Requiem for an Industry

Once a vibrant and thriving sector of Pakistan’s economy, the advertising industry today stands on the brink of collapse. A number of factors, all converging at the same time, have created the perfect storm, posing an existential threat to agencies and media businesses across the country. Factors such as economic challenges, connectivity disruptions, and infrastructural limitations continue to threaten the industry with no respite in sight. As the economy crumbles under the weight of inflation and currency devaluation, leading to a decline in consumer spending, the only ray of hope for agencies seems to be to secure international business. But with connectivity disruptions, even this becomes a challenge. The fact that Facebook has concluded its reseller business in Pakistan is further testament to the fact that the global social media giant also believes this market lacks the opportunity it once thought it had. So, with this doom and gloom in the air, what are our options?

• A Domestic Market in Shambles: The dramatic downward transformationwe are seeing in the advertising industry is based on clear andtangible factors.

• Declines in Spend: The industry has experienced an average annualgrowth rate of two to three percent between 2018 and 2023, based ondata shared by the Pakistan Advertisers Society (PAS).

• Per Capita Spend Lowest in South Asia: In 2023, the total ad spendwas approximately Rs 75 billion, translating to a mere Rs 340 percapita. Compare this number to India and Bangladesh and it isembarrassingly low. Bangladesh, once considered to be far behindPakistan, has a per capita ad spend of Rs 735, and India comes in atRs 2,680. With numbers like these, it only makes sense for largeaffiliate agencies to focus on our neighbours if they seek growth.

• Impact of Economic Challenges: Political instability, inflation andcurrency devaluation are the key drivers, as a result of which weforesee many companies significantly cutting back on their marketingbudgets. Consider that in 2022, one US dollar was equivalent to aboutRs 200; meaning an advertiser spending Rs 200 would get a dollar’sworth of ad space (relevant for digital marketing which todayrepresents nearly 40% of all ad spend). Today, to claim the sameamount of ad space, an advertiser would need to spend nearly Rs 280,based on devaluation. But when this amount is adjusted for inflationover the last two years, the amount is close to Rs 540. While mostadvertisers have made price adjustments on their products andservices, they have not been able to pass on the complete effect ofdevaluation and inflation, making it even harder to increasemarketing budgets. As a result, ad agencies see shrinking budgets andclients pushing to get the most bang for their buck which ultimatelyhits agency profitability.

• Shift in Consumer Behaviour: The rising cost of living has forcedconsumers to prioritise their spending, leading to a decline indiscretionary spending. As consumers opt for more affordable localalternatives, multinational brands may experience declining sales,further exacerbating the decline in ad spend.

• The Agency Squeeze: Once the creative powerhouses of the industry, adagencies are now bearing the brunt of this crisis.

• Pressure on Retainers: Globally, agencies typically see theirretainers increase by approximately three to five percentyear-on-year. In Pakistan, agencies are struggling to secure evenmodest increases, with many reporting annual retainer growth of oneto two percent, while others have not seen their retainers increasesince Covid-19, while salary costs continue to rise. This disparity,coupled with high inflation rates is squeezing profit margins tounsustainable levels.

• Talent Drain and Creative Fatigue: The financial strain on agencieshas led to reduced services, hybrid work structures and a reliance ontheir staff’s personal devices to save costs. There is also a trendwhereby full-time employees at one agency are freelancing at anotherto make ends meet. In some cases, people are dividing their time overfour to five companies to hit the number that matches their lifestyleexpectations. Ultimately, the client loses, as the quality of worksuffers; ‘deep’ work no longer happens and creativity is hampered.The resulting creative fatigue is evident in the overall decline inthe quality of advertisements, more copycat campaigns and increasingreliance on influencers to do the work. This in turn leads clients toquestion the value an agency provides.

• Connectivity – the New Hurdle: The ad industry is also grappling withinternet connectivity issues. As I write this article on the day ofthe Chehlum, I am experiencing internet disruptions, making itdifficult to stay connected with clients and manage my business. Thisdisruption is due to security concerns, but over the last few weekswe have been experiencing continued connectivity issues. Newsreports state this is a cable issue, while others suggest it is dueto the recent installation of a new ‘firewall’. Frankly, the reasonis irrelevant. What matters is that we are impacting an industry thatcould be generating significant taxes. That the freelance economy hasalso been hit is evident and according to a recent report in Dawn,Pakistani freelancers on platforms like Fiverr are struggling tocomplete their work and meet deadlines due to the slowdowns andoutages. Some have even had their accounts temporarily deactivated byFiverr to protect their ratings. Rights activists are critical ofthese internet disruptions, arguing that they harm students,businesses and consumers. The ad industry is particularly vulnerableto these disruptions as they increasingly rely on cloud platforms,SaaS subscriptions and collaboration tools to get work done. Theinability to connect to these tools and speak to local andinternational clients has become a serious handicap. Furthermore, theembarrassment of trying to explain to a global client that “theinternet in my country will be spotty for the next few weeks” doesn’tnecessarily instil confidence if we are hopeful of turning Pakistaninto a digital export and gig economy hub.

• The International Market: A Mirage? How can any agency tap into theinternational market when it faces such basic connectivity issues? Noglobal client is going to place its marketing eggs in a basket thatcan barely hold them. Add to the connectivity challenge, the realityis that Pakistani talent faces stiff competition from countries withequally cheap resources, but with better connectivity infrastructureand a stronger work ethic. One of the biggest hurdles for ad agenciesseeking to penetrate global markets is the perception that Pakistanis a low-cost option and that the quality of work will becommensurate with lower rates. This perception is often reinforced bythe lack of awareness about the capabilities and expertise ofPakistani agencies. It will be hard to turn around this perception ifwe cannot even connect to a Zoom call without disruption.

A survey conducted by the Pakistan Advertising Association (PAA) in 2023 revealed that only 15% of international clients had a positive perception of Pakistani ad agencies. The majority cited concerns about language barriers, cultural differences and the lack of familiarity with Pakistani market dynamics as key factors influencing their decision to work with agencies from other countries. Furthermore, Pakistani agencies may struggle to navigate the complex procurement processes and cultural nuances of international markets. The unfamiliar landscape can be daunting, and the lack of local connectivity further hinders their ability to build relationships and secure clients.

• Not Forgetting AI: And we still have not talked about the disruption brought about by AI. What previously required a team of 10 designers, animators and illustrators can now be done by a team of four and the right AI tools. There will be further proliferation and improvement in such tools, making certain positions redundant, and creating a situation of increased unemployment.

In the absence of a significant economic turnaround and improved infrastructure, Pakistan’s ad industry is facing an existential threat. It no longer seems profitable to be in this business. The combination of economic challenges, connectivity issues, and a shrinking domestic market paints a bleak picture for agencies. The industry is haemorrhaging talent, creativity is waning and the financial strain is becoming unbearable. For agency owners, the writing is on the wall. It might be time to dust off that resume and consider a career switch. The bleak reality is that without immediate and substantial changes, the advertising industry in Pakistan may cease to exist as we know it.

Faizan Syed is Founder and CEO, East River.faizan@eastriverdigital.com