The View From Downunder

When you’re out there, without care

As I’m writing this, I’m sitting in the garden of a beach house in Northland, New Zealand, at dusk. I’m casting my mind back to an equally balmy evening almost exactly six months ago: the night of the Cannes Lions launch party.

The air had that cosseting Riviera warmth, the Med sparkled under the moonlit sky, and if you followed the curve of the sand to the southeast, you could see the silhouettes of the yachts in the Palm Beach marina. Several thousand adfolk danced on the beach to Gnarls Barkley’s Crazy.

You’d never have guessed, but in June 2008 the rumblings of economic discontent were very obvious. The subprime crisis was over a year old, Bear Sterns had gone under, and UK house prices were starting to follow the downward spiral in the US. Banks across the entire northern hemisphere were in trouble.

When the DJ signed off, the Australian and New Zealand contingent repaired to the Gutter Bar and carried on celebrating. It’d been a good couple of years for most agencies down under. So what does the picture look like now?

The view from New Zealand

Today, New Zealand (pop. 4.2m) feels a million miles away from Cannes, let alone the skyscrapers of the Sydney CBD and the economic powerhouses of SE Asia. The recession, however, is starting to bite.

Kiwis pay an unusual amount of attention to the housing market, which has been crippled for some time. Several finance companies have hit the wall. Mum-and-Dad investors with nest eggs in local stocks such as Telecom have been burned. And 44 per cent of companies have reported a drop in activity, the most negative result since at least 1970.

Yet consumer confidence during this New Year break is strangely resilient, propped up by plummeting petrol prices, tax cuts, and fast-dropping mortgage rates. The average Kiwi probably has more money in his pocket right now than six months ago. And although he’s cutting his expenses here and there, he’s not too worried.

This may explain the air of almost surreal calm in the NZ ad industry. There are no public signs of agencies being in financial trouble. Most clients have already set their budgets for 2009, and these budgets are largely serviceable.

The biggest changes inside agencies are around general financial prudence and housekeeping. Departing staff are not replaced. Pay rises are out of the question. Suits are taking extra care to build profit into their budgets. And a trip to New York in March to collect the Caples gong is probably out of the question. For CFOs, there is just one overriding objective: to get to the end of 2009 in profit.

The view from Australia

Things are tougher across the Tasman, but still not quite as rough as in the northern hemisphere. The big local banks haven’t made the gaffes of their US and European counterparts, so Australians are feeling detached from the woes of the US and the European Union.

In Australia (pop. 21m), around 70% of all households own the roof above their heads—one of the highest rates of home ownership in the world. People are enjoying the drop in loan payments, and retail spending up to Christmas has been surprisingly firm.

But we’re also seeing enforced pay cuts and large-scale layoffs. In December 2008, a huge 44,000 full-time jobs were lost. In newspapers, job ads are down by half, year-on-year. Online, they’re down by around a quarter. Unemployment, JPMorgan reckons, could double—to around 9%—by the end of 2010.

Despite this uncertainty, the Australian Marketing Institute says that confidence amongst the country's top thousand marketing companies hasn’t collapsed. Sentiment is 'cautionary' but holding up. And that pretty much sums up the situation in Australia right now. Of course, there’s a rider: ‘Any major changes may not become apparent until next financial year,’ says the AMI.

The view from the CFO

If your agency has a wide spread of clients across several industry sectors, you’re in a good position. You might make it to the end of 2009 without a default on your mortgage payments. But if your agency gets the bulk of its profit from one or two big clients, your CFO is going to be sweating.

On a brighter note, most clients exist for one reason: they’re selling a product or service. Smart marketers in both Australia and New Zealand are guarding their budgets with tenacity, and redoubling their efforts.

This takes a strong stomach, especially when other costs are being trimmed. So these clients will expect their agencies to raise their game by delivering more ROI as well as strengthening the brand.

Branding, I think, will still be critical. Harvard Business School professor John Quelch, writing in the Financial Times, said, 'brands that increase advertising during a recession, when competitors are cutting back, can improve market share and return on investment at lower cost than during good economic times'.

It doesn’t look like we’ll see any gigantic shifts in media spending here, either. But the winds of change will gather pace. That means trouble for newspapers and radio, static growth for TV and direct mail, but digital faring slightly better. I suspect we’ll see more budget assigned to email marketing, database segmentation and search optimisation. And while the big online ad networks may see their revenue falter, clients are likely to invest more in online spaces of their own creation.

That’s because clients are going to want more control over the media environment. We’ll see more deals between larger clients and media groups. As agencies, our influence over the media being selected will drop: increasingly, the media will have been bought before we’re briefed.

The CMO of Kimberley-Clark was in Sydney recently, and his comments were typical of current client thinking. Tony Palmer is an Australian, and he wants to ‘re-sequence’ things—starting with a task profile, then channel planning, then creative development, and lastly execution. ‘The opportunity to create big ideas is vested in the strategy,’ says Palmer.

The view from the creative department

So what does this mean for the humble creative chewing his pencil or idly checking Facebook updates in Sydney, Melbourne or Auckland?

We’ll see more activation briefs, and a larger proportion of the budget going online. There will be fewer new briefs from global clients, more ‘adapts’, and more promos tacked onto the end of existing ads. Clients will be scrutinising ROI closer than ever before: they’ll be looking for the widest possible exposure, and big numbers across the board.

The emphasis will switch to different products. Consumer purchasing won’t just shrink, it’ll shift—and smarter clients will see the opportunities in this. In some cases, expensive treats will give way to more affordable purchases. Take skincare, for example. Women are likely to cut back on big-ticket items, and reserve their upmarket products for public display. Products used out of sight in the bedroom and bathroom will go downmarket, creating opportunities for mid-market brands. Likewise, the fashionable wine will be reserved for the dinner party: the cheaper wine will prevail during the week. We’ll see more briefs of this type, playing the value card.

Another thing that creatives will notice is a shrinking awards budget. In 2008, Cannes enjoyed a record number of entries, for the fifth year in a row. (Australia submitted nearly a third more entries than in 2007.) But for 2009, I think we’ll see a considerable drop from the ‘traditional’ advertising nations, including Australia and New Zealand. If there’s any slack taken up, it’ll come from emerging agencies in the Middle East, China, Russia and India.

That means it’ll be harder to get your best work in front of the judges. The ‘maybe’ from the CD will become a ‘no’ from the CFO. The solution for creatives, as it is for everyone else, is to work harder and do better work.

The small print

These observations are made at the very start of 2009. To someone in the US or Europe, they might seem strangely positive. And yes, you could say that Australians and New Zealanders are very fortunate, or lucky, to have largely escaped the unpleasantness elsewhere.

It may not be for long, though. Over the next six months, things are going to get worse. There is a domino effect at work in this recession, and the dominoes have not yet reached the Australian and New Zealand economies.

There’s also a very large elephant in the room down here. Both countries work on an asset-based savings model, and one of the factors that drives economic growth is rising housing wealth. This, in turn, finances credit and therefore consumer spending.

The housing wealth has already gone into decline. Credit supply is tightening. This can only mean a sharp drop in consumer spending in the second half of 2009.

Then it will be a completely different ball game.

Chris Hunter

Chris Hunter is the Direct Creative Director at Lowe Sydney, the current AWARD Agency of the Year. He moved to Australia in 2007 after working in New Zealand for a decade.