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| Research | |
is in the ad economy Pretty much all over, with spending off 14.3 percent Sep 17, 2009 Yesterday TNS Media Intelligence released its first-half ad spending numbers, and as expected they paint a bleak picture of the media economy. Total spending plummeted 14.3 percent compared to the first half of 2008, to $60.87 billion. Second quarter was off by 13.9 percent, about even to first quarter’s decline. All but two categories, free-standing inserts and internet display advertising, saw year-to-year declines during first half, with radio taking the biggest hit, off 24.6 percent compared to last year. Newspapers were off 24.2 percent, magazines down 20.9 percent, outdoor down 15.7 percent and television off 10 percent. As expected, some of the biggest cuts came from automotive. The biggest advertising category tracked by TNS, auto plunged 31.1 percent during first half, the biggest dip for any top-10 advertising category, from $6.46 billion to $4.45 billion. Dealers alone slashed their advertising by 47 percent. TNS says auto spending through first half paced at half the level of its 2005 peak. When the recovery will begin is still unclear. While spending declines could be less steep during third quarter, that will be because of more favorable comparisons – this time last year is when ad spending began its deep depression. Jon Swallen, senior vice president of research at TNS Media Intelligence, talks to Media Life about signs of improvement, auto advertising and which categories will recover first. Was there any improvement in the numbers from first to second quarter and why? What strikes me is how similar second quarter was to the first quarter for most of the major media types. The rate of decline in second quarter was almost a mirror image of what happened in Q1. So the overwhelming theme here is this decline in ad spending has been persistent and stable since the beginning of the year. Any sense we’re going to see continuation of this improvement? Why or why not? There really wasn’t much of an improvement in second quarter. The ad spending has been tracking in the range of minus 14 to 15 percent for several months now. What we’re seeing in the beginning of third quarter in early data is a suggestion that some of the media, which were first to experience a big downturns in 2008, that the rate of spending declines may be getting narrower. But it’s probably because the comparison period a year ago is so weak. What other trends do you see in second quarter that we’re going to see repeated in third and fourth quarter? The one trend that many people are interested in, which is the hardest to predict, is what will happen with the automotive category. I say it’s hard to predict because auto advertising budgets are very closely tied to the volume of new vehicle sales. So if you can predict when people are going to start buying more cars, you can pretty reasonably predict when ad spending will quickly follow and start to ramp up. But I don’t have a crystal ball on when sales will start to improve. Another interesting trend on the positive side has been the telecom category, where Verizon, Sprint and AT&T have all increased their budgets substantially this year. It’s a competitive marketplace--it’s not a market that’s growing--but people are looking for better plans, more features, etc. , so it’s become very much a market share battle for those major wireless providers. None seem willing to concede an inch to their rivals, and that’s led to escalation of advertising budgets. And I don’t see that changing anytime soon. You predict declines could be lower in third quarter because of comparisons to a softer Q3 last year. Which categories do you see starting to comeback? Based on early data, it looks like magazines and newspapers may be narrowing their losses in third quarter. Again, those were two media that were at the forefront of steep declines a year ago, so they’re sort of the first ones to work through a full annual cycle and are now poised to have easier comparisons. Any sense of when we’ll have a quarter of positive ad spending growth? Well, I have two thoughts about that. Because ad spending is in such a deep hole right now, if ad spend were to improve by plus one percent, it’d be like being back to minus 14 percent instead of minus 15 percent. It’s almost a half-empty half-full point of view. If you want to see a plus sign because that indicates things are getting better, it could be as early as first quarter. Why? Because of the easy comparisons. The half-empty view says we’re starting from a valley of minus 14, 15 percent; how long will it take us to get back to where we were a year ago? That point is much further in the future, there’s a lot of lost ad spending to recover. It’s hard to envision a scenario where the value of ad spend gets back to its 2007 levels any sooner than 2011. There’s just too much lost ground to make up. What categories have been most hurt by the slowdown in auto category spending? It’s definitely local television and local newspapers. They’ve been decimated by the auto category pullbacks. Total spot TV through the first half of this year is off by about 27 percent. Automotive ad spending in spot TV was off 50 percent in the first half of the year. And that retrenchment came from all segments of the industry: manufacturers, local dealers and dealer associations. Free-standing inserts and internet display advertising were the only areas to see growth in first half 2009. Why, and will they be the only ones up for the year? In the case of FSIs, it’s the category of advertiser that uses them, heavily dominated by packaged goods. When consumers are looking to save money, it’s led to an increase in promotional marketing techniques by many advertisers; more couponing. So I think that’s what’s going on with FSI, it’s more couponing by heavy packaged goods advertisers. With respect to internet, it’s part of the long-term ongoing shift of ad spending, and what we’ve been seeing is a continuing growth in the volume of display ads that are being carried on web sites. So that’s more inventory and we’re continuing to see growth in online audiences and usage, which helps further drive the shift of ad spending to digital media. The rate of growth is certainly less than what it was two years ago, but again, to use the total ad market as the benchmark, to be up 6 percent when total ad spend is down 14, it’s a pretty positive story. I think internet will certainly be up by the end of the year. Internet and FSIs are both in a good position to remain in the black. There’s also a possibility that cable TV spending, which we’re showing being down 3.6 percent through June, I think there’s a reasonable scenario where it could perform better in the second half of the year and potentially make up the losses that it experienced in the first six months. What other categories are holding up relatively well, and which will be the first to come back when the recession eases? On the media side, FSIs and internet are in a good spot. I think cable is the other medium to keep an eye on. Newspapers, magazines and radio, where the declines have been steepest, it’ll be interesting—they’re obviously not going to make up those losses in six months, but a bellwether indicator for the ad economy will be by how much they narrow those losses or rates of decline in the second half. Of the top ad categories, the only ones that have been performing reasonably well are telecom because of the competition, and the restaurant category--spending there has been flat. It’s another case of a very competitive category. When consumers begin to scale back and spend less money eating out of home, those restaurants in the short term have to up their budgets to get people into the stores. But categories like pharmaceuticals, which have traditionally been very strong, I say they’re recession resistant, but spending levels are dependant on the new drug pipeline, and I don’t know what that looks like for the next six months. Because that category is independent of the normal economic cycle it’s got the capacity, if there are some big drug introductions, and I don’t know if there will be, that could potentially drive spending and help propel the market. But retail categories and auto categories will continue to be soft. By all accounts, even the most optimistic scenarios are saying we’d sell at most 10.5 million new cars this year, when last year it was 14 million. So that’s a big slump. And similarly for retailers, consumer spending is a key variable.
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