Media executives say they can weather the downturn

While media executives will be meeting advertising leaders this week over a glass of roses at the annual Cannes Lions International Creative Festival, they can’t help but talk about the disconnect between hanging out with celebrities on a yacht and the shiver that a recession is near. .

“It feels like a party here,” NBCUniversal CEO Jeff Shell told CNBC’s Julia Boorstin from Cannes on Wednesday. “I don’t know if it’s because most of you are out for the first time in a long time or because we’re in the south of France in June, but no, it’s not like a sale.”

But Shell has acknowledged that there are warning signs, albeit complex ones. “The distributed market has weakened a bit,” he said, referring to the real-time cost of TV ads, rather than the pre-installed “upfront” market. “It’s very complicated because there’s so much going on.”

Historically, macroeconomic downturns have led to a spike in the number of employees in the media industry. With Recession odds are increasing and executives braced for a drop in ad revenue in the second half of the year, media companies didn’t lay off people or cut staff — at least not yet. Instead, industry leaders feel their companies are finally lean and balanced enough to weather the advertising downturn without sacrificing profits or signing business deals.

“Our focus is on building a truly resilient, adaptable digital media company,” BuzzFeed CEO Jonah Peretti said in the first day of this month. “We thrived amid volatility. We built a business model.”

Roger Lynch, CEO of Conde Nast, said: “While the economic downturn may have impacted the media advertising market, we are on track to achieve our business growth goals. after a critical year of profitability.” The New Yorker and Vogue Publishing Company, turned profitable last year after years of losses.

Part of the reason why smaller digital media companies feel prepared for a recession is they have laid off hundreds of employees over the past few years, stemming from acquisitions and a desire to reduce costs. BuzzFeed announced many layoffs just a few months ago.

However, many digital media companies make most of their money from advertising – including Conde Nast and BuzzFeed. And not everyone is optimistic that media companies are coming out of the woods. Since going public, BuzzFeed The stock has dropped more than 80%. BuzzFeed raked in $48.7 million in advertising revenue in the first quarter, about 53% of total revenue.

Graydon Carter, founder of Subscription-based communication company Air Mail and former longtime editor of Conde Nast’s Vanity Fair, said in an interview.

“If you’re in the programmatic advertising business, which most digital media companies are, you’re going to suffer the consequences at some point when the economy is down,” Carter said. It’s simply out of your hands.” “I think [a downturn] would be brutal and possibly prolonged. “

The three most recent recessions – 2020 Covid-19 pullbacks, the financial crisis of 2007-09 and the burst of the dot-com bubble of 2001 – all of which resulted in a spike in job losses for media companies, many of which were once short of balance sheets accounting to address a temporary downturn in the advertising sector. While the media industry contracted for the past two decades2001, 2008 and 2020 were the three biggest years for job loss, according to data from Challenger, Gray & Christmas.

It is natural for executives to feel optimistic about their company’s prospects. Alex Michael, co-director of Liontree Growth, which specializes in working with emerging media companies, says their feeling that “this time will be different” is not unfounded. This is especially true for smaller digital media companies, including newspaper and magazine owners, that have diversified into subscriptions, e-commerce, events, and other products to own advertising revenue.

“In the past, these businesses didn’t have the right model and weren’t fully mature,” says Michael. “Now they’ve gone through waves of consolidation. There’s been a complete rationalization and optimization. Many of the companies that are left now have endemic audiences who will open their wallets in other ways. together.”

Read more: TikTok CEO: We are an entertainment platform, not a social network

However, others are cautious. Snap, owner of Snapchat, said last month “The macroeconomic environment has deteriorated faster and faster than anticipated,” sending its shares down 40% in a single day. Meta and Twitter has begun a partial recruitment freeze. Digital media companies Insiders and Vice Media is said to be slowing hiring.

One digital media executive told CNBC while a smaller decline may have occurred, a 20 percent cut in advertising revenue by year-end is not out of the question.

Smith is in the process of founding Semafor, a new media startup for global news. While Google and Facebook have dominated the digital advertising space for over a decade, there are a number of advertisers who are diversifying ad spend away from the tech giants to support the news industry. facing growing Big Tech privacy violations and misrepresentations.

“In the past, marketers have really shied away from news media, especially with digital targeting, for the sake of brand safety,” Smith said. negativity, war and famine”. “Now you’re seeing the opposite – the bravery of the brand. The only real antidote to misinformation is human intervention. This is a complex of hundreds of billions of dollars. Even A small loophole of that group is also a large amount of money.”

Smith is not interested in sending Semafor into a potential recession. He said that while Semafor aims to attract university graduates globally, the broader audience is niche websites with passionate audiences, even general interest publications are now available. in a better place than 10 or 15 years ago. He noted the widespread acceptance of the subscription.

“If you look at the last five years, whether it’s the pandemic, or the Trump fascination, or the rise of Spotify and Netflix, there’s been a huge shift in subscriptions,” Smith said. speak. “There’s the following example of multi-category consumer acceptance of news subscription models.”

Smith implemented a consumer fee wall for the Bloomberg News website three years ago. Today, more than 400,000 people pay for access. Semafor, due out this fall, will start as a free, ad-supported service and will stay that way for “six, 12, maybe 18 months,” before installing a fee wall. . Some articles will always be free, says Smith, similar to many other digital news services.

Smith also said the industry has evolved in ways to better connect audiences with reporters, even during difficult times. Smith is driving this enhanced relationship by directly recruiting talent agents who will be tasked with pairing journalists on products and events outside of Semafor’s core business. to expand their reach.

“The media industry is in better shape than it was a decade ago,” Smith said. “Strategies make more sense. Digital adoption is more pervasive. Models are clearer. Revenue streams are more diverse. Executives are more experienced. Even though we may be on the way. heading into a global recession, but I think the media business is going to withstand some more downward pressure than it has been in the past.”

Disclosure: NBCUniversal is the parent company of CNBC.

WATCH: TikTok Advertising Director Blake Chandlee speaks from Cannes