Huge companies like Apple and Microsoft spend hundreds of millions of dollars annually on advertising, according to an agency source, so a SXSW cancellation is "certainly shocking, but it's tiny in relation to their overall advertising market." More vulnerable are small agencies reliant on concerts and festivals. Another agency source says middleman dealmakers may not sign contracts, even multimillion-dollar ones, until a few days before events like SXSW or Coachella, so cancellations can be devastating. "Everything is hard," this source says. "Often agencies don't get paid until three months after the services, so they're left holding the bag."
How will these agencies survive? "I don't know," says the source. "It's very scary to think about."
Rick Faigin, executive vp of Los Angeles marketing company Acceleration Advisory, who recently linked Ariana Grande and T-Mobile for a tour-sponsorship deal, says certain SXSW branding costs were "probably done and on a truck to Austin," while others, like final payment to venues, could potentially be salvaged. "In most cases, you aren't getting anything. The best you're getting is an IOU for next year," adds Rishad Tobaccowala, a former chief strategist for French marketing company Publicis Groupe who is now an author and motivational speaker. "So you just eat it."
Like many brands and agencies, We Are BMF is trying to "pivot our thinking" from major events with large crowds to smaller, more intimate gatherings and digital happenings, Feit says. "This short-term time period, we're thinking, 'How do we reach the consumer, either at an event at their house, or through digital?' But I do hope this isn't a permanent shift."
Brand Innovators, a Los Angeles company that hosts 100 annual events, had planned five days of sponsored events at Austin restaurant Lambert's during SXSW, including a performance by Swedish folk duo Good Harvest. Brandon Gutman, the company's co-founder and co-CEO, is waiting for the festival to explain how it might "pay back those brands or provide credits." The agency was able to recoup some of its festival losses via airfare credits and an accommodating local hotel and is planning smaller events in Austin throughout 2020. More importantly, he adds, the agency is helping brands switch from SXSW to local "intimate events."
"What [brands] need to do is say, 'OK, if we can go into 10 markets in 10 cities and host 100 or 200 people,' you multiply those experiences and they can actually be a much larger than that one grand concert," Gutman says. "Now they have full control. They're the only brand in the room."
Nathan Hanks, founder and CEO of Music Audience Exchange, a marketing company that puts artists and brands together for online events, doesn't plan to "skip a beat." He's helping artists who are "hammered" from canceled festivals and shows to film performances for digital distribution. "It's kind of crazy," he says, "but we may be seeing the beginning of a new normal."
Hanks predicts that "you'll see a lot of experiential budgets go away and less money being deployed in the quarter." Still, brands and agencies won't say whether they've pulled back on 2020 sponsorship budgets for festivals and tours. "It's too early to understand the impact," Faigin says. "The hope is, in the next three weeks or month and a half, we have a lot more visibility."
The uncertainty has confused brands, agencies and the entire live-event industry about whether coronavirus is an inflection point for overhauling the business or a blip that will disappear. "This is a shock that makes you change the way you think," Tobaccowala says. "That is always risky."