More

    As agencies exit Russia, questions arise over lasting consequences

    Agencies entered the year riding an ad market high and expressing optimism over continued traction in areas like e-commerce and data-driven marketing. The war in Ukraine has thrown some cold water on those expectations while calling attention to how Russia’s role in ad fraud and botnet schemes impacts publishers and agencies.

    All six of the major ad holding groups have started to wind down business in Russia, a movement that’s unlikely to create a substantial impact on the bottom line — though the size of agency footprints in the country varies — but nevertheless ushers in a period of instability for an industry that was just starting to find its footing again.

    “It’s astonishing the speed at which the holding companies eventually pulled out of Russia,” said Greg Paull, co-founder and principal at the consultancy R3.

    Advertising, broadly, was already primed for a bit of a cool down. Slowing momentum can be attributed to the fact that 2021 saw many brands try to make up for time lost in the early days of the pandemic, when spending pullbacks were common, while activity this year would’ve leveled off to some normalcy.

    U.S. advertising revenue grew a record 25% year-on-year to $287 billion in 2021, according to estimates from Magna Global. In December, the firm forecast revenue growth of 12.6% for 2022. But the crisis in Ukraine introduced a fresh wave of volatility, compounding existing inflationary pressures and supply chain disorder. Magna in late March revised its growth forecast down a percentage point for the year.

    “The Ukraine crisis has already hit consumer and business confidence. It will slow down economic growth in 2022 and fuel the inflationary trend,” Vincent Létang, executive vice president of global market intelligence at Magna and an author of the report, said in a statement.

    Létang added that headwinds from Ukraine could be mitigated by advances in fields like e-commerce and the growth of new business verticals. Longer-term, the fallout with Russia raises more complex questions for agencies and marketers that have increasingly plumbed new markets for growth. It sets a precedent that will be harder to follow if conflict intensifies in other parts of the world, including areas that draw more significant brand activity and investment.

    “If this was China, it would be a different discussion,” Paull said. “China supports Russia. Will there be restrictions in that market? What other countries could fall under that structure? There’s just a nervousness, generally, for that.”

    Ripple effect

    Once the dominoes started to fall for agencies in Russia, they fell quickly. WPP was the first major ad network to pull out in early March, about a week after the initial invasion, with Interpublic Group, Publicis Groupe, Omnicom and Dentsu following suit weeks later. These reactions came as hundreds of brand marketers announced plans to cut off marketing activity and investments in the country, effectively drying up business.

    “A lot of it is client-driven, which is just the reality of where things are,” Paull said of agencies winding down operations.

    With agency earnings reports on the horizon, the Russia situation will be a discussion point with shareholders but unlikely to produce anything earth-shattering regarding profits and losses. Some ad holding groups had just a few hundred employees in Russia, and many relied on affiliates in the region. As part of the wind-down process, several networks, such as Publicis, have begun transferring ownership to local management.

    Taking in the bigger picture, the reassessment of Russia’s place in the ad ecosystem could create a ripple effect that might ladder down to agencies. The country is notorious for producing ad fraud, as noted in Mediatel, including through the Methbot digital ad scheme that cost advertisers millions a few years ago. Mediatel also emphasized that many publishers don’t have their houses in order, as evidenced by a recent controversy that saw Gannett advertisers fall victim to domain spoofing — a dust-up that drew larger scrutiny toward the programmatic supply chain.

    spot_img

    Latest articles

    Related articles

    spot_img