The Acceleration from an Unexpected Slowdown

By January 10, 2021 MENA

Elie Khouri, Chairman & CEO of Omnicom Media Group MENA, shares his 2021 industry predictions for the region following a year of unparalleled unpredictability.

“The only thing we can safely predict is unpredictability,” was possibly my most accurate prediction last year. Unfortunately. Who could have anticipated the global pandemic and the depth of its impact on the way we live and work? Normal business was temporarily put on hold while we were busy discerning what the ‘new normal’ might look like. Once the health emergency created by Covid is under control, we’ll find that most of the issues raised last year will still be relevant next year.

With one key differentiator: Covid. The outbreak of the pandemic has acted as a time warp. The slowdown resulting from the lockdowns has actually added urgency to existing plans for the digitization of business and marketing. Covid has forced people and brands to meet virtually. These digital brand experiences are now going right through the funnel and end with online transactions for a growing number of sectors and companies. Who thought we’d buy cars online or take virtual vacations? Estimates for the growth of e-commerce in the region in 2020 range between 100% and 150% but the trend is clear and not limited to retail. Governments and the B2B sector are actively involved too. New digital habits are being formed and shopping and consumption patterns are being profoundly altered. More than half of UAE and Saudi residents state they will stick with their new shopping behaviors after the pandemic.

As more of the marketing budgets are going into digital infrastructure, analytics and performance or data-driven campaigns, investments in media continue to shift towards global platforms. This leaves the whole industry exposed and exerts incredible pressure on local media owners. We expect 2020 to have fallen by 20% in media investments, double the 10.2% estimate for the world’s average. The UAE was particularly affected, reliant as the country is on tourism and retail, while Egypt was relatively spared. This will force media and agencies to accelerate the transformation of their business models and diversification of their revenues. On the upside, 2021 should see the region’s first year of growth since 2014, with an anticipated 10% rise. A full recovery to 2019 levels will happen in early 2023.

Governments will play a major role in restarting the economic engine. Saudi Arabia’s Vision 2030 will continue unabated, with its focus on tourism and entertainment, including the first Saudi F1 GP. The UAE will stage its rescheduled Expo 2020. The resumption of talks between Qatar and its GCC neighbors, which could see sanctions lifted, will boost confidence and trade in the region. 2021 promises to be an eventful year, and for the better. Take an inside look at the 10 key trends that will reshape the marketing industry next year.

1- Will TV rise again? The fortunes of the region’s broadcasters are changing. Once the darling of consumer brands, TV now has to fight harder against digital platforms for its place in media plans. TV ad revenues will have shrunk to $450 million in the GCC by end of 2020. The continued lack of reliable and accurate audience measurement (especially TV meters) does little to inspire confidence, depressing CPMs to rock-bottom levels. Though still the leader, MBC will seek to address a significant fall in its revenues, from more than $800 million in 2015 to less than $300 million in 2020. The recently launched in-house sales agency, MMS, which is now fully Saudi owned and managed, will face an uphill battle to reverse the trend. The new leadership, albeit solid and credible, will have to stave off talks of monopolistic practices driven by MMS’ partnership with the Kingdom’s leading out-of-home provider. This will add to the challenges facing a struggling sector that has already paid an unfairly high price from recent political and economic events.
The future of broadcast TV in MENA rests on the industry’s ability to inspire confidence in its grip over audiences and MMS’ new commercial policy. Despite being one of the cheapest TV landscapes in the world, the last thing the Covid-hit market needs is further price instability and inflationary pressures.

2- The streaming battle heats up. While linear TV audiences continue to dwindle, existing streaming platforms such as Shahid, Awaan, Starzplay, OSN, Netflix, Apple TV+ and Amazon Prime Video are gaining subscribers and, with their investments in content, will continue to grow and dominate over time. SVOD (subscription video on demand) will see growth accelerating, adding 30% next year, while AVOD (advertising video on demand) will grow more slowly at 15%.
The key differentiator will be Arabic content. Shahid VIP, which claims to have gained over one million subscribers in just six months, has 42% of its content locally produced in Arabic. OSN Originals is aiming for 25% next year. Despite recent efforts, Netflix achieves only 1%. This is what people will pay money for, especially younger audiences, offering TV content providers a viable alternative to the advertising-funded linear model.

3- Digital will reach 65% share of total marketing spend. Despite concerns about and efforts to control the influence of the big 4 (GAFA) in politics and society, the weight of digital in advertising investments keeps growing. Next year, it will reach 65% in MENA. Data is at the heart of this growth, turning precision into performance and profitability. The dominance of digital platforms will be exacerbated long term by their diversification from an advertising-funded model to one including e-commerce, cloud services, content, etc. The introduction of 5G will surely help fuel this growth.
Meanwhile, the two dominant forces, Facebook and Google, are starting to feel the heat of competition as their growth slowed in 2020. The challenge from Snapchat is strengthening everywhere, as the platform is expected to grow from north of $200 million in revenues in 2020 to close to $300 million next year. Still small compared with the +$3.0 billion for Facebook and Google combined, but the trend is telling given its strong advantage especially in Saudi Arabia, where it holds a 12-15% market share. TikTok is growing fast thanks to content diversification and is poised to reach $100 million in 2021. Amazon remains the smallest player, from an ad-tech point of view, until it rapidly scales up its marketplace and ad solutions which are planned to roll out across the UAE, KSA and Egypt with the promise to be in the top 5 by 2022.
Net net and what most observers miss is that more than $3 of the $5.5 billion MENA investments end up outside the region, after accounting for operational costs related to the running of the big ad tech players.

4- The best is yet to come for e-commerce. Think of 2020 as a dress rehearsal for what’s coming in 2021 in terms of e-commerce. The increase in both demand and supply will only accelerate next year, making MENA the second-fastest-growing market after China. One sign of this is Amazon increasing its regional workforce by 30%. Several concurrent developments are also leading to this. There are significant investments in our e-commerce infrastructure, led and supported by government initiatives. The offering in terms of products, pricing and service, such as delivery speeds, will continue to improve. As well as strengthening regional giants, this will attract new e-tailers and entrepreneurs. Shopping habits will also continue to turn digital, with half of MENA consumers stating their behaviors will not change post-Covid. 49% of global product searches are occurring on Amazon, against 22% on Google; e-commerce is now an essential first stop for product discovery. The experience borne out of necessity is breaking down any previous resistance. In 2021, this will only increase with social and mobile commerce, instant deliveries and digital payments.

5- Clients will continue to favor “Performance” over “Branding”. Following the impact of Covid, the emphasis on “Performance-driven” campaigns vs “Branding” will intensify in an attempt to meet targets. This is particularly true for the most impacted sectors of automotive, travel and hospitality. In 2021, we will see CMOs further transforming their marketing strategies towards always-on, data-driven approaches based on a single view of existing and potential customers. Loyalty programs will be particularly key in this. Unifying first-party data, enriching it with other data layers before activating it for greater precision and performance is a far cry from past marketing practices. While some are in-housing their data function, most companies will outsource as the investment in tech, expertise and data is significant.
However, we should not underestimate the power of “Branding” which contributes to roughly half of the total MENA investments, as marketers will seek to elevate the value of their brands, via crafting content and stories that will create magic and connect with consumers. In addition, programmatic trading, which is still nascent in our region, will continue to grow as a vital component in the mix.

6- A new dawn for e-gaming. The opportunities for brands within gaming have been touted for years but the lockdowns have made e-gaming an even bigger leisure activity. The region’s gaming population is growing by 25% a year. Beyond subscriptions and in-game purchases, the revenue potential from brands is huge. Consider last year’s 10.7 million online attendees at Marshmello’s DJ set on the popular game Fortnite, which had multiple opportunities for brand presence and content. Whether directly through dynamic in-game placements, or via e-gaming’s thriving streaming and e-sports ecosystem, the possibilities for natural advertising in this space will be limitless.

7- Data privacy will be its own pillar in 2021 marketing strategies. The risk of data being compromised during remote working sessions has kept the issue of data protection and privacy on government and business agendas everywhere. Investments in public cloud infrastructure are expected to rise by 35% next year, with businesses focusing on data protection, security, automation, machine learning and hardware. This is part of a broader rethink of workspaces in a post-pandemic world, where teams may need less physical space to operate and collaborate.
The focus on data protection and privacy also applies to consumer data. Following the implementation of the new data protection law in DIFC and consultations on similar laws in Jordan, the UAE, Saudi Arabia and Qatar, we can expect the regulatory framework to make privacy measures and practices mandatory.

8- Tectonic shifts will alter the landscape. Compounding a drop in billings that started more than five years ago, the pandemic has proved a formidable challenge for not only media and agencies, both big and small, but clients too. The loss of business has caused severe cash-flow issues, and many have had to resort to cost-cutting measures.
The impact of Covid on the creditworthiness of some clients and agencies will add to the financial strain on the marketing ecosystem. With the lack of credit and business models being seriously disrupted, the lack of liquidity will see businesses fail on a scale never seen before. Clients will ask for delayed payments, which will put more pressure on fragile agencies and the publisher ecosystem.
The task will now be to rebuild for the forthcoming bounce-back. It’s unlikely we’ll see the same structures again, as remote working has successfully challenged conventions and traditional thinking. We will most likely see more agile and solution-based structures relying on flexible hires. The gig economy, with a modular approach to solution building, will permeate our industry more. In 2021, collaborations between entities will be more project-based and time-bound.

9-The ebb and flow of talent. Saudi Arabia is trying to force expats out while still attracting companies to create jobs for its population, the UAE is openly welcoming them with a loosening of regulations and new visa options. In both cases though, with the recent loss of jobs in our industry, talent supply will exceed demand.
This is the perfect opportunity to reboot or pivot as an organization, adding talent with the right set of skills and experience as well as the right traits and aptitudes, particularly the ability to handle ambiguity. The alternative is the training and upskilling of current employees giving companies the opportunity to transform their talent base. The fact that demand for online training and education has gone through the roof since the start of Covid only seeks to enforce this ambition.

10- Purpose and Culture, the critical importance of the CPO. After the upheavals of the pandemic and the stress caused by the restrictions, talent undoubtedly needs a great deal of attention. Now is not the time to lose sight of that in the name of profit preservation. Your HR team are the glue that binds your talent together, be they remote or socially distant. They are the guardians of motivation, ambition and performance. The three are intrinsically linked. The quest for profits begins with a strong sense of purpose, one that rallies the whole organization and guides their growth. A purpose-driven company articulates why it exists, makes sure it is accountable for the progress against its goals and delivers a meaningful experience at work.

Like most crises, the pandemic will separate the wheat from the chaff. This Darwinian effect will not, however, favor the fittest today as much as it will reward the bravest. It’s about proactively making the necessary changes. Visionary, ambitious, agile, and resourceful companies, and individuals will prevail in this environment. To capitalize on these trends and the growth opportunities they will create, entities across the board will have to be imaginative and build memorable, distinctive, and valuable technology-empowered experiences, products and solutions. They also need to bring back human emotions and warmth in a world that has turned very cold, driven by data and automation.

There’s a reason for this. Expectations placed on marketers today are bringing them ever closer to revenue generation and profitability. The focus on ROI has never been stronger. This clearly impacts the rest of their ecosystem, which also needs to rapidly adapt.

Of course, we all need to make it through the storm, but this cannot be the only consideration if we are to get a proper sense of direction. Efficiency may be paramount to survival, but at a time when people are demanding more from businesses, marketing post-Covid will be about creating authentic human connections.

 

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