Media and tech players in different states as we head into recession

Summer is over and the nights are becoming longer. In addition, the increasing gloom on the weather front is matched by a similar gloom when it comes to the consumer.

The rise of double-digit inflation, with skyrocketing energy bills, has dominated headlines and driven UK consumer confidence, according to GfK, down to historic low levels.

Moreover, the consensual view is that there is more pain to come, with inflation set to rise further into 2023 and poorer households under mounting pressure.

Some suspect the downbeat mood music may be overdone – myself included. But if the worst of the economic predictions come to pass, how will the tech and media landscapes change?

NOT A NORMAL RECESSION

For a start, it is important to realise that any economic downturn is unlikely to hit all households equally. Poorer households will be the most impacted, with some wealthier households feeling much less of
a pinch.

The upshot is that advertising is unlikely to be as impacted as one might expect in a recession. The major advertisers, at least, have learnt their lessons from the global financial crisis when they went silent, requiring major brand building in the aftermath. Hence, many brands are likely to continue to spend, recognising both that the wealthier elements can spend and that any price increases cemented in place now have a permanent effect moving forwards.

In addition, a significant section of the population – especially the younger groups – are still in the midst of a post-lockdown ‘getting our lives back’ spending spree.

But if the agencies might hope to keep their heads above water, the picture could be different for online ad platforms. Though they are advertising dependent, their revenues are more reliant on smaller advertisers who may be more sensitive to a downturn than the big boys.

In addition, for the social media companies, there are growing anecdotal signs – plus comments from the companies themselves – of measurement and targeting issues when it comes to advertising. I would therefore expect that growth, at least for the social media players, will remain sluggish. Search is likely to benefit from continued strong demand as consumers, well, turn to search.

However, for the traditional advertising platforms such as television, outdoor and radio, things may be relatively upbeat. That is not to say that these areas will see strong growth necessarily, but it is to say that their performance in 2023 may not be as weak as everyone would expect in an economic downturn. They may also be boosted by other causal factors – youngsters switching out of streamers for one – or by that post-lockdown desire to be outside.

STREAM OF DIFFICULTY

Speaking of the streamers, the economic downturn certainly appears to put ‘subscription video on demand’ services (SVOD) most at risk.

Subscriber growth at Netflix has stalled overall (although Disney+ is still growing). However, in the UK, data from Lloyds Bank shows that nearly 50 per cent of cancellations of subscription services over the nine months to March 2022 related to media subscription services, most of them in the SVOD space.

Music streaming services such as Spotify have continued to grow though and are likely to do so as customers view them as a “must have” product, although there may be a switch down to the free, advertising-funded product.

As for the traditional recession defensive plays? Professional publishing and online classified services – the Rightmoves and Autotraders of this world – are likely to continue to do relatively well, as they typically do in downturns.

But just as the world continues to throw up surprises, so may the media and tech world.

Ian Whittaker is twice City PM analyst of the year, a long-standing City media
and tech analyst, and founder of advisory firm Liberty Sky Advisers