Media economy
Ad economy outlook: Grim, grim, grim
By Kevin Downey
Sep 30, 2008 - 8:19:28 AM

A few months back, when forecasters were making projections for the ad economy in 2008, almost none predicted a robust year for spending.

But most forecasters were expecting a decent year, helped by brisk spending from political candidates and a slew of ad dollars coming in for NBC’s recent coverage of the Summer Olympics.

That was before the financial meltdown now rocking Wall Street and Washington's furious efforts to pass a massive bailout package.

Forecasters are now predicting a grim ad economy for 2008 and extending well into 2009, if not longer.

The reason: Corporations will continue to hold down ad budgets on most media types as consumers continue to hold back on spending.

This is especially the case for financial institutions, which have accounted for a hefty share of total ad spending in recent years.

Forecasters are predicting a short-lived bump in spending as merged companies inform consumers about their new holdings, but then over the longer term spending will decline with fewer companies competing for the consumers' business.

Forecasters think the slump could extend out as far as 2011.

“I think we’re looking at 18 months to 36 months of recessionary spending,” says Jack Myers from the Myers Media Business Report. “Ad spending is a percentage of sales, and companies are projecting that sales will be flat to down. Therefore, ad budgets will be down.”

Sarah Welch, COO of internet ad network Mindset Media, agrees that ad spending will slump.

“The consolidation of banks, like Citibank just buying Wachovia, will almost certainly have a negative impact on the category,” she says. “That alone will have a pretty substantial impact on the ad market.”

The economy was soft even before financial institutions like Merrill Lynch and Washington Mutual began to fail.

Consumers have been holding back on spending as soaring prices for gasoline and food left fewer dollars for other purchases. At the same time, thousands of people have lost their jobs.

Ad spending in second quarter was down nearly 4 percent from the same time in 2007, according to TNS Media Intelligence.

“The outlook is far from rosy,” says Jon Swallen, senior vice president of research at TNS Media Intelligence.

“Third-quarter numbers will get a boost from the Olympics, and third and fourth quarter will get a boost from the elections. But that mostly affects television and, when you strip that away, the core foundation is soft.”

In this ad economy, it’s likely local media outlets will suffer more than national outlets.

Often in economic downturns, companies merge to stave off financial disaster, leaving fewer but bigger companies, which are inclined to promote their products and services in one shot to consumers around the country.

And local advertisers, like retailers, often feel the effects of economic downturns more than national companies that are spread out in areas that are doing well in addition to those that are hurting.

Analysts say media types that are relatively inexpensive will weather this economic slump relatively well, including the internet and out-of-home media like digital billboards and cinema advertising.

And national TV outlets are expected to hold up well.

The broadcast and cable TV networks earlier this year posted solid increases in the annual upfront ad market, when advertisers booked time for fourth quarter 2008 and most of 2009.

Primetime network TV, for instance, saw advertisers spend some $9.2 billion. Prices were up roughly 7.5 percent from 2007, according to Myers.

“As long as ratings hold, and they should, the broadcast business should be in good shape,” says Myers. “Local media will struggle because retail will be soft and almost all categories like automotive will be hurt by the economy. I see very few positive indicators on the horizon, if any.”