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| Media economy | |
third-quarter numbers Ad spending actually declined, defying expectations Dec 10, 2009 Third quarter media spending numbers may have gotten a bit overshadowed by the revised 2010 forecasts that came out this week. While those forecasts showed glimmers, however small, of hope for next year, the third-quarter numbers were glimmer-less. Advertising once again took a huge year-to-year hit, according to TNS Media Intelligence, off 15.3 percent versus third quarter last year, compared to a 14.3 percent dip for the first half of the year. Those numbers aren't quite as dire as they might seem. Last year the Summer Olympics took place during third quarter, and so television sustained a big hit without that boost in revenue, with network TV off 11.5 percent and spot down 27.5 percent. Political spending, too, was way off from last year's presidential election cycle. But other categories saw double-digit declines as well. Radio slid 22.8 percent, as did newspapers, and magazines fell 19.7 percent. The internet (up 7 percent) and free-standing inserts (up 3.9 percent) were the only media to see growth. Jon Swallen, senior vice president of research for TNS Media Intelligence, talks to Media Life about where the big hurt is, when the recovery will begin, and whether auto advertising is coming back. What do these numbers tell you about the pace of recovery, overall? They indicate that it really hasn’t begun to occur, simply put. Looking at the third quarter month by month, not a whole lot is different from what we saw in the first half of the year. There’s nothing a whole lot different in third quarter or into October. For some of the media, there have been some small improvements toward the end of third quarter—magazines, newspapers, radio—but part of that is because those are some the media that were hit earliest and hardest by the ad recession, so the percentage losses are now getting a bit smaller. Based on these new numbers does local appear to be coming back faster or slower than national? Local is still struggling. Spending is down much more severely than for national. The two biggest components of local are spot TV and local newspapers and we understand what goes on with spot TV with the biannual cycle, so you kind of know if it will be good or bad. On the newspaper side, the businesses continue to struggle and our statistics indicate the papers continue to shrink in terms of the number of ads they’re carrying and the prices they’re getting for those ads. What's the most interesting or surprising thing about the third quarter results? Two things caught me. One was the telecom companies. Spending there is heavily dominated by wireless phone companies, and given the competition in that marketplace ad budgets have held up pretty well during this recession. Particularly between AT&T and Verizon. But for the first time in quite a while both of those companies sharply cut their budgets in third quarter. Even though Sprint has been spending more this year than last, it wasn’t enough to make up for those declines. I don’t know if that’s just a one-time thing or whether it indicates those marketers are taking a more frugal and cautious approach. The other thing that caught my eye was pharmaceutical advertising, which has been under a microscope from a regulatory standpoint. For the past couple years spending had been sort of flat, but what we noticed for third quarter was a noticeable uptick in spending from the pharma companies. In third quarter alone spending was up 16 percent versus a year ago, and as we noted in the report that brought the category to plus 0.6 percent for the first nine months of the year. So I’m curious to see if that has legs and sustains itself, or if it’s a one-time phenomenon that reflects timing. Which media categories are on pace to recover first and why? I’m closely tracking what’s going on with network TV. Given the anecdotal reports about scatter market pricing being sharply higher than upfront pricing, the implication is it might indicate a turnaround in ad revenues for the broadcast networks. And there are some indications in October data that network revenues are perhaps beginning to turn around. It had been tracking mid-single digits, in the minus-5 to minus-10 range for the year, but those losses appear to be narrowing to maybe minus-1 or minus-2, maybe even flat to a year ago. And it doesn’t take a genius to figure the Olympics next February will be a stimulus for NBC. How much was third quarter hurt by comparisons to last year's Olympic and political spending? The Olympics were August of last year—so just dealing with the Olympics, they contributed an extra $700 to $800 million in TV ad revenue between broadcast networks and local affiliates. So if you take that out of last year, the third quarter this year would have, instead of being minus 15.3 percent, the total ad market would have been around minus 13 percent. Will the categories that have been hit the hardest (radio, newspapers, magazines) ever recover to their prerecession levels? Why or why not? I hate to say never, that’s such a long time. I think it’s pretty clear that all media are going through dramatic structural changes, and some media are obviously experiencing it more severely than others, and those three are at the leading edge in that regard. It seems to me that five years from now when all this is played out we’ll find that those three all adapted in some way, shape or form, that they’re clearly fundamentally different than they were five years ago. In terms of how much ad money they’re pulling in, that remains to be seen based on what new forms they take. I think we’ll still be talking about them in five years, but we’ll be talking about them in a different way. Obviously fourth quarter will be helped by more favorable comparisons to last year. Otherwise, how is the quarter shaping up? Are you seeing any promising indicators? I’ve seen some numbers from October, and there seems to be some growing strength in the broadcast TV market. Spot TV stations are down big time versus last year because of political comparisons, so the gains network TV has made in October kind of cancel that out. But what happens in November and December? Spot TV should begin to look better, so the wild card is network. Is auto advertising starting to recover? Why or why not? No, I think over the past couple of months we’ve seen that auto advertising is still roughly proportional to the rate of vehicle sales. It does feel that the volume of year-end clearance sale advertising from manufacturers started a bit earlier this year, which indicates that manufacturers are still trying to move inventory. But the real key going forward is General Motors and Chrysler, because right now both those companies went through and came out of bankruptcy. But both of them have been following different paths. GM came out of bankruptcy and very quickly ramped up marketing expenditures, and they’ve been spending more money as compared to a year ago, and that’s even factoring in the fact they’re no longer promoting Pontiac and Saturn vehicles. Chrysler, on the other hand, has come out of bankruptcy and has been comparatively absent from marketing. There’s very little in terms of advertising from the Dodge and Chrysler lines, and it seems to be tied to product development. Their new model development is a bit slow right now. Chrysler in 2010 represents a significant chunk of “swing” money. If they start advertising at a higher rate, that could show up as an important boost to the category. When will we start to see a recovery and what will drive it? I don’t know about the timing, but I am convinced that what will drive a sustained advertising recovery is a sustained improvement in consumer spending. I think it’s likely to play out over a period of time, it’s not like just turning on a light switch, it’s more likely to be a drawn-out, protracted recovery. But as I said, the timing of how ad spending begins to improve, and whether it’s sustained or up and down, will depend very much on consumer spending behavior and marketers’ confidence that consumer spending has stabilized.
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