Pandemic Accelerating Push Toward Digital Media, Ads, Says Wells Fargo's Hebert
The pandemic is intensifying media trends toward digital advertising, streaming video and direct-to-consumer offerings, said Wells Fargo analyst Davis Hebert Tuesday during The Media Institute’s teleconferenced “virtual luncheon,” the group’s COVID-19 replacement for its speaker series. There has been “steady leakage” from traditional media to digital for the past three-five years, Hebert said. The pandemic and stay-at home orders enhanced that, he said.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
COVID-19 could “permanently shift more dollars into digital,” Hebert said. Consumers spending more time at home are consuming more media than ever, around 12 hours a day. That led to media companies focusing on offering streaming video options that are direct to viewers, said Hebert. Peacock, HBO Max and Disney+ are examples, he said. Video providers are “accelerating” in the direction of subscription VOD, he said. Going digital and directly to customers is a way to diversify revenue streams, Hebert said. Analysts anticipate a 9% decline of traditional video customers in 2020, he said.
The pandemic could accelerate cord-cutting more if live sports don’t return, Hebert said. Sports is generally the most expensive part of an MVPD bundle, he noted. “Stackers,” households that combine free broadcast TV with a selection of streaming services to create their own quasi bundle, have increased, Hebert said, now representing the majority of over-the-air households. It’s “still early in the game” to know if that trend will continue, but COVID-19 accelerated it, he said.
COVID-19 is also causing a rise in broadband use, data consumption and ISP investment in broadband infrastructure, Hebert said. That has been “very profitable” for cable companies, he said.
The media outlook is hard to forecast, Hebert said. Wells Fargo predicts an economic “snapback” in Q3, Hebert said. He praised aggressive moves by the Federal Reserve at the start of the pandemic, and said that led to a “melt-up” in the stock market and investors incentivized to take risks. The S&P 500 is 8% short of its all-time high, he said. In total ad spending minus political, Q2 was down 17% from the prior year, Hebert said, calling it “the worst quarter ever.” Forecasts are “all over the map” about ad spending in Q3, Hebert said, predicting it will be down 5% from the same quarter last year. Hebert said projections show Q4 will be flat.
Broadcast commercials could bounce back quickly because it's largely spot advertising, which is typically bought at the last minute. If the economy bounces back and more localities reopen, businesses could quickly begin buying ads, he said. Whether the dollars that shifted from broadcast ads to digital are permanently gone remains a question, he said. Similar to other analysts (see 2006180053), Hebert said the pandemic isn't likely to affect 2020 political ads very much. Q2, the shutdown's worst quarter, hasn’t historically been a big political ad quarter, he said.
Broadcast TV has a rosier outlook than audio, Hebert said. Radio ads could decline 25% in 2020, he said. The targeting and ad data available from digital media could mean that money doesn’t ever come back, Hebert said. Streaming services aren’t suffering as much because they have less exposure to ads, he said.