TBI Tech & Analysis: Covid-19’s long-term implications

Covid-19 is radically altering the outlook for the global economy and certain areas – notably advertising – are being particularly badly hit. Other segments, such as OTT, face a less negative outlook but the repercussions will be long-term, writes Maria Rua Aguete, exec director at TBI sister outfit Omdia

In the current climate of a rampaging Coronavirus across the planet, the impact of the pandemic on the global consumption of digital services will be significant, and recovery will be slow and difficult.

Maria Rua Aguete

But unlike other industries facing wholesale devastation – hotels and hospitality, the restaurant business, and tourism – the anticipated impact on digital consumer services from Covid-19 will not be uniformly negative.

For instance, increased consumption of digital content from mobile apps to TV and gaming is already taking place in China and Italy, with a possible increase in online traffic of as much as 50% in the two countries.

In comparison, segments that rely on live entertainment, such as e-sports, music, and cinema, will suffer greatly from events being cancelled or from lost ticket sales.

Holding out for recovery

However, the deeper and more important outcome of the Covid-19 pandemic will be its effect on the economy in the longer term, which will take 18–24 months before recovery can begin, Omdia is forecasting. Impact to the global economy will be felt in several phases, culminating in a recession, with the severity and duration of the pandemic also dependent on the success – or failure – of worldwide quarantine and social distancing measures.

These are some of the findings from the new Omdia report, Covid-19 Market Impact: Digital Consumer Services, which evaluates the impact of the virus on digital consumer services, the sprawling online and digital media landscape encompassing mobile apps and communications, broadband, online TV and video, online music and gaming, e-commerce, and digital advertising.

Winners & losers

The overall impact across consumer digital services will be driven entirely by gains made by e-commerce, offsetting huge losses in physical retail, as shown by the chart below.

E-commerce revenue is projected to grow 5% this year, translating to an increase of $175bn from 2019, as more purchases are offset by the lower value of the goods being bought. Another winner will be OTT services such as those provided by Netflix or Hulu, with revenue forecast to be up 12%, equivalent to $6bn.

These two areas will grow despite the pandemic, Omdia is forecasting, because demand for their services will rise from people hunkered down in homes because of mandated shelter-in-place orders issued by governments around the world. Consumption of digital and social media will also increase, especially for free, ad-supported video, music, and games.

Meanwhile, other consumer digital services will show flat overall growth, as advertising and mobile services decline against broadband and entertainment services.

Cinematic decline & tumbling TV ad revenue

Some sectors are headed for steep losses. With theaters all over the world closed indefinitely, cinema revenue is projected to decline 25% this year, equivalent to $11bn in losses. Radio and out-of-home ads will also suffer, as commuter numbers fall.

The TV advertising business will be especially hard-hit, retreating 15% and forfeiting some $26bn in revenue for the year. And with the postponement until 2021 of the Tokyo Olympic Games, the 2020 UEFA European Football Championship, and other live sports, TV advertising revenue is sure contract even more.

Other advertising-related areas that will be negatively affected by the pandemic are the sponsorship of live events, such as music concerts and festivals, as well as the spring ad campaigns of travel companies, as the events and promotions in those sectors have been cancelled altogether.

Overall, brands at present are generally not carrying out any advertising promotions to give way to public information campaigns on Covid-19. If any advertising is being done at all, brands are focusing on driving e-commerce through digital ads.