.
If so much rests on the perceived competitiveness of the UK’s marketing and advertising services outside the EU, how is it likely to change?
Competitiveness
London has some obviously attractive qualities which has allowed it to emerge as a hub for the European, Middle Eastern and African operations of US and Asian clients. Britain speaks English, and ready access to global funding has ensured a burgeoning concentration of adtech companies in the capital. The geographical proximity of agencies in the same city allows for easy collaboration on pan-European campaigns, and acts as an assurance to clients.
The impact of Brexit will depend heavily on an individual agency or network’s existing operations. MediaCom UK chief executive Josh Krichefski says that his firm’s clients enjoy the benefits of the network being very joined up across the region, and that he has not heard any compelling arguments for leaving, but says that exiting itself would not impact the business. “Around 80 per cent of MediaCom UK’s billing is from UK clients, so we’re not one of these local agencies which is fully dependent on global relationships,” says Krichefski. “We have central digital teams who can execute across markets but we have local teams in those markets who can also execute. Exiting Europe would not have any effect on the way we run operationally.”
The UK industry may have cemented its position as a global player. At AWE’s session on Brexit, Advertising Association chief executive Tim Lefroy expressed confidence that UK advertising, which exports around £4bn of services every year, would remain resilient in or out of the EU – a view shared by other industry bodies like ISBA. “The UK ad industry as a whole is vibrant and creative,” says Ian Twinn, ISBA’s director of public affairs. “Its appeal is beyond the UK and beyond the EU – its clients transcend nation state borders.”
Moreover, Britain’s marketers remain seemingly unconvinced by the EU’s efforts to promote digital business. Mailjet’s poll revealed that 58.6 per cent of senior marketers hadn’t even heard of the EU’s Digital Single Market strategy, which aims to roll out 5G across member states and reduce the set-up costs for tech startups. Fully 48 per cent of startup marketers said that it would be impossible to achieve.
The movement of people
The ability to attract talent to the UK from across Europe is another concern.
Jenny Halpern Prince, founder of Halpern PR and chair of the Women IN campaign says that the ease with which Europeans can come to work in Britain as a result of the UK’s EU membership should not be jeopardised. She is also concerned about increases in fares on flights to the rest of the continent, which David Cameron and Easyjet chief Carolyn McCall have also warned against. “All our teams travel non-stop to get to events, conferences and meetings. The budgets for travel in PR are not huge, and increases will affect our bottom line.”
The idea of being able to work in any country across an advertising network is key to attracting the best talent, says Maxus global chief executive Lindsay Pattison. “We’re a talent business,” she told Advertising Week Europe. “That’s the only thing we’ve got as a services industry.”
Of course, a firm’s position on the free flow of labour around Europe will depend on where its most lucrative markets are. Farzana Baduel, managing director and founder of Curzon PR, says that the ability to hire from all over the world is necessary to meet the needs of global clients. “We need to hire people who can speak certain languages, and act as a cultural bridge with clients. These skills shortages need to be addressed, and I worry that the government’s inability to meet net migration targets will limit immigration from outside the EU.”
Sovereignty
Brussels has limited the scope of UK advertising in certain areas. Tobacco is an obvious example. In 1991, all advertising and sponsorship on TV was banned. But Whitehall’s interventions have since gone even further, restricting tobacco advertising on billboards, merchandise, and in cinemas across the UK.
Culture secretary John Whittingdale has said that he is in favour of self-regulation and co-operation within the industry, but the government may yet take action on adblocking and its childhood obesity strategy may put further curbs on the marketing of high fat, salt and sugar products.
When it comes to data, a post-Brexit Britain would likely remain bound by European directives. The recently announced General Data Protection Directive will require any firm which handles EU citizens’ data to hire a data protection officer and report data breaches within 72 hours, regardless of whether they are based inside the EU or not. It is still unclear how this will affect the US, or the UK if it votes to leave.