As the UK prepares for Brexit, the nation’s advertising industry moves into uncharted territory
As the UK prepares for Brexit, the nation’s advertising industry moves into uncharted territory
The UK’s landmark decision to exit the European Union (EU) has pushed the advertising industry into uncharted territory, with both brands and agencies scrambling to assess if this vote means advantages or problems to come.

Stock prices are tumbling. Sterling is falling. Uncertainty has gripped the business world and the impact has already knocked advertising’s biggest players. The value of five of the six largest ad groups plummeted on the news, with WPP (5 per cent) and Dentsu (13 per cent) suffering some of the steepest drops. More worryingly for those bosses is the question of how to grow in an isolated UK.

Ernst & Young expects IPO activity to cease for the next 12 months, putting a squeeze on potential revenues from the consolidation that’s happening in the lucrative ad tech market. The likes of WPP and Havas have pinned future prospects on further consolidation on brand, media and agency fronts due to a lack of topline growth many companies are chasing.

An early indication of how the industry is coping with Brexit will be gauged from the number of mergers and acquisitions we see in the months ahead. Those corporate advisors who broker such deals on behalf of the marcomms industry are steeled for the inevitable immediate impact of shaken market confidence but insist there will not be a drying up of M&A activity altogether.

“We have seen a bit of a hiatus running up to the vote and this will undoubtedly continue in the very short term,” said Green Square partner Tony Walford. But he added that he had already talked with acquirers who intend to press on with their M&A strategy. “Pessimists will say that the uncertainty of the impact on UK focussed corporates over the next couple of years will make them less attractive. On the other hand, weak sterling will make UK companies cheaper for overseas acquirers to buy.”

Keith Hunt, managing partner of Results International, expects the financial markets to recover from the shock they’ve been induced into today – albeit slowly. “My experience of ‘bad news’ events like Lehman’s going bust in 2007 is that the markets dive in the short term but then start to recover quite quickly although not back up to previous levels. So whilst the next few days will be a roller coaster ride we should look beyond that.

“The most likely negative effect is that growth plans become more difficult – but not impossible, it will depend on what happens in the next two years. It’s also worth bearing in mind that when we didn’t join the Euro many people thought it would damage inward investment and foreign trade but the UK economy did well and with hindsight it was a good move not to be in.”

Hunt's lukewarm outlook was also prevalent in the industry's immediate reaction to the decision. Both The Institute of Practioners in Advertising (IPA) and The Incorporated Society of British Advertisers (ISBA) - which represent agencies and brands respectively - offset their disappointment with calls to their constituents to defy the risks and seek out the opportunities.

However, with customer confidence on the wane in the run up to the vote, marketers will find it hard to go on the front foot now the EU door has shut.

“I think cuts were already coming to be honest because the disruption has become the new norm anyway… undoubtedly [Brexit] will cause many [businesses] to cut back further," said Havas Media Group’s UK boss Paul Frampton. “European headquartered clients might well be hit most so we might see some of our French clients putting things in pause which is a concern.”

Time will tell whether the anxiety about the economic effects of independence are misplaced. But marketers are wasting no time in their attempts to determine how best to move their brands forward. Cannes attendees who would usually be celebrating the industry’s best and brightest are instead fielding phone calls from concerned clients, while others like Ogilvy are assessing whether to continue to invest in their UK businesses.

Uncertainty reigns in the UK business community

“I’ve already had clients from big corporates emailing and texting me, worried about whether to invest in the UK,” admitted Johnny Hornby, founder of The&Partnership on a panel in Cannes. He warned “this is completely uncharted territory”, adding that “every sensible view said this would be a terrible thing”.

Other executives are worried somewhat by whether an EU-less UK will make it harder to retain and attract talent. Zone’s UK chief executive, Jon Davie, admitted a few months back that it would be harder for his business, which employs people from 27 different nationalities, to build on that number.

Such responses are emblematic of what Frampton calls the “numb uncertainty” the vote has spread. None of the advertising executives interviewed by The Drum off the back of the result were able to explain what it means for their businesses because none understand (yet) what change will look like in the short term or the final new relationship with Brussels.

It’s little wonder then that many brands feel ill-prepared for the Brexit. Nearly two thirds (62 per cent) of marketing professionals in the UK admitted they didn’t know enough about how the EU referendum would affect their businesses, according to research by the Chartered Institute of Marketing conducted before the vote. It would seem that marketers are most concerned by the way regulation – whether it’s around the new EU data laws or potential changes to employment law, tax and competition rules – could change their strategies.

What will become of the proposed pan-EU data protection proposals?

For example, those responsible for UK-based companies’ data privacy policies face many question marks. Many UK marketing teams had begun priming themselves to spend 2017 preparing for the implementation of the General Data Protection Regulations (GDPR) recently passed by the European parliament.

There are no quick fixes and it’s unlikely that anyone understands yet how to unpick 40 years’ worth of legislation. That’s not to mention the arrival of the UK’s own data protection rules at some point.

This will add another layer of complexity to the sprawling digital strategies of many pan-European businesses.

Despite this, there’s also the chance that a modified version of the GDPR could fuel the expansion of UK businesses outside of Europe, claimed Sachiko Scheuing, co-chair of FEDMA and European privacy officer at Acxiom.

“Whilst some regulatory consistency will be lost, the implementation of a 'GDPR lite' will certainly give the UK a competitive advantage for UK businesses in non-European locations,” he added.

ICO guidance

Meanwhile, the Information Commissioner’s Office (ICO) has moved to reassure such professionals to remain in compliance with the UK’s existing Data Protection Act in the interim.

“If the UK is not part of the EU, then upcoming EU reforms to data protection law would not directly apply to the UK. But if the UK wants to trade with the single market on equal terms we would have to prove 'adequacy' – in other words UK data protection standards would have to be equivalent to the EU's General Data Protection Regulation framework starting in 2018,” said an ICO spokesperson.

With so many businesses and services operating across borders, international consistency around data protection laws and rights is crucial, and to facilitate this, the ICO will continue to work with its EU equivalents in order to help UK businesses remain compliant there.

The spokesperson added: “Having clear laws with safeguards in place is more important than ever given the growing digital economy, and we will be speaking to government to present our view that reform of the UK law remains necessary.”

There will be a great deal in terms of advertising and consumer law that “came from the EU that will remain in UK law,” according to ISBA director general Ian Twinn.

So what should marketers do now? To move forward "they neeed to do what they do best - listen to their customers today, advises Richard Robinson, managing partner at marketing consultancy Oystercatchers.

"What they'll hear is a need for reassurance, certainty, assured confidence and a knowledge that they have one foot in the future. The vote has happened, the result is in but none of us yet know the true outcome, the brands who step up with reassurance & demonstrate their strategies for maintaining and building trust will be the ones who will confidently carry us all forward into the future."

It chimes with Frampton’s belief that the result “doesn’t change anything”, given how widespread cuts and disruption in business has become. His boss Yannick Bolloré, who heads up Havas globally, has come out and backed the UK, tweeting earlier this morning that: “At Havas Group we will continue to support our British friends and invest in the UK”. It will have no bearing on the group’s plans to relocate its UK base to King’s Cross or its recently opened office in Manchester, assured Frampton, who said: "You also see people spending through a recession and Yannick has said that he won't stop investing in the UK and perhaps it is an opportunity for Havas to over-invest."

He continued: “I've heard a lot of multinationals say that the UK isn't a great place to invest right now anyway so if they are going to make global decisions then they are not going to get double-digit growth return from the UK anyway and this volatility around the market means that you might well see investment money go into other parts of the world – not necessarily Europe. Maybe LatAm or Eastern Europe because there is the potential for faster growth there.”

What do European ad tech companies think?

Anthony Rhind, CSO of Adform, (a Denmark-based ad tech outfit that has invested significantly in its London operations) acknowledged the "personal disappointment" among many in the marketing community, and pointed out that: “to be successful it is necessary to be adaptable.”

He also highlighted that it will take time to realise the true implications of the outcome. “Even if Article 50 is triggered next week there is a two-year period before existing treaties cease to apply to the UK. Between now and that redline, a clearer picture of the impact of ‘exit’ on London’s position as an international business hub will become more clear."

Did marketing play a role in how we got here?

The marketing industry overwhelmingly supported staying in Europe – indeed at Cannes Lions this week it has been rare to encounter anyone, at least publicly, willing to back Brexit. But as many in the marketing industry lament the result, they may wish to consider how the Remain campaign’s advertising and media tactics failed to win over the public. Characterised ‘Project Fear’, the campaign’s consistent warning to be wary of economic uncertainty may have convinced marketing bosses but it did not wash with voters, particularly in working-class Labour strongholds.

As Edelman chief executive Richard Edelman put it: “Everyone said that the undecided would break to Remain but it’s been the opposite. Advertising is the drug of the past not the drug of choice for the future for political campaigns. Trump has advertised on nothing – he’s social media, and saying 'because I am not advertising I’m more credible'. But he’s dominating the news cycle. It’s a lesson in having to earn it, not buy it.”

Edelman’s comments came at a post-mortem in Cannes where he was joined by David Dinsmore, the News UK chief executive who can bask in the publisher’s tabloid the Sun backing the winning horse in this race. Far from crowing, Dinsmore left those present with a hopeful message: “The one thing I do hold precious is that with disruption comes opportunity.”

The marketing industry will be hoping that the Sun man is calling that right too.
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