Media folks remember the ad recession of 2001, brought in large part by the dot.com bust. That recession was bad.
This ad recession is looking to be a lot worse, running longer and cutting deeper.
Along with the downturn in ad spending, tied directly to the downturn of the U.S. economy, the media economy is going through major structural changes that have already led to massive layoffs and turmoil in a number of media, most notably newspapers.
More will come in 2009.
The big structural changing, of course, driving it all, is the shift from more expensive media--primarily print--to media that is not only less expensive but more accountable, defined by the internet.
Advertisers believe they gain a far better idea of how and whether their ad dollars are working for them.
But also at work are dramatic changes within major ad categories, such as automotive, financial, real estate, retail, entertainment and pharmaceutical. They are the backbone of the media economy, but those changes could well mean that those categories, rather than lead an ad recovery with the revival of the U.S. economy, will continue to hold down spending.
Yet another factor is a dramatic shift in the traditional supply-demand equation of media from one of relative scarcity of ad inventory versus demand.
The media marketplace is now flooded with inventory, and that gives buyers the leverage to hold down prices. Getting more for the dollars they spend, advertisers feel less need to boost budgets and a greater reason for cutting them.
These two mega forces--the decline in ad spending and the structural changes--all but ensure a more protracted, more painful ad downturn, and one whose course is a lot harder to predict.
That's evident in the series of forecast revisions of just the last few months. Most media forecasters had been expecting 2008 to end with ad spending flat or up modestly. Now they see it tumbling this year, and many see 2009 spending falling even further.
The downturn, which began in early 2007, is now spreading to virtually every media type, including the internet. Until recently, the pain had been limited to local media and national print.
Like other noted forecasters, Jack Myers of the Myers Media Business Report sees the downturn lasting into 2010. Says Myers: “I don’t see anything in the next 18 months to reverse this."
Myers is forecasting a 6.7 percent decline in ad spending in 2009, with newspapers down 15 percent, and he’s projecting a 2.3 percent dip in 2010.
Magna forecaster Bob Coen recently projected spending in 2009 will tumble 4.5 percent from 2008, with spending on local media sliding 7.6 percent.
About a third of local ad spending goes to newspapers, which are seeing readers and advertisers shift to other media. With the real estate meltdown they're seeing a sharp decline in that category, adding to the hurt from the ongoing shift of classified ads from print to online.
Also hurting is the loss of retail advertising as national chains drive local stores out of business.
“It’s much more pronounced for local media,” says Jon Swallen, senior vice president of research at ad-tracking firm TNS Media Intelligence. The severity, he says, has been somewhat masked by the uptick in ad spending for the Olympics and this year's elections.
Here's a look at the outlook for major ad categories:
Automakers are hurting and cutting ad budgets, and spending is not likely to ever return to past levels, even after the domestic auto companies get bailed out by the feds.
The new Detroit will most likely reduce the number of models it puts out, and that number would be further reduced if the Big Three becomes the Big Two in the event Chrysler and GM merge, as many expect.
Among top-spending ad categories, financial is the most likely to bounce back once consumer spending rebounds. Few analysts will predict when that will occur, but as the financial crisis deepens it’s likely to be a year or more off.
As for real estate, that's expected to be down for years as a result of an oversupply from earlier this decade, when home prices were soaring and new homes were flying up to meet what now turns out to have been demand inflated by cheap, risky mortgages.
In retail, the trend has been to national advertising as major chains arise and push local chains out of the market, and in any case retail advertising will struggle until consumers begin spending again.
Movie advertising has held up, along with ticket sales, but spending may decline as major movie studios cut back on the number of releases each year.
And after years of robust spending increases, pharmaceutical is now cutting budgets. The government is increasingly keeping tabs on drug ads and the industry itself is changing as one-time blockbuster drugs lose patents, opening the way for competition from generics, which don’t tend to advertise.
