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Straight Talk Consumer & Entertainment Services


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COVID-19 has hastened the shift from physical to virtual

The COVID-19 crisis has had a profound impact on the advertising industry, with many advertisers reducing or even freezing budgets during the pandemic and ensuing lockdown. Yet, at the same time, many forms of digital media, including games, OTT video, digital audio, and social platforms, are seeing a significant uptick in engagement as more people spend an increasing amount of time at home. This means that they still offer a sizeable, growing, and attractive audience for marketing messages even during unprecedented times. Meanwhile, the shift from physical to online retail has also—out of necessity—picked up pace since the start of the pandemic.

The flip side of this is that other forms of physical media, events, advertising, and commerce, which rely heavily on public foot traffic, have been hit hard in 1H20. Yet, some advertisers, brands, and media players have responded by turning to virtual alternatives which (should they prove their worth) could become key parts of a post-COVID new normal for the advertising industry.

For instance, dynamic native in-game advertising that mainly allows advertisers to programmatically buy display ads natively placed in premium game titles across mobile, PC, and console, offers advertisers the opportunity to move out-of-home (OOH) campaigns from physical to virtual environments. Such advertising has already had false dawns in the past, and most OOH spend will likely return to physical outdoor environments once lockdowns are lifted, but the pandemic has certainly accelerated interest among advertisers, agencies, and even the UK government wanting to reach elusive housebound consumers. And, as Figure 1 shows, taking even a small slice of the OOH segment—valued at $38bn on a global basis in 2019—will open a significant revenue stream.

The tech driving dynamic in-game ads is also transferrable to other 3D virtual environments, so any shift towards native in-game advertising could also serve to accelerate ad-based monetization of VR and AR content, should it hit the cultural mainstream. Its obvious synergies with esports—awareness of which has also grown among younger and older demographics, as well as companies from across the TMT space due to the lack of live sports during the pandemic—will also be a boon for advertisers in a post-COVID world.


Figure 1: Global advertising revenue, OOH advertising vs. static/hardcoded in-game advertising, 2019, $bnGlobal advertising revenue OOH advertising vs static hardcoded ingame advertising 2019 bn

Source: Omdia, PwC

Yet, if one company has come up trumps during the global lockdown, it’s Amazon. Notably, it’s not just Amazon’s retail sales that have grown over the past few months, but also its advertising revenue. Indeed, Amazon’s “Other” segment revenue (primarily composed of advertising) grew by 44% year-on-year to reach $3.9 billion in 1Q20. Amazon will have felt downward ad pricing pressure due to lower advertiser demand, which is a trend seen across the ad industry. However, the fact that Amazon’s ad operations are directly linked to its buoyant retail platform means that they have been less impacted by the crisis than other ad-reliant companies such as Facebook and Google. This was already a threat that the digital ad incumbents were facing up to before the crisis: both have been bolstering the “shoppability” of their platforms and ad formats and growing their presence across the entire customer journey for some time. Tying advertising directly to purchases is only going to grow in importance as online’s share of retail continues to increase, and cash-strapped advertisers seek greater efficiencies in their campaigns. This isn’t confined to the tech giants; NBCUniversal recently announced its own commerce engine, NBCUniversal Checkout, which allows viewers and readers to buy featured products without leaving editorial and video content across the company’s properties. We expect the relevance of such strategies to soon grow for other broadcasters, publishers, OTT platform owners, and even retailers themselves.

Case in point: ByteDance’s TikTok is currently testing a new “shop now” button ad format which will appear in videos from its most prominent influencers. This could mark a turning point in influencer marketing, the future monetization of social video platforms, and even commerce. Plus, its coincidence with TikTok’s central role in the lockdown zeitgeist suggests that COVID-19’s impact will be felt by brands, the media, and tech players not just in the short term, but for years to come.

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