U.S. companies are desperately trying to save money wherever they can as COVID-19 has pummeled their revenue. One path toward cost-savings is cutting down on ad spending. In an atmosphere where there are few customers to sway with ads anyway, and production companies are not at work, for many companies there seems to be little purpose in keeping ad spending high.
Getting out of a commitment
The Wall Street Journal reported that companies such as PepsiCo (PEP -2.97%), General Motors (GM 4.37%), and General Mills (GIS -0.49%) are taking an option in their broadcast network ad contracts to cut their demand.
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Broadcasting networks like ViacomCBS (NASDAQ: VIAC) typically showcase their new lineup of programs well before the fall season starts to media companies who sign upfront ad deals for the full year. Each quarter, the companies have an option to cancel some of their upfront ad purchases, but rarely do so. Companies also have the option to buy ad space closer to air time.
When the pandemic hit and companies began to scramble, it was too late to cancel for the second quarter. Now, they're taking advantage of the cancellation option to save money in the third quarter. This may hurt the networks in a big way; according to some ad buyers, it could amount to $1 to $1.5 billion in canceled commitments.
Turning to new channels
Not all advertising will suffer from this shift in spending. Some companies are moving more of their ad dollars online, so platforms such as Facebook (META 2.98%) and Alphabet's (GOOG 1.25%) (GOOGL 1.27%) Google, which are still pulling in plenty of traffic, may ultimately benefit.
