Big hiccup brings
the ad recovery to a halt
Over the third quarter, ad spending slows dramatically
By Diego Vasquez
Dec 20, 2011
The media economy recovery hit a major bump in third quarter as spending grew only 0.4 percent, the slowest growth rate since fourth quarter 2009, back when the U.S. was still in the throes of the recession. That pulled down year-to-date ad spending growth to 1.5 percent, according to data released yesterday by Kantar Media. Large advertisers are largely to blame for the decline. Eight of the country's top 10 advertisers, including top three Procter & Gamble, AT&T and General Motors, pulled back on spending during third quarter after getting spooked by bad economic news over the summer. GM was down 11.1 percent, reflecting an overall decline in auto manufacturer spending, which dipped 3.8 percent during the quarter. That was due in part to spending cuts by Japanese auto companies Honda and Toyota, which were recovering from the natural disasters that created major supply problems for the remainder of the year. But overall auto ad spending was buoyed by an 11.3 percent kickup in dealer spending, including an increase in newspaper investment. Jon Swallen, senior vice president of research at Kantar Media, talks to Media Life about the state of auto advertising, why large advertisers cut spending and what to expect from fourth quarter.
What were the biggest factors in the slowing of ad spending during third quarter?
It seems to me that larger advertisers got nervous and became more conservative. There was a slowdown among the top 100 to 200 advertisers, so I think it's uncertainty about economic conditions and trying to maybe hold some stuff in reserve for fourth quarter.
How does fourth-quarter ad spending look? Has the strong holiday spending given advertisers some confidence?
It's not looking any better than third quarter, at least not for October. I've only looked at top line numbers for October, not individual details, but for the major media and ad spend overall, October looks like an extension of third quarter.
Why were large advertisers in particular spooked enough to pull back spending? Why wasn't this seen as much with mid-sized advertisers?
For the large advertisers there was more aggressive spending earlier in the year, so those pull backs may be a case of reading the economic tea leaves and getting a bit nervous and pulling back on marketing. When the fourth-quarter numbers come in we'll see if they came back.
For the mid-sized advertisers that have continued to spend, I think they're just on a different ad spending recovery cycle than the large advertisers. If we go back a year, it was the large advertisers who were the first ones to jump in, and the small and medium-sized advertisers were last.
If you look at them three to six months apart, the curve for the spending growth pattern for mid-sized advertisers looks similar to that of larger advertisers. So this may be a case where mid-sized advertisers held onto their money longer before becoming more confident in their marketing expenditures.
How much of spot television's year-to-year losses can be attributed to the lack of political advertising? Is there anything else impacting the market?
Well political is certainly impacting spot TV, particularly as we get closer to the October-November period when political money peaks. So that's why we've seen spot TV falling. Network TV actually held up pretty well in third quarter, and cable TV continued to grow. Q3 is typically a stronger ad growth period for cable. And syndication has continued to perform stronger throughout the year, and third quarter was no different.
Why did paid search decline during third quarter and is that the start of a notable trend?
I'm not sure if it's a trend or not.
What we've seen in paid search is, from middle of last year through first quarter this year, insurance and financial advertising in paid search was very robust. Around the end of March, those categories pulled back sharply. I'm not sure if it reflects advertisers' pulling out of the medium or if it's a change in the volume of impressions they're buying, or what the underlying causes are.
But there's a very clear point around the beginning of April when it began to fall off sharply, and that's driving the declines we're starting to see, because financial is one of the biggest spenders in paid search.
Why are food companies cutting back so much on magazine advertising? Are they shifting their money elsewhere or is this reflecting a cut in budgets?
It's a cutback. Two of the biggest food advertisers are Kraft and Unilever, and both of them cut budgets across all media in third quarter. Again, magazines are a big chunk of their media mix, so they take the brunt. But it wasn't a case of them deciding to spending less on magazines, they spent less overall. We saw budgets shrink on TV as well.
In Kraft's case, part of it possibly could be that they're getting ready to go through a reorganization and split into two companies. The cutback in marketing could somehow be connected to that.
Which ad categories are healthiest for spot radio and why?
There was spending from local auto dealers, but also from local retailers--not so much the big box chain stores, not the department stores, but more other retail sectors.
You note that local auto dealers upped their investment in newspapers -- why?
Local auto dealers, they're local, so local media are important to them. You have the dealer associations, and individual dealerships. The dealer associations pool their money and then advertise on behalf of everybody, and they primarily put money into TV.
Local dealers primarily put money in newspapers on radio. The increases in newspapers and radio indicate increases from individual local dealerships.
Auto manufacturer spending was down while local dealer spending was up during third quarter. Why?
Those two things are tied together. The fact that manufacturers are putting less money into the market prompts local dealers to put more into the market.
Dealers are the retail face of the industry. Like a retailer, they're responsive to market conditions and will adjust budgets upwards or downwards based on customer trends, sales outlooks, etc. In third quarter, new model introductions were not a significant contributor, it's just a case of since manufacturers cut budgets, retailers felt they needed to pick up the slack. And they're selling more cars this year than last year, even with the economic uncertainty.
The manufacturers have a different set of circumstances. It really goes back to the Japanese earthquake--it seriously affected production and inventory levels and led to a tightening of supply in the U.S. market. There was less inventory for sale, which gave other manufacturers an opportunity to cut back on marketing expenditures and yet hold the line on price.
With two major competitors impaired and customers still coming into showrooms to buy, manufacturers thought they could pull back and still meet sales goals, which improves profit margins.
One of the things we saw in 2010 is a lot of auto manufacturer advertising was leading the market. In other words, after a ramp up in spending, then there was a ramp up in sales. Here was a case where sales were still fairly strong, so it created a one-time opportunity to improve your financial picture.
Have the Japanese auto companies returned to pre-natural disaster levels of spending? Why or why not?
Not yet. Toyota took a second hit back in August-September with the flooding in Thailand, which is another key country for them for parts and components.
But they look to be in a position where at the first of the year they should be close to full production and inventory should be flowing normally.
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