By Sheila Dang and Helen Coster
(Reuters) – The U.S. advertising industry could face steep losses as sports leagues cancel or postpone live events and consumers spend less while many stay at home during the coronavirus outbreak, experts said on Thursday.
With companies widely expected to slash marketing budgets, the ad industry could see nearly $26 billion in lost revenue, or a 10.6% decline, Michael Nathanson, an analyst at MoffettNathanson, estimated in a research note on Thursday.
The coronavirus effect on live sports, one of the last remaining categories that continues to attract large audiences and therefore advertisers to traditional television, could “accelerate a meltdown” for TV advertising, said Richard Greenfield, a media analyst at Lightshed Partners.
Ad revenue losses will likely be seen first in the digital market dominated by Alphabet Inc’s Google and Facebook Inc because the spending is more easily adjusted, followed by traditional media like TV, according to Nathanson.
The National Basketball Association said Wednesday it was suspending the current season after a player was diagnosed with coronavirus, and the National Hockey League said it was “evaluating the options” and expected to have further updates on Thursday about its season, which begins in September.
The PGA began its Players Championship golf tournament on Thursday as usual, but said it would continue to review the situation and give an update later in the day.
“This is an unprecedented situation that media networks have not planned for,” Greenfield said.
Most of the NBA season has been played, and what happens to the playoffs will be the question for AT&T Inc’s TNT network and Walt Disney Co’s ABC and ESPN networks, which hold broadcast rights for NBA games. Comcast Corp’s NBC Sports airs NHL games.
Broadcast rights holders will likely still have to pay their fees to the NBA even if games do not air, and even though the NBA is required to compensate the networks for any lost advertising revenue and fees, those calculations will be complicated, Greenfield said.
The National Collegiate Athletic Association said Wednesday its March Madness basketball tournaments, which begin next week and will air on ViacomCBS Inc’s CBS and AT&T’s Turner networks, will be played without spectators.
The blow to the ad industry is not restricted to the United States, and China’s advertising industry has been hit hard by the epidemic. According to a survey Chinese industry magazine Modern Advertising conducted with 112 advertising companies, 95% of respondents said their first quarter revenue would drop, and of those who said so, 53% described it as a severe decline or devastating blow.
Some analysts, however, believe the impact could be short-lived. “While we expect an epidemic in the US will cause contraction in advertising revenues, we expect it to normalize after the threat passes.” wrote Moody’s Senior Vice President Neil Begley in a report Wednesday, prior to the NBA announcement.
Although the extent and length of the virus’s impact is hard to predict, Moody’s forecast assumes economic activity will bounce back in the second half of the year if the spread of the virus in the Northern Hemisphere subsides in warmer weather and efforts to slow the virus globally succeed.
Nathanson did not put a specific time frame around his forecast for a nearly $26 billion decline in ad industry revenues.
(Reporting by Sheila Dang and Helen Coster in New York and Brenda Goh in Shanghai; Editing by Kenneth Li and Tom Brown)
