• Snap’s disastrous earnings is an indicator to some industry insiders that the digital ad market is collapsing.
  • Advertisers are bracing for a major hit later this year or early next.
  • Many advertisers are taking action now by freezing hiring and pausing big projects.

Snap’s dismal showing in its recent earnings due to lost ad spend signified an ad market further collapsing in the face of a likely recession. And now, the ad industry is scrambling to figure out what to do in a worst-case economic scenario.

“I think the digital ad market collapsed in September,” one adtech exec told Insider, noting a precipitous drop that month in particular. “Snap ripped the Band-Aid off that.”

It’s not just digital that’s impacted — the entire ad industry is expecting budget cuts in the near future.

“Can we stop faking that the upfront is fine and the scatter market place is fine, that digital’s not gonna go down?” a second source said. “All the currents are coming together and we are looking at a perfect storm. Start planning now for that perfect storm.”

According to a recent survey conducted by the World Federation of Advertisers and Ebiquity of 43 multinational companies that collectively invest more than $44 billion in advertising annually, three-quarters of respondents agreed or strongly agreed that budgets will be under heavy scrutiny next year. Twenty-nine percent of companies surveyed said they plan to decrease their marketing and advertising spending next year.

It will likely take through the fourth quarter and into the first quarter of next year before the ad industry fully feels the brunt of that impact, and how much marketers will truly pull back on spend, according to ad execs. 

IPG CEO Philippe Krakowsky said on the company's third quarter earnings call that most clients are now asking where to shift their media and marketing investments in the event of a downturn. He also said some clients are pausing digital projects, though he's not sure how deep those cuts will be until later this quarter or into the fourth. 

While some marketers, like Microsoft and P&G, cut marketing budgets as early as this summer, others haven't gone that far yet. General Electric CMO Linda Boff told Insider the company hasn't cut yet, though it would likely scale back the number of big advertising events it participates in every year from five to two or three. And Expedia CEO Peter Maxwell Kern said during its second-quarter earnings that the company isn't planning to spend less, but does expect to get more value out of the money it does spend.

The uncertainty is causing ad agencies to prep for lean times ahead. Many insiders note there's been a dearth of new business from brands, so agencies are being more cautious on hiring. 

One ad industry recruiter who is coming off of one of their busiest years in 2021 for running talent searches for ad agencies amid the Great Resignation said new opportunities have all but dried up, as many ad agencies have instituted a hiring freeze. 

This belt tightening and uncertainty is also causing morale issues among some of the younger staffers at these agencies. 

Boston Consulting Group advisor and former PepsiCo beverage group president Brad Jakeman told Insider at a conference organized by the privacy-tech platform Ketch that one of the biggest challenges for marketers in the current environment is that many of their young employees haven't lived through a recession before.

To avoid losing business, agencies are under pressure to show the long-term value of their services.

"We have to find a way to resist the urge to think of marketing as a discretionary spend, and not as a critical investment," Jakeman said. "If it's viewed as a critical investment during a recessionary time all the data in the world will lead you to believe that you will come out stronger relative to your competition."