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'COVID effect' will be a 'transformational moment on Madison Avenue forever': Brand guru Gary Vaynerchuk

As advertising budgets get slashed amid the coronavirus pandemic, brands across all industries are taking a hard look at the campaigns they’re investing in — many of which have paused production and taken alternative routes to make an ad.

Forrester Research predicted in July that ad spending will decline by 25% this year and won’t fully recover until at least 2023, but ad executive and brand guru Gary Vaynerchuk says the pandemic could create a permanent shift away from stuffy, old-school advertising.

“[These agencies] accustomed to big productions on TV, and then doing matching luggage to that TV spot on digital for the last decade were wrong, or at least wildly overpriced. They can't waste it the way they've been wasting it especially in 2019, 2018 and 2017,” the VaynerMedia CEO told Yahoo Finance in an interview aired during the All Markets Summit conference on Monday.

But the shift away from overly priced productions will go “beyond the COVID effect,” according to Vaynerchuk, whose company is a full-service digital agency offering a portfolio of services spanning strategy, creative, paid media, influencer, and production work.

"Mad Men" star Jon Hamm stands beside the wardrobe he wore as the character "Don Draper" during a donation ceremony at the Smithsonian National Museum of American History in Washington March 27, 2015. The museum accepted a donation of more than 50 artifacts from the AMC program "Mad Men" to represent mid-century advertising history as part of their  "American Enterprise" exhibition which opens this summer.  REUTERS/Kevin Lamarque

“I mean, this will be a transformational moment on Madison Avenue forever,” he said.

‘Lucky is the only word I can use’

For his part, Vaynerchuk says he has a mix of clients who weren’t hurt by the pandemic, at least in the short-term, including Procter and Gamble (PG), Pepsi (PEP) and Kraft (KHC), and financial services like JPMorgan Chase (JPM).

“We weren't in airlines or hotels...so we got lucky is the only word I can use. Our client mix was very benefited by COVID to be honest, in the short term. Our clients are much more worried about making more of their stuff than anything else,” he said. Still, VaynerMedia was not immune to the coronavirus-triggered economic downturn. The agency laid off 5% of its workforce in April and another 2% in September.

AUSTIN, TX - MARCH 10:  Gary Vaynerchuk speaks onstage at the Sound Ventures Tech Competition, PerfectPitch, at SXSW at Hotel Van Zandt on March 10, 2018 in Austin, Texas.  (Photo by Joe Scarnici/Getty Images for Sound )
AUSTIN, TX - MARCH 10: Gary Vaynerchuk speaks onstage at the Sound Ventures Tech Competition, PerfectPitch, at SXSW at Hotel Van Zandt on March 10, 2018 in Austin, Texas. (Photo by Joe Scarnici/Getty Images for Sound )

“Let there be no confusion...this is a big deal. In Madison Avenue land, the cat is out of the bag. People are starting to understand the shift toward digital media and creative together for business results versus TV and reporting. And Nielsen's and Miller Brown. And it was a very ugly world for truth behind marketing spend. And I think it's starting to flesh out or at least the early stages that will manifest over the next decade,” he said.

‘A perfect storm of disasters’

The traditional advertising industry has been beleaguered for years. In August 2017, WPP, the world’s largest agency, warned that there could be zero annual revenue growth. (The actual number came in at 0.89%.) Growth has remained anemic since.

“It’s a perfect storm of disasters that advertisers have to navigate. It’s different from anything that has ever come before,” Jeff Goodby, co-founder of Goodby, Silverstein & Partners, told the Wall Street Journal this month.

Meanwhile, eMarketer had forecasted 17% growth in digital ad spending in the U.S. for the year 2020, with e-commerce leading the way. After the pandemic hit, the firm revised its forecast to 7.5%. Just this week, shares of Snapchat (SNAP) hit an all-time high after handily beating analyst expectations on both the top and bottom lines for the third quarter. The company posted $679 million in revenue — which mostly comes from selling ads — representing a 52% year-over-year increase.

This performance suggests that advertisers are leaning into digital and away from traditional advertising like TV.

“People have thrown out yesterday and have opened their eyes to today a.k.a. the biggest brands in the world that we work with are starting to understand that paying $600,000 for a production to run on television might not be the best use of their money,” Vaynerchuk said, “and have leaned into e-com. DTC [direct to consumer], and content and media being together in digital channels to drive business results.”

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Melody Hahm is Yahoo Finance’s West Coast correspondent, covering entrepreneurship, technology and culture. Follow her on Twitter @melodyhahm.

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