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Why this ad recovery will be a long one
By Toni Fitzgerald
Jun 16, 2009 - 1:47:12 AM
TNS Media Intelligence released its first-quarter ad-spending numbers with a warning last week: Expect more of the same during second quarter. And that’s dismaying, because the first-quarter numbers stunk. Spending was off 14 percent in the first three months of the year, to $30.18 billion, and Jon Swallen, senior vice president of research at TNS Media Intelligence, warned that second-quarter numbers were “tracking on a comparable plane.” In other words, the recovery is still a long ways off for the media economy, even though the overall economy has been seeing things brighten, from more promising housing sales to increased corporate earnings. And when the recovery does begin, don’t expect things to return to the way they were a few years ago. New media seems likely to earn a larger allocation of advertising budgets, and automotive may never recover from this year’s deep budget cuts. Swallen talks to Media Life about the prospects for a recovery, why the media economy’s turnaround will lag behind the economy in general, and which category will see the quickest recovery.
The first question, and the one everyone seems to be asking right now, is do you see a recovery on the horizon, and if so, when?
At the most basic level a sustained improvement in ad spending will depend on a revival in corporate profits.
Marketing’s a variable expense, and until companies see a clear path to stronger earnings they will continue to conserve on the expense side, and that includes the ad budgets.
While most marketers endorse the principle of advertising through a recession in order to increase share of voice and help build market share, only a minority actually follow through on it.
You said in the TNS release that the ad economy looks to be lagging behind the general economy in terms of bottoming out. Why is that?
I think it’s because advertising is more closely aligned with the pattern of corporate profits than the general economic cycle.
For example, on the front end of a recession, a slowdown in economic activity takes awhile to trickle down and impact corporate profits. And subsequently it’s corporate profits that feed the marketing budget.
Conversely, on the back end of a recession, a pickup in economic activity takes a while to translate to higher profits and subsequent growth in marketing spend. There are some recent economic statistics on consumer spending, employment and housing which have painted a more hopeful picture about the general economy, but until those translate to stronger corporate earnings, ad spending will still be challenged.
Do you think second quarter will be about the same as first, and why or why not?
TNS reported a 14 percent decline for ad spend in the first quarter. Our figures for April and early May are pacing at around minus 12 percent.
So even if ad spending improves in the last six weeks of the quarter, there’s a strong probability we’ll end second quarter with another double-digit decline.
How much of the ad spending plunge was simply a reaction to what was happening on Wall Street – advertisers getting nervous and pulling their money?
I think it’s advertisers getting nervous about the economy and about their profit picture. Certainly all the stuff going on on Wall Street contributed to fears about the general economy.
But at the end of the day, advertisers are making decisions about marketing in the context of how they see their own business performing.
Which categories will see the quickest (relatively) come backs?
I think it’s the categories that have had the smallest decline, and therefore have the least amount of territory to recover. These tend to be categories that are less connected to the general economic cycle, for example, the telecommunications category, where there’s still strong competition among the wireless carriers, as well as strong competition among cable TV and satellite TV operators.
And then there is a broad range of consumer packaged goods categories, things like food or personal care products, that are staples or essentials in people’s everyday lives.
While those advertisers have trimmed their ad spend by 3, 4 or 5 percent, it suggests that on the upside there’s a smaller hole for them to dig themselves out of.
Which categories could sustain the most long-term damage?
Automotive definitely.
But you have to look at auto as two pieces, not one. We have the factories or manufacturers, and their ad spending is certainly going to be challenged as long as there’s a sales slump in new vehicles. But more significantly it’s the auto dealers because they face the double whammy, there are fewer dealers in this consolidation environment, as well as those dealers scaling their ad spend to align with new vehicle sales.
And then the other category that bears watching is pharmaceuticals.
I think there still is a very real probability of government regulation that would control or restrict the marketing practices of drug companies. And if those restrictions are tightened, it will likely be in a way that makes it more difficult to advertise to consumers.
Do you expect most advertising categories to come back to their pre-recession levels, or are we looking at a fundamental change in how money is spent?
I think the ad economy as a whole will eventually recover. But I think what we’ve been seeing in recent years and will continue to see in the near future is an ongoing reallocation of how those budgets are divided across different media sectors.
So the shift of money from analog media to digital media will certainly continue, and it’s very likely that the rate of shift may slightly accelerate as we come out of an advertising recession.
What's the most important thing for media buyers and planners to keep in mind during these tough times for ad spending?
I think the most important thing is to recognize that there’s a continued need for optimizing ad spend and driving advertising effectiveness.
An advertising recession forces everybody to think in those terms. And so if the advertising recession can help institute new practices and help new tools and methods of evaluation come to market, then in the long run we’re going to be a better industry for it.
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