In view of the impact of COVID-19 on the Malaysian advertising industry, the Association of Accredited Advertising Agents Malaysia (“4As”) recently submitted a Joint Memorandum (“Joint Memorandum”) to the Government, appealing for tax and non-tax-based temporary relief support for their members.
The Joint Memorandum requests an exemption from Sales and Service Tax (SST) and double deduction relief of advertising expenditure incurred by all Malaysian-owned companies be exempted from claims submission, with extensions on qualifying criteria for tax deduction.
Although the Malaysian economy posted a 0.7% year-on-year growth in the first quarter of 2020, it is expected to contract deeply with recovery estimated only at the end of 2020 due to the economic uncertainties posed by the COVID-19 pandemic.
In the last four months, only 80% or less of businesses were operating at full capacity while some temporarily suspended operations. This led to many advertisers cancelling or rescheduling campaigns and slashing budgets as they used their advertising expenditure to shore up employee salaries and defray accumulated debts.
Consumers were hardest hit as they experienced unemployment and salary cuts, resulting in weak consumer consumption, despite some receiving direct cash assistance.
To date, this has led to a decline of 20% in advertising spend (ad spend) in the first five months of 2020, on the back of decreased revenue streams ranging between 20% and 50%. Based on estimations, ad spend is forecasted to drop by 20% year-on-year by end 2020 while revenues are expected to flatline. It is also estimated that most of the industry’s creative and media agencies, including some media owners, have experienced pay cuts ranging from 10% to 30% while an estimated 5% to 10% employees have been laid off.
It is also believed at least 10% have closed down or re-engineered themselves to offer different services. Meanwhile, another 20% are expected to downsize or close over the next three months if conditions do not improve.
Media owners which rely heavily on ad spend are going through very difficult times; for example Media Prima Berhad is reported to be retrenching staff again barely six months after undergoing a similar exercise while magazine publisher, Blu Inc Media, who published more than 20 print titles had to close down at the end of April this year after an existence of close to 40 years – these are just two examples of distressed media companies.
These conditions are expected to remain over the next six to 18 months. The short- to medium-term temporary assistance from the Government is therefore crucial to help mitigate unemployment within the industry.
Over the longer term, the industry believes that there are still opportunities to drive economic recovery as it has re-strategized on several fronts to adapt to changing consumer behaviour. One such area is the shift to digital space.
The recent lockdown witnessed a tremendous increase in digital traffic, digital media consumption and online transactions. As the digital economy has been identified as a new development driver and e-commerce projected to contribute up to 20% of Malaysia’s gross domestic product (GDP) this year1 , the industry stands ready to support the Government in accelerating technology adoption by creating effective digital content and campaigns to lift consumer spending patterns to pre-COVID-19 levels, boost business and household confidence as this will reinvigorate economic recovery. 2 To do this, the advertising industry needs to be in a reasonably healthy position over the next six to 18 months.
The detailed Joint Memorandum, prepared in consultation with the Commercial Radio Malaysia (CRM), Malaysian Media Specialists Association (MSA), Malaysian Advertisers Association (MAA), Malaysian Newspaper Publishers Association (MNPA) and Outdoor Advertising Association of Malaysia (OAAM), was submitted by the 4As to the Government through the Ministry of Finance, Ministry of International Trade and Industry, and the Ministry of Communications and Multimedia.