Will Brexit lead to an Adexit?

In this Brexit series, professionals discuss how the business community should navigate the UK's departure from the EU. See the stories here, then write your own (use #Article50 in the body of the piece). 

Ever since the decision to leave the EU was made, the advertising industry has been ruminating on the potential implications of Brexit. Will it lead to an exodus of advertising budgets, talent and accounts? An Adexit, if you will?

Before we get underway, and in the spirit of full disclosure, it's only fair to declare my personal opinion on the matter. I will try, as always, to offer a completely balanced perspective and avoid any bias, but I need to admit that I was firmly in the remain camp and was frankly horrified by the decision the UK collectively made. But the fact is that we live in a democracy and the referendum result was clear, so now we just have to get on with it and make the best of the situation. There, I've said it, so let's move on. 

The potential ramifications for the advertising, media and communications industry are expansive, although it is becoming quite obvious that the industry isn't clearly aligned on what happens next. According to a recent study of 195 agencies by the think-tank Credos (who are part of the Advertising Association), 23% of them believed Brexit offered them increased opportunities for growth. When asked to qualify what these opportunities were, the main three listed were:

• a lower exchange rate
• better trading outside of the EU
• fewer EU regulations.

Conversely, 22% of agencies claimed that they had already lost business because of Brexit and didn't see any positive signs for the future. However, there doesn't appear to be any industry substantiation for these claims. The Advertising Association/WARC Expenditure Report found that there was a record adspend in the UK of around ￡10 billion in the initial half of 2016. The most recent figures, released in the 3 months following Brexit, are also somewhat surprising: adspend actually rose by 4.2% in Q3 2016, making it the first third quarter ever to break the ￡5bn spend barrier. This growth was largely driven by internet expenditure (up 15.3%) and mobile (up 45.6%). TV spend was also up 1.4% from a previous record high in Q3 of 2015, when the Rugby World Cup was held in the UK.

The full year estimate for adspend in 2016 has been estimated at +4.4% overall with a combined total of just over ￡21 billion — which represents the seventh consecutive year of growth in the UK’s ad market. So given that Article 50 has just been invoked and the true nature of Brexit is about to be realised, surely the predictions for 2017 are significantly less rosy? Well, as it happens, they are not. The AA/WARC estimates are cautiously predicting an 8th year of growth albeit at a lower rate of 3.2%.

The Chief Executive of the Advertising Association, Stephen Woodford, offered his opinion on the trends:

“That adspend held up after the referendum is another marker of the strength of the UK’s advertising and media industries. As the Government gears up for Brexit negotiations and a new industrial strategy, it must prioritise protecting this global advantage”

The UK employs around half a million people who work in a variety of advertising-related businesses, and one of the first signs that there is a problem with the economy is a contraction on those numbers. Simple, really: In times of economic hardship, marketing budgets are always hit very early and really hard, so there is the inevitable knock-on effect in ad industry employment rates. So when you hear that there has been no noticeable slowdown in the hiring/firing rates since Brexit, it would appear that the industry has remained resolutely positive in their future projections on staffing.

So contrary to the doom-and-gloom espoused by the advertising industry following the initial news of the UK leaving the EU, the mood has lightened somewhat — since it has become evident that the sky has clearly not fallen. Indeed, some industry experts are now talking about a renaissance in communications and creativity, going back to the heady days of the British 'Mad Men' of the 60's, 70's and early 80's.

So are we to expect a new slew of Don Drapers leading us into a post-Brexit advertising boom? Well, maybe we should be a little more cautious about this miraculous revival until we get into the details of a hard Brexit?

Article 50 has only just been invoked, which means the UK is on an unstoppable trajectory to officially leave the EU by March 2019 latest (although the complex legal wrangling could mean that the process might take considerably longer than this). It will be in this period that the full extent of our trading relationships will be explored and the 'certainty' that Brexit is really going to happen will be more fully realised. And maybe it's only then that we will be able to truly understand if an Adexit is also on the cards.

I asked Nikki Mendon?a who is the President of OMD EMEA for her expert opinion and her comments echo that same sentiment of caution:

"Currently businesses are finding it impossible to factor in the material impact of Brexit as no one truly knows what it actually means. The advertising industry thrives off collaboration, diversity & global competition and if these pillars of growth are affected by new legislation across trade, labour movement & open competition then Britain will undoubtedly be negatively affected by Brexit"

So what do you think? Do you think we have weathered the initial squall of Brexit and we are past the worst? Or are we heading into a perfect storm that will lead to Adexit? As ever, I'm keen to hear your views.

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