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In the wake of Brexit's Article 50, what does the future hold for UK advertisers?

How Brexit will affect the industry remains to be seen

The triggering of Article 50 has set in motion a definitive countdown for the UK to exit the European Union. The race is now on for the country’s advertising industry to ensure it safeguards its status as a global leader by retaining talent and securing market access.

Finally, the world has an outline of Britain’s negotiation position with EU chiefs. And while it is pretty much what prime minister Theresa May has said before, her tone was more conciliatory than her previous “Brexit means Brexit” remark as she talked about maintaining the “deep and special partnership” with the continent. No doubt, her quote will come to define the negotiations over the next two years as the world starts to get some idea of how the UK-EU relationship will look after the protracted divorce has been finalised.

Until then, trying to predict exactly how Brexit will impact economies and consequently the UK’s advertisers over the medium to long term is nigh on impossible now given no one knows how the final deal between the nation and the continent will look. Instead, marketers, agency chiefs and analysts can only try to guess what the ultimate agreement will look like.

"As the government triggers Article 50 today, we welcome the prime minister’s pledge to maintain a close relationship with our friends in Europe," said Stephen Woodford, chief executive of the Advertising Association.

How that relationship turns after Brexit is a source of much contention for marketers, concerns that would’ve likely been exacerbated by the prime minister’s admission that the country would have less influence on trade rules. Brexit has emerged as the biggest concern for the year ahead among UK marketers, according to the Chartered Institute of Marketing(CIM), which found that more than half (55%) of a survey of 255 marketers admitted it was among their top concerns.

One marketer who has made those fears vocal is Kenny Jacobs, the chief marketing officer at Ryanair. In an interview with Sky News earlier today (29 March), he slammed politicians for not doing more to avoid an “ugly divorce”, arguing that consumers were being forgotten amid all the political wrangling. Naturally, the travel marketer believes his industry should be “priority one” in the negotiations or the country could see flights to countries across Europe put on hold come March 2019 when the UK is set to complete its departure.

“The worst case scenario is that in March 2019, for a period of months, there’s a scenario where maybe there will be no flights at all,” warned Jacobs. “We [Ryanair] plan a year in advance, so in March 2018 we need to know what’s the solution so that we can operate flights and add more growth in the UK in March 2019. If we don’t know that in March 2018 then we will make reductions in our capacity here in the UK and other airlines. In the current year we’re growing by 6% in the UK and in the last two years we’ve grown double digits. We’ve already started to move some growth out of the UK into other European marketers but a solution needs to be found clearly.”

Pleas like this to will be plentiful at Brussels and Westminster over the coming months and years as businesses and marketers attempt to do what’s right for them. Some like Nissan’s chief executive Carlos Ghosn will shout loudly to get what they want: “Important investment decisions will not be made in the dark… If there are tax barriers being established on cars, you have to have a commitment for carmakers who export to Europe that there is some kind of compensation”. Whereas others, will work behind the scenes, submitting to formal consultation processes and making sure the relevant government departments have heard their concerns.

To that end, the minister for culture and the digital economy Matthew Hancock has been urging the UK advertising industry to make sure their voices are heard in negotiations. As the creative sector’s minister, he has courted an industry that is worth almost £10m an hour to the UK’s economy, since he replaced Ed Vaizey last summer.

One part of the marketing mix already at risk is innovation. Budgets and recruitment are already strained, according to some of those specialists working with technology and startups.

“We’ve had a couple of projects pulled from brands because of Brexit, mainly because costs are rising so they are hunkering down and going into their core business, they’re experimenting less with new products and services, said David Caygill, creative technology director, Iris Worldwide during a panel on tech tourism at Advertising Week Europe last week.

Talent is the other issue for innovation experts as it is for many others, worried about the future should the UK become an unattractive place to work.

“It’s about talent for us,” said Hannah Blake, business development lead at Founders Factory. “Our business is driven off talent and we have an incubator where we build business brand new from scratch so we’re attracting product managers and chief executives and the way we recruit the startups that we work with from all over the world - if Britain becomes an unattractive place to be then that is going to massively impact the talent pool.”

On the mergers and acquisitions front, Tristan Rice, a partner at consultnacy firm SI Partners believes same, digital disruption and the constant reinvention of communications disciplines will continue "unabated".

"For the companies that service the communications and customer engagement needs of global brands, the innovation needed to meet these challenges at speed requires M&A," he continued. "As a result, M&A in the creative industries has in recent years seen high levels of activity and prices for key assets that are well above long term averages. This demand will continue unaffected by Brexit. Now it will be about whether the UK remains a centre for creative innovation and talent."

For the time being, advertising itself will continue to come under scrutiny mostly from Brussels which will continue to influence the country’s advertisers for some time to come.

There is the new General Data Protection Regulation (GDPR) coming in May next year and proposals for a new E-Privacy Regulation, both of which could force all businesses, not just those in our industry, to change their business models to ensure greater protection for consumer data, said Paul Bainsfair, director general at the IPA.

“Brussels are also planning potential changes to the Audio Visual Media Services Directive, which also threaten greater restrictions on advertising. In the meantime, the IPA will continue to work closely with the Advertising Association to help coordinate the ad industry’s asks for Brexit negotiations and advertising’s priorities for Brexit negotiations.”

The road to Article 50

Apprehension had gripped the industry in the run up to the landmark decision, with a forecast from Zenith predicting that leaving the EU would cost the UK £70m in adspend growth each year.

The day after the vote WPP’s Sir Martin Sorrell opined that the resulting uncertainty would be “considerable” saying it would encourage slow-decision making as well cause advertisers to deter activity. “This is not good news, to say the least,” he continued, “however, we must deploy that stiff upper lip and make the best of it.”

While the industry may indeed be stoic, the initial shockwaves felt by the market were tangible – five out of the six largest ad groups saw their value plummet on the back of the news and brands like Vodafone warned of moving their head offices from the UK.

Some industry experts were more pragmatic, with Havas’ UK and Europe chief executive Chris Hurst saying that he didn’t agree with those who “predicted disaster”.

“The UK will continue to lead the world in the depth and breadth of its creative talent and creative industries. The fundamentals stay the same and while there will be much to discuss and plan for, it is important we don't lose sight of our talent, strength and global influence,” he added at the time.

Ahead of the referendum just one-third of marketers said they backed the decision, and according to the Creative Industries Federation, 96% of its members wished to remain in the EU. However, despite an apparently overwhelming anti-Brexit feeling permeating industry polls it would appear jitters subsided towards the end of last year, paving the way for marketers and brands to careful chart their next move.

In November, WPP upgraded its industry forecasts and pivoted to describe the short-term affect as “negligible” while a report from the Centre for Economics and Business Research (CEBR) said that UK business confidence levels had bounced back to pre-EU referendum vote levels.

Elsewhere, a buoyant Bellwether report from the IPA showed that advertisers had dismissed ongoing political uncertainty in the UK by raising their budgets in the final quarter of the year. The ad body, did however, caution that there would be a drop in ad spend in 2017 due to anxiety over Brexit negotiations but implored advertisers to “hold their nerve”.

The government has sought to assuage both the wider creative and digital sectors since the outcome of the vote. Back in September, Westminster launched an enquiry to examine the impact on the creative industries, while at the start of this year Theresa May launched a “modern” industrial strategy placing investment in cutting-edge technology and greater state intervention front and centre.

Despite both, the UK ad industry greeted the Prime Minister’s long-anticipated Brexit plan with bated breath at the start of 2017. Chris Daly, chief executive of The Chartered Institute of Marketing was among them, underscoring concerns around talent attraction and retention following May’s unveiling.

"Nurturing creative and marketing talent should always be a priority, and although Brexit provides an added pressure, this is an area where long term strategies are more effective than knee-jerk reactions," he advised.

Outwith talent, ad agencies are clearly concerned about the impact Brexit will have on their own global presence. A recent study from AA think-tank Credos noted that less than 25% of the UK’s advertising agencies believe Brexit will offer opportunities for international growth. The data also indicated that one in five companies surveyed had already lost business or contracts as a result of Brexit.

While brands like Dyson have shrugged off post-Brexit fears announcing UK expansion plans there is no doubt there will still be a sense of trepidation clouding the industry until negations have been polished off.

Reporting by Rebecca Stewart and Seb Joseph.