Ad Spend Could Get Hit If Tariffs Lead to a Recession

With markets collapsing around the world, companies are likely facing the fact that they will sell a lot less stuff. With less stuff sold, are as many ads needed?

And that’s how the media industry is going to get hit, big time.

Over the past three business days, more than $10 trillion in equity value was wiped out across the world after U.S. President Donald Trump announced tariffs to be applied to nearly every country on the planet—including the uninhabited Heard and McDonald Islands. Poor penguins.

The reaction from the financial markets was incredibly severe, with a widespread assumption that the U.S., if not the world, is in for a recession.

With a potential recession meaning people are less likely to be buying, executives may be looking to where they can cut—and advertising is an easy first target. So what can media companies expect?

Even if each marketing partner trims by just 5%, that could eat up margin for a publisher. For the private equity ones that have certain EBITDA covenants, this can be potentially very impactful.

Not convinced? There’s palpable fear among CEOs. According to Bloomberg:

“The economy is weakening as we speak,” [BlackRock CEO Larry] Fink, 72, said in an interview Monday at the Economic Club of New York, adding that he foresees more of an economic slowdown in the coming months.

Inflation is likely to be elevated, Fink said, casting doubt on the Federal Reserve cutting rates multiple times this year. As an example of worries spiking, Fink said he’s already heard from airline executives about the decline in travel demand.

“Most CEOs I talk to would say we are probably in a recession right now,” Fink said.

While Fink doesn’t explicitly use the word fear, I’d be shocked if there was a single CEO in the world that isn’t feeling some stress. I’m concerned and I run a company of just a few people. With that comes a desire for safety. And at least in the case of running a business, the best kind of safety is a bigger bank account.

The issue is, this desire for a bigger bank account cascades. A client that normally pays a vendor net-30 might “unintentionally” or “accidentally” push it to net-40. That initial vendor, who is a client to a different vendor, pushes their payment out to net-40. This continues until someone decides, “you know what, I’m just not going to spend right now.”

These are micro-decisions that operators make every single day. Ultimately, the only way a business dies is if you run out of cash, and if you can delay your payments or cancel totally unnecessary bills, you extend your runway. It’s that simple, really.

And marketing spend is one of those expenses that is very easily cancellable. Even before the tariffs were announced, AMO readers were starting to see signs of a softer Q2. In a survey, the majority of B2B respondents reported that there would be no change or some drop in the quarter. AMO will conduct a follow up survey as the quarter progresses to get more concrete information.

We know that this can happen during a recession. During those early weeks of the pandemic, it happened. On a recent episode of My First Million, Morning Brew co-founder, Alex Lieberman, talked about it:

I remember pacing back and forth in my now in-laws’ main room talking with [co-founder] Austin. We were talking about one of our biggest sponsors who is a financial services company that, let’s just say, had a $75,000 sponsorship coming the next day. And the day before, as Covid was starting, they canceled it. So, $75,000 gone in one conversation.

And then basically the floodgates opened. I can’t remember the exact amount, but let’s just call it, in the period of a few weeks, 30% of all revenue that we had booked vanished. I remember Austin and I going back and forth being like, ‘how the hell are we going to make enough money to just not fire people?’ I remember the first lever that we pulled is we basically turned paid acquisition down to zero.

Not only did they see a drop in spend, but they had to pull back spend, which negatively impacted where they were buying from.

During the Great Recession, ad spending went off a cliff. eMarketer has a good chart that shows the pullback in advertising spend. Here are two key years:

• 2008: Down 5.8%
• 2009: Down 17.5%

Can you imagine seeing ad spend drop by 17.5%? I can’t. Going into the deep archive of The Guardian, we find this story from March 2009:

Advertising spend fell off a precipice in the fourth quarter of 2008 plunging almost 10% year on year with the newspaper sector the biggest faller, suffering a 12% drop.

…

The AA said that the 9.6% fall in the fourth quarter dragged the total UK ad spend for 2008 down 3.9% year on year, compared with the 4.6% growth between 2006 and 2007.

Newspapers never truly recovered from the Great Recession, with budgets increasingly moving online. Ironically, The Guardian reported that “internet ad spend … saw a 17.3% boost in the fourth quarter of 2008 yearonyear [sic], although this growth rate has more than halved from the 39.5% seen between 2006 and 2007.”

That does mean that there can be winners. Ultimately, what will matter most is our ability to prove performance. A lot of the fluffier, less-performing but “cool” ad campaigns will likely get cut. Sponsorships may pull back in place of more targeted lead generation. Our ability to prove that we can drive results, even during a recession, will be critical if we’re going to continue generating revenue.

Nevertheless, there is clear and irrefutable evidence that if the U.S.—or the entire world—enters a recession, companies will cut ad spend. It’s then just a question of how bad a recession this is.