Implications of the Gulf energy crisis

[Music] Hello and welcome to this episode of The Walk. Podcast, my name is Alex Brounsel and I'm the head of content for Walk Media. These are by any measure, troubling times for the global economy. As we record this podcast, today conflict is raging in the Gulf region and shipping through the straighter form whose has reduced to a trickle. The resulting energy crisis has sent oil prices spiraling and this matters to the health of the advertising industry. AdSpend globally has been growing at a really very healthy pace over the last couple of years as we've talked about previously but that continued momentum is a threat of disruption from events in the Middle East. Walk Media has produced a new global adSpend forecast to assess the potential impact on advertising investment and I'm delighted to say that I'm joined by our chief forecast adjunct with Donald to explain more. But before we get into the details, here's a word from our sponsor. Do you have brand new research, groundbreaking insight, or an outstanding brand story that the industry needs to hear? Good news. Can Lines is now inviting on-stage content applications for the Festival in June 2026. This is your chance to make history by speaking on the most coveted stage in the creative industry. You put the topic, speakers, session format and more. Can Lines brings together inspiration from every corner of the creative marketing community. This is your chance to be a part of it. The deadline for submissions is 31 December 2025. Just submit your idea, visit canlines.com. James, welcome to the podcast. Great to have you back. Great to be with you. And good to relieve you of being under a pile of Excel spreadsheets. I imagine the last couple of weeks have been. That's my default hibernation state. I don't mind it at all. Well, look, yeah, you've been very busily examining all of the data to understand how the hostilities in the Gulf may be affecting the ad market. But I thought just before we get to that, I thought a useful sort of framing for all of this might be to remind our listeners of what the outlook was for the global ad market before all of this started. So we produced a forecast. I really just at the back end of last year. What was the outlook at that stage? Sure. So in January on this very podcast with yourself and the wonderful case got Dawkins of WPP Media, we were predicting 9.1 percent growth for 2026. But I did end that recording with a foreshadowing that were two main threats to a potentially steady year for the ad market are a worsening cost of living crisis and potential expansion of war and now two months on an unfortunate we have both. Those seemingly counterintuitive we've actually raised our growth expectations for this year to to 10.4 percent and that's equivalent to 1.32 trillion. So that's an upgrade of about 1.1 percentage points. Why the upgrade? This is in part due to improved monitoring of social media platforms with our partners at Omdia which we'll show we'll talk about more later. And this monitoring shows that the sector is growing rapidly mostly fueled by SMEs leveraging new AI driven campaign management tools. And we also expect higher midterm spending than previously given the fractures of state of US politics at the moment. That to one side obviously the social platforms and we'll talk about them in a bit but they've been doing incredibly well and we've seen this real sort of tailwind in the global ad market as a whole that doesn't necessarily trickle down to every part of the industry but as a whole we've seen a really strong performance in recent years. What we're now seeing in the Gulf is a potential threat to that momentum. I believe you produce the sort of trilogy of scenarios if you like that kind of assess the you know what we might see next. So what was the sort of the framing how did you approach this? About six years ago Dr Daniel Napp while writing for Walk Media during the COVID outbreak said that forecast is currently building their forecast on sand and we're very much in a similar position today with such a fast evolving situation in the Middle East. Indeed walk actually moved to a quarterly forecasting cadence in order to be more agile to world events such as this and that obviously gives our clients a distinct competitive advantage. So as the picture is evolving so quickly we thought it best to be three global forecasts and each based on a different scenario of severity. So our 10.4% growth rate this year is drawn from our base case scenario and that's very much the best case of the free potential outcomes. We've then gone on to model two more scenarios one based on the 1991 Gulf War and another more severe case based on the all crisis of 1973. Well let's let's go into those scenarios then so let's start with best case you know what what may happen in that situation what impact might we see on ad spend. Sure so our baseline scenario assumes a short-lived and relatively contained shock with a temporary spike in our prices and no long-term disruption in the straightforward moves. This would still remove 0.2 percentage points from global GDP this year so there is a marked impact and would also result in a half-point rise in inflation as well as dampening real household spend. In this scenario the product categories we've identified as being most susceptible to a shock include automotive, food, leisure entertainment and technology electronics. However they are mostly expected to still record growth in or around the same bracket as the global rate of 10.4%. The outline of this trend is traveling transport where we expect spent to fall by 3.5% this year equivalent to a reduction of about 1.3 billion pounds. We're already hearing talking to clients of global airlines and tourism firms active in the Middle East are holding back budgets now and while they may be reallocated later in the year higher fuel prices and a squeeze on family incomes present serious headwinds for this sector. I think that's a really important point isn't it that actually the way that the the ad market has evolved means that while we may see disruption within a quarter or within a sort of portion of a calendar year that doesn't necessarily mean that we'll see a complete transformation of annual spending plans because advertiser can be a lot more fleet of foot with their spending now you know things like TV up front aren't done you know so far in advance and digital spend can be executed quite quickly. So that's important thing to remember I think isn't it that actually short-term disruption doesn't necessarily mean long-term disruption in every case. Yeah that's a great point lead times are a lot shorter especially online as you say I think something to note with traveling transport though is the tourism seasons you know how our set throughout the year so if this disruption does continue that window is missed and the budget reallocation later in the year may not be as effective so different sectors are exposed to at different levels certainly. Yeah let's have a look at the second scenario then this is sort of the next level of severity up. Yeah so the second scenario is based on the 1991 Gulf War it has seen an extended shock with oil prices elevated around a hundred dollars a barrel for next one to three years and partial supply disruption we're sort of already moving towards this scenario currently at the time of recording while this is at the more severe end of those proposed by central banks it is consistent with what we've seen previously as I mentioned around the Gulf War it would remove half-point from global economic growth this year as well as adding a percentage point to inflation so these are pretty marked impacts this scenario clearly presents the greater risk to the add industry because you were purchasing power it is limited and businesses would act to protect their margins in a challenging trading environment so taking together we believe that this scenario could remove up to 19 billion in ad-market growth this year. Yeah I mean that's that's fairly significant and I mean you know not necessarily disastrous for the industry but you know that would hurt right absolutely it will be felt and as mentioned earlier it will be felt disproportionately across sectors so for example consumer packaged goods particularly products that have supply chains that are linked to grain or fertilizer are very exposed to supply-sized shocks similarly tech firms with shortage of semiconductors as we saw on covid and obviously you know further pressures on the travel sector as well. Okay and then let's right let's let's deep breath let's go into the potential worst case scenario that you've modeled what does that entail and what does that potentially mean for advertising? So this one is quite drastic but as mentioned earlier it's based around what we saw in 1973 around the oil shock so this assumes a severe systemic shock including a prolonged closure with a stroke of hormones and oil price reaching close to $150 per barrel as we saw in the 70s and real households that would fall in this scenario and the past through from supply-sized shocks would hit as I mentioned consumer packaged goods a lot of consumer facing services as well because of the squeeze on incomes and so all told this is the most severe shock and could remove up to 49 billion from the ad-market this year but it would carry through to 2027 in which case total losses to incremental growth would be 94 billion over the two-year period. Well yeah I mean that's that's knocking a sizable chunk out of what the ad-market would have been come the end of 2027 and again do we do we know where the pain would be felt there particularly? Again we think the consumer facing products, lesion and technology. and even media and publishing would be stretched because of lower household disposable income. But just in time delivery services as well, as well as core casemakers, you know, food, household and domestic products, you know, generally all filling the impact of lower disposable income, as well as higher costs from supply side disruption. For the non-economists listening and potentially hosting this podcast, could you explain a little bit why the issue with oil price has that link through to advertising spend? Because I mean, oil prices I believe have been, you know, there's been volatility over a long period of decades, we've seen spikes and troughs, and then there's not necessarily corresponding matches in what we've seen in the ad market. So why is this situation so dangerous? It's said for a long time in our industry that data is the new oil, but for the rest of the world, oil is still very much the oil of the mix of the world go around. It's in everything that's linked into logistics. If you need to move girls raw materials to build your product, you're going to be dependent on the oil. This goes up the cost of your logistics browsers, your margins start to thin, so that's kind of like an undercurrent tool of this. It can be felt in refining industries, it can be felt as if you're managing for airlines, paying higher prices, and it's also felt by the consumer. So there's a double-wantly effect almost because consumers are having to pay higher prices up until absorbing the inflation from the higher goods prices, but then they're also being penalised for higher prices at the pump, for example. So there's a compounding effect to the impact being felt at a micro level across the industry, all of which come together to create a bigger macro threat. Superbly described. Thank you. That's very helpful for people like me that are, find this stuff quite challenging. When we talk about potential lost incremental revenue in the ad market, do we suppose that this is just going to be shaved off the media landscape across the board in a fairly even manner, or do we suppose that certain parts of the media ecosystem may hurt a little bit more than others? When we've seen shocks like this in the past, there is a tendency for the industry to lean, we'll have a little bit of performance to the media, and via away from brand building activity. There is reams of evidence on walk to suggest that this is not the right move at a time like this. It's easy for me to say that because I don't have the CFO briefing down my neck, it's a marketing department, but the brands that stand firm can actually thrive in this kind of environment because they are gaining share of voice when other brands are going dark. 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Now, if you'll forgive us just a brief moment of self-promotion, we're very excited to say that we've recently upgraded Walk Media to include a bunch of exciting new features that really help market as better validate their media strategies and to benchmark the performances of their campaigns. We're talking about things like enhanced AI-powered interactive dashboards. Brand new ROI, benchmarking tool, platform-specific social ad spend, forecast and extra granularity in our retail media investment data as well. We've been busy and we're very happy that those finally come to the market. James, in light of us having that better view of the industry and that more in-depth view as well, what are those new data sets telling us about the industry and that more in-depth view as well? What are those new data sets telling us about the current market? We're really excited to bring this to market. We've been developing this for the best part of two years working closely with industry and to deliver tools that will work for industry. It's great to see this stuff realise now. One of the new data sets that we've brought to market is social media advertising spend at a product sector level. For example, we can save for the first time with confidence what we believe the financial services sector has spent on LinkedIn, this quarter and also how that's going to track over the coming eight quarters. We have that data segmented for 20 key markets working with a key partner, Omdia, who are also part of the informal family. We're really excited to bring this to market and it has unveiled some really interesting dynamics at a market level. For example, we're seeing that the largest player meta has seen investments within its property saw since 2023 driven by enhances in AI campaign management as well as tools like Advantage Plus. But it's also gaining from cross-border spend from markets like China. This momentum will continue into 2026 with annual AdRevenue forecast to reach over 100 billion for Instagram for the first time and 138 billion for Facebook. So this is wild and. So it's approaching a quarter of a trillion dollars? Yeah, that's not a small amount of money. But that's a surface level and that's typically how we kind of be able to look at things trailing through a company financial reporting and the monitoring we have had historically. Now we can get under the surface a little bit more, a lot more actually and kind of pair over those wall gardens. What we're seeing is some really interesting dynamics, particularly within the technology and electronic sector, which has been a real lifeblood for a lot of these social platforms in recent years. What we're actually seeing now is a bit of a cooling in that sector, certainly in this year, particularly in the US, as we believe a lot of the money that was flooding it and around the AI boom is now starting to ease. So that's really interesting yet. I mean, the technology category has been a big source of incremental revenue for. As we've talked about previously, particularly for the digital channels, because they're quite performance-minded, a lot of those organizations, this is the way they've grown up in recent years or even months, frankly, with some of the AI players that we're seeing in the market. But if those companies do start to ease up on the accelerator pedal, that will have an effect on the social platforms, I guess. Yeah, a really stark example of that is TikTok. So, technology and electronic spend on TikTok worldwide was up 84% last year, to 5 billion. In contrast, this year, we believe growth will drop to the single digits. This is caused in the last part by growth of only 5% in the old, important US market, as that cooldown in the AI market carries through to add budgets. Real waves that move the dial quite heavily within this sector will be felt even in fast-crowing platforms like TikTok. That's really interesting. Are we seeing that easing of tech spend across all platforms? Is it sort of cross-media thing or are there some exceptions? Mostly, yes, tech is important across the board, but in some cases, the money is moving across different platforms depending on campaign objectives. So, for example, Reddit, which is very much invoked at the moment, seemed to be very effective social platform because of the engagement that its users have. The business continues to go rapidly and indeed the tech sector accounts for about a quarter of all advertising spend on Reddit. So, that's already a big chunk of ad revenue. The tech sector has benefited from market-ist targeting Reddit's role in product research, as well as the use of conversations on the platform to inform their large language models. So, there's a really good symbiotic relationship to the tech sector and Reddit's advertising revenue. I think that's so interesting, but actually, we often just sort of bucket a lot of these platforms in together. I think there's a sort of underlying assumption that actually investment at a category level, for instance, or at a country level, is pretty similar, pretty similar patterns. But actually, when you think then about how a platform like Instagram and a platform like TikTok and a platform like Reddit are used, they use in quite distinct ways. And actually, what we're seeing is that's reflected in the way that advertisers, the way that categories approach them. And I'm excited for us to get into this data set a lot more in the coming months and see what else we can spot. There are many, many rich narratives to be drawn from this data set. We're really excited to bring it to market. We've had to buy it our time. We didn't want to rush in and just produce a load of model estimates. We actually wanted to work with respect to partners in the industry who are triangulating this data accurately because ultimately, our clients are making decisions every day based on this data. Are there any other, you know, in such observations that we pulled out for this particular report? I suppose one to mention from a social perspective is X, formerly known as Twitter. I actually posted growth last year for the first time in four years. And we think that their ad revenue will increase this year by about 5% boy by additional activity in the US midterms. And all of this is just about mounting brown safety fears around the platform particularly its crock AI tool. So I think it was interesting to note that to it had returned to grow last year and is expected to continue growing over the coming two years. That is something of a shock all over. It's definitely notable if that sort of steady decline has been reversed because we do know and we do hear that as an organisation they are trying quite hard now to win advertisers back. So it's definitely interesting to note that they're having some success on that fund. Well thank you very much James. It's been really interesting to hear what we've got coming up in the market and I'd heartily recommend that what we do subscribers go and access some of these new tools, these new data sets for non-subscribers there is a summary article of the scenario modelling around the golf available on the walk feed. Again, I'd highly recommend that you take a look at. Well that's all we have time for today. Remember you can subscribe to the World Podcasts on your favourite podcasting platform. And if you really liked it you can go on and leave us a review. Until next time, thanks very soon. [BLANK_AUDIO]