The outbreak of the novel coronavirus (Covid-19), which has yet to peak, has already had a significant impact in China on a macroeconomic and individual level. This article will look at how COVID-19 is affecting the advertising industry.
Impressions: Outdoor is down, online is up
In response to COVID 19, the Chinese government has issued numerous containment policies, including quarantine orders, traffic controls, extended holidays, factory and office closures, store closures, work-from-home orders, and travel and transport industry shut-downs. As a result, the number of people outside, in malls, on streets, buses and subways across China and especially in major cities has been significantly reduced, as captured so memorably in photographs of completely empty Beijing and Shanghai streets and parks. This naturally means that outdoor advertising is now reaching almost no one. Moreover, outdoor print ads are not necessarily being replaced on schedule, as the workers may be prohibited from going out or may be temporarily furloughed. Digital billboards can of course still be rotated remotely, but they are not reaching their target audience, and there are anecdotal reports of many digital billboards going dark. This has contractual implications as well, as will be seen further below.
In contrast, online advertising remains as active as ever. In fact, while there are no publicly available numbers to support this yet, we would expect that online ad impressions and revenue have increased significantly during COVID 19. Gaming, videos, and social media, almost all of them monetized through ads, have become the pastime and information source of first resort for the hundreds of millions of Chinese consumers who have been rendered entirely home-bound by quarantine and related traffic control orders.
The COVID 19 impact on advertising in China is not limited to market effects. Several regulations have been issued to specifically address COVID 19 issues relating to advertising and data.
Numerous related Regulations on Advertising Behavior During the Prevention and Control of the Outbreak of COVID 19 have been issued by various local administrations for market regulation. These notices have minor differences, but all explicitly prohibit the following types of ads:
(i) Advertisements that interfere with public orders (implicitly referring to public orders related to COVID 19 containment);
(ii) Illegal advertisements involving the sale, purchase and transfer of wild animals and their products;
(iii) Illegal advertisements relating to the “prevention, treatment, curing or folk prescriptions for the new coronavirus infection”;
(iv) Advertisements for medical drugs, medical devices, health food and formula food for special medical purposes that have not been examined, or where the examination and approval contents have been tampered with.
These restrictions mirror many existing prohibitions under current law, but provide greater specificity and give the government more scope to enforce against advertising activity that might be ambiguous under ad laws of more general applicability.
At the national level, on February 4, 2020, the Cybersecurity Administration of China (CAC) issued a Circular on Ensuring Effective Personal Information Protection and Utilization of Big Data to Support Epidemic Prevention and Control (the “Circular”).
Like the Regulations mentioned above, this Circular repeats many points already addressed under existing law, such as emphasizing the importance of complying with current regulations on personal information protection. But the Circular also addresses issue specific to the current COVID 19 situation, such as:
(i) If organizations collect personal information for purposes of epidemic prevention, those organizations must comply with the Personal Data Specifications. For those familiar with data regulation in China, this is an interesting development, as the Personal Data Specifications are not otherwise legal binding. They are instead more of a best-practices guideline that the government will reference when investigating data issues. By making compliance mandatory in the specific instance of epidemic prevention, the CAC may be signaling a greater legal role for the Personal Data Specifications in future;
(ii) The Circular repeats the existing legal requirement that the principles of necessity and minimum collection should be followed for any personal data collection, but then adds COVID 19-related examples, such as that information should be limited to people who are or may be, or have been in close contact with, COVID 19 carriers; and
(iii) Personal information collected in connection with epidemic prevention should not be used for any other purpose.
COVID 19 has affected business in every region and industry in China, with travel controls, factory closures, and work-from-home orders. This has raised the question of whether COVID 19 constitutes a force majeure justifying a modification or waiver of relevant contractual obligations, such as an inability to deliver product due to a factory closure.
Force majeure under Chinese law is similar to many other jurisdictions, i.e. under Article 117 of the Contract Law, force majeure is defined as unforeseeable, unavoidable and insurmountable circumstance, and the law provides that a party may wholly or partially escape liability for failure to perform the contract if there is a force majeure.
In the context of COVID 19 it remains to be seen how courts and arbitrators will respond to force majeure claims, but there is good reason to believe they will be quite forgiving. At the time of SARS, many courts and arbitrators judged SARS to constitute a force majeure, and there were official judicial interpretations issued, including by the Supreme People’s Court, confirming this tendency. In line with that history, we understand that the China Council for the Promotion of International Trade (CCPIT), a government-connected trade promotion organization, has begun to issue “force majeure certificates” to companies affected by COVID 19.
However, this does not mean that all failures to deliver on obligations during COVID 19 will or should be forgiven under a force majeure argument. Under Chinese law, as in most other jurisdictions, force majeure must be assessed based on the specific circumstances of the parties. Courts will now allow a party to escape liability unless that specific party’s performance of the specific contractual obligation can be proven to have been prevented by COVID 19.
It’s also worth noting that force majeure is not intended to apply in circumstances where the contractual obligation can still be easily performed, but is simply less valuable as a result of changed market conditions. Taking outdoor advertising as an example, a static billboard publisher might have a reasonable force majeure argument if they were unable to post a new billboard during COVID 19 due to printing factory closures or travel prohibitions. In contrast, an advertiser who has paid for placement on a digital billboard would not likely be able to terminate or modify that contract solely on the grounds that the billboard, while still operational, is not actually reaching any audience because everyone is stuck at home. Force majeure is context dependent, and COVID 19 is not affecting all parties equally.