Why UK media needs to stop blaming the Brexit for ad revenue declines

The UK's biggest terrestrial TV commercial broadcaster ITV said on Thursday that worries over Britain's referendum on its EU membership have led to "uncertainty in the UK advertising market."

As a result, the broadcaster has lowered its ad revenue forecast in the first half of 2016 - after its net advertising revenue shrunk by 13% in April.

Earlier this week, Jonathan Allan, director of sales at ITV rival Channel 4, blamed the slowdown in overall TV advertising spend partially on the EU referendum.

"About quarter of it is Brexit," Allan told Campaign.

It could be argued that this is evidence that Brexit - and the lead up to the referendum next month - would be bad for the ad industry and ad spend. Many leading figures, including WPP boss Sir Martin Sorrell and Publicis Groupe CEO Maurice Levy, have spoken strongly in favor of the Remain campaign.

 

In WPP's latest quarterly earnings, Sorrell raised concerns about the impact of the EU referendum in June, although he said the company still expected a strong performance in the second half of the year.

Sorrell said: "In the immediate future, we face the Brexit vote in the United Kingdom in June, where it is generally agreed by both sides that an 'out' vote will result, at least in the short term or mid term, in GDP weakness in the UK, the EU and possibly globally, let alone further political and economic uncertainty in the UK around Scottish independence and further disintegration of the EU."

That said, WPP said the outlook for the year looked similar to 2015, in spite of the looming Brexit decision.

So why do media and advertising companies in the UK keep referencing the Brexit when it comes to their performance outlook?

There's a general view in the industry that "uncertainty" holds marketers back from spending money on advertising. But that setback may only be a temporary blip.

Ian Whittaker, head of European media research at Liberum Capital agreed: "My personal view is that it will get back to normal pretty quickly. What you tend to find is that the impact of uncertainty tends to get overestimated."

"Obviously it depends on how we vote," Whittaker said. "If we vote to remain, the general view would be that there will be a sense of relief and then [money will] come back into the market.

He added: "If it's leave … we would have the initial shock, but people would return back to normal relatively quickly."

Why is there uncertainty in the UK TV ad market now?

So, if there is not a massive effect on the industry over whether the UK exits or remains in the EU, then why should companies be hesitant to spend on advertising in the months leading up to the vote?

"What you've got is people saying: 'I don't really need to spend this now, why don't I just wait and see what happens?'" Whittaker said.

Ian Twinn, director of public affairs at ISBA, the representative body for British advertisers, said one theory is that there is often a decline in ad spending at times of important political change.

"In general elections, for instance, ad spend can drop," he said. "People's minds are elsewhere. They are not necessarily concentrating on the latest car or what food to eat."

Could ITV's recent decline in ad revenue be a result of a move towards digital?

Everyone we asked agreed that Brexit affected spending in the UK ad market during the uncertain time leading up to the vote to a small extent. However, some considered that UK media companies could be using uncertainty caused by the EU referendum to cover up more long-term trends away from traditional TV advertising.

"The other reason you could look at is the shift away from terrestrial television and more traditional media, like print, to digital," Twinn said. "That's a trend that's been going on for some time."

James McDonald, a data analyst at Warc, agreed: "One of the prime drivers of total industry growth last year was the strong increase in investment on mobile formats, chiefly search, but also display formats such as banners, video and social."

"We expect the rapid growth in this area to maintain as the spend continues to mirror media consumption habits, and indeed it is unlikely a Brexit will affect the current trajectory either way," he said.