Covid-19 has upended the region’s advertising industry. How are agencies coping? Are wage cuts and job losses imminent? How worried should employees be? Arab Ad takes a virtual look at the situation on the ground
As Covid-19 continues its devastating advance, the human and economic cost of the pandemic is accelerating. The death toll is rising, advertising spend is in free fall, and the global economy faces the worst recession since the Great Depression. The Interactive Advertising Bureau has already indicated that the global collapse in advertising spend will be greater than the 2008/2009 financial crisis and there’s no immediate sign of a turnaround on the horizon.
In such circumstances, damage limitation has become a global priority. Dentsu Aegis Network has initiated salary reductions and furloughs across both the holding company and its individual agencies. Publicis Groupe has slashed its dividends to shareholders by 50 per cent and the group’s chairman and chief executive, Arthur Sadoun, has reduced his salary by 30 per cent. All management board members have also seen their salaries reduced by 20 per cent. WPP has ceased all new hires, reviewed freelance expenditure, stopped discretionary costs, and postponed planned salary increases for 2020. Members of its executive committee have also taken a 20 per cent salary cut for an initial three months.
Regionally the story is far more opaque. Agencies that are usually forthcoming have withdrawn into their shells, unwilling to divulge potentially sensitive information or gagged by global. Of the 20 advertising agencies contacted by ArabAd, only half responded. Of those, just six agreed to provide comment. Even then information relating to possible salary reductions, unpaid leave or redundancies was generally omitted.
Nevertheless, it is possible to build a picture of what’s happening, even if that image is blurred. MCN, which includes FP7 McCann, MullenLowe, UM, Initiative and Weber Shandwick amongst its stable of agencies, has put a freeze on all new hires, reviewed and significantly limited the use of freelancers, and postponed any planned increments and/or bonuses until further notice. These measures may or may not contract or expand depending on the duration of the crisis.
Similar measures have been applied across most agency networks with varying degrees of severity. So far any discussions relating to pay cuts, the furloughing of staff, and/or redundancies have been held behind closed doors, but as the crisis deepens all options are on the table. Temporary pay cuts are the most likely initial scenario, with Memac Ogilvy understood to have already implemented a temporary 20 per cent wage cut across all senior positions. Some PR agencies have also moved to a three-day week with reduced salaries.
“I have witnessed the effect of two prior economic disasters on our industry – Black Monday and the global financial crisis,” says Robert Mitchell, managing director of The Tribe, an independent agency based in Dubai. “But the fact that Covid-19’s huge impact is not confined solely to the economy makes it very different. Who knows how long this will go on, who among us and our loved ones, and what type of world or work, await on the other side.”
“I have witnessed the effect of two prior economic disasters on our industry – Black Monday and the global financial crisis. But the fact that Covid-19’s huge impact is not confined solely to the economy makes it very different."--Robert Mitchell, managing director of The Tribe, Dubai
The severity of the financial blows depend largely on the nature of an agency’s business. The wholesale collapse of the events industry has been deadly for experiential agencies, with Dubai-based Custard closing in mid-March. Production houses, who rely on freedom of movement and direct human interaction, have seen their businesses grind to a halt. Independent agencies that lack liquidity and the support of international networks are also vulnerable.
Working from home has made flexi-pay systems more palatable (albeit temporary and based on timesheets) for independents such as The Tribe, which is “managing the best we can to keep overhead and personnel costs under control” says Mitchell. But for those in Lebanon, Covid-19 has compounded an already miserable situation. Even prior to the pandemic agencies such as the Rizkgroup had made staff redundant, Operation Unicorn had reduced the working hours and salaries of its employees, and both B, and welovebrand were working with teams on a project-by-project basis only. “Only new work can save us,” admits Ramzi Barakat, the founder and creative director of B, and welovebrand. “New work, new clients, and clients challenging us. That is our lifeline.”
To a certain extent the regional offices of multinationals have been partially sheltered from the storm by their global networks and holding groups. Nevertheless, the strain is being felt by everyone.
"we have never had a pipeline as active as it is today, across almost all of our markets. Any office that has spare capacity is being fully utilised to be able to manage existing scope as well as growth opportunity.”--Tarek Miknas, CEO FP7 McCann
“Like every business, we have shareholders and we have to manage the business responsibly,” says Tarek Miknas, chief executive of FP7 McCann. “We’ve seen everything from contract terminations, contract suspensions, reductions in scope and fees, reallocations of budgets, postponement of work, and the like. But conversely, we have also seen temporary suspensions relieved early and, believe it or not, an increase in scope and fees. And although we are not counting on it, we have never had a pipeline as active as it is today, across almost all of our markets. Any office that has spare capacity is being fully utilised to be able to manage existing scope as well as growth opportunity.”
"Oddly enough, except for the travel industry, work is still flowing. This is actually one of the busiest periods I can recall."--Hubert Boulos, CEO DDB Middle East
FP7 McCann is not alone in reporting increased activity. Virtual pitches have been taking place, clients have been producing messages of hope and solidarity, and in many cases productivity has risen. Science & Sunshine has hired new staff to cope with the level of client activity and DDB has won its first new piece of business under lockdown. “Oddly enough, except for the travel industry, work is still flowing,” says Hubert Boulos, DDB’s chief executive for the Middle East. “This is actually one of the busiest periods I can recall.
“We have not had to reduce salaries nor headcount so far. This is clearly due to the ongoing workload from clients. Why cut when business is still flowing? I don’t know how long we will last without taking action, but so far so good. The team at DDB Dubai has been spectacular under the circumstances.”
Heartwarming stories of camaraderie, backs-to-the-wall resilience, and creativity have emerged. Agencies are also doing everything they can to help and protect their staff. MCN’s HR team has arranged hotlines, an employee assistance program, set up well-being conferences, and launched an online learning and development portal. “I think it would be fair to say that they [HR] have been, and are very much, on the front line for all of the agencies within MCN,” says Miknas.
"We just have to constantly reassess and reinvent our way-plan. We’re in the dark here. There’s no footpath, no industry norms or precedents.--Ali Ali, film director/co-founder of Good People and GP&K
Creative problem solving is also having a moment. Ali Ali, a film director and the co-founder of Good People and GP&K, is currently working on a film for an Egyptian telco. Given the restrictive circumstances the film’s featured celebrity will shoot everything at home on his iPhone, with Ali directing via Zoom. “Desperate times require desperate measures,” he says with a virtual smile.
In a similar fashion, TBWARaad recently produced its first ‘virtual shoot’, with production taking place in Turkey, creative run out of Beirut, and client servicing handled by Dubai. The agency has also been busy producing work for Nissan, du and the Lebanese Army.
None of which reduces the severity of the situation. The longer the pandemic continues the greater the damage will be. Budgets will be slashed, cash flow will be reduced, and more agencies will be forced to cut costs. Nobody is immune.
“The real problem is there’s no guessing when this will end,” says Ali. “It’s hard to put a timeline on it. Like investors on Wall Street trying to guess the bottom. Where and when is the bottom? That is the immanent question. You see, your strategy for fighting Corona can only depend on how long you think it will last. Ideally you put a short-term, medium-term and doomsday scenario in place. And in the short-term, it’s business at usual for GP&K. We may be introducing a few salary cuts next month, but that’s about it. No lay-offs and no downsizing for now.
“Unfortunately for an advertising and media company in the Middle East there is no fiscal stimulus and there are no tax breaks. We only get the ‘stay at home’ bit. So until we see a clear plan for an ‘exit strategy’ from our government or some signs of a medical breakthrough, we just have to constantly reassess and reinvent our way-plan. We’re in the dark here. There’s no footpath, no industry norms or precedents. One thing’s for sure, if that Covid-19 son of a bitch keeps us wearing masks on Zoom for another year, it’s not going to be pretty.”
If agencies are to emerge on the other side in one piece, no matter how long the pandemic lasts, they’ll have to optimise everything they do, believes Miknas. “Sure, optimism, but ‘hope is not an action’,” he says. “We need to be brave and act positively. Work hard – and smart. We need to make meaning of whatever we do for the brands we partner with. We need to be effective at reaching and resonating with the consumer. We need to have empathy with our people. We need to optimise on all fronts.”
