US Overall Advertising Forecasts Are Lowered, Outdoor Is Up, Internet Is Way Up, UK Regionals and ITV Are Way Down, US Network Upfronts Are Flat Or Down – Just What Is Going On Out There?

Philip M. Stone July 3, 2006

The world’s largest advertising market by far is the US. When it catches cold others sneeze – in the UK right now it’s more like pneumonia! And although the Internet continues its merry way and select segments like outdoor are also up, Wall Street’s most prominent ad forecasters are now revising their full year US figures down.

There are also reports that Rupert Murdoch wants to dump his US local television stations because he can get better returns elsewhere  (more purchases like MySpace?), but is that a signal that local television is beginning to live on borrowed time?

Although Murdoch’s Fox network did well in the recent upfronts on the back of such hits as American Idol, overall the US networks did flat at best and down around 1% more likely, according to Merrill Lynch. Usually when the networks do well they hold news conferences, roll out the sales director and put on a big show to say how great they did, but this year you can’t even get the sales director on the telephone!

And there is plenty of evidence out there that money is being drained from traditional media to alternative media strategies. According to research by P&Q Media advertising on alternative strategies – product placement, event sponsorship and the like -- increased by 16.4% in the first half of 2006. Another example of traditional ad money being diverted -- the National Automobile Dealers Association says that dealers are now spending about 9% of their advertising budget online, compared to 6.7% in 2004 and $0 10 years ago.

Outdoor advertising is also on a high, up 12.7% over 2005, according to the Outdoor Advertising Association of America.  According the Stephen  Freitas, chief marketing officer, national advertisers are now beginning to use outdoors not just as a “support medium” but rather “as a primary vehicle”. It’s all to do with ad clutter, mobility, and day-part. “Outdoor is a way of reaching people who are very active, very mobile and hard to reach with the traditional media,” he claims.

The P&Q Media research showed the traditional media spend increased only by 4.5% in the first half and those kinds of numbers are what is behind some of Wall Street’s most respected ad forecasters lowering their full-year forecasts. Perhaps the most respected forecaster, because he has been doing it for so many years and very accurately, is Robert Coen, Universal McCann’s director of forecasting. He had predicted late last year that US advertising would grow by 5.8% this year, but he has lowered that now to 5.6%. He see the Internet ad spend climbing 25%, not including search, but local newspapers will be lucky to see a 2% jump.

“They’re all breaking the bank trying to make money off their online ads,” Coen said of newspapers. “I don’t think that is going to solve their problems,” he concluded.

Merrill Lynch that previously had said US advertising would grow by 5.3% this year also downgraded its forecast to 5.1% Merrill Lynch sees online advertising growing by 29.1% but newspapers just by 1.2%. And TNS Media that had previously forecast a 5.4% jump in 2006 dropped its forecast the most, down to 4.9%.

Merrill Lynch believes that advertising on the US networks will drop by 2.2% next year. But that’s nothing compared to what is happening to ITV in the UK. Some media groups are predicting that advertising on ITV1, the main commercial network’s primary channel, could be down as much as 25% in July over a year earlier, and that is with the World Cup, too! If it weren’t for the network’s various digital stations the network would be in real trouble. As it is, digital operations are expected to hold down the overall ad loss to down to around 6% when all is said and done. But 6% is still 6% and is why ITV’s business plans calls for the digital stations to bring in 50% of the network’s revenue by 2010. But as things stand now, ITV1 is still responsible for 90% of the group’s revenues which is why the network is often seen to be in play by equity buyers.

And elsewhere in the UK the misery has already set in with a vengeance.

Trinity Mirror, the UKs largest newspaper publisher, says that 2005 first-half advertising was down 12,7% at its national titles (Daily Mirror, Sunday Mirror, People), 10,5% at its Scottish newspapers, and 9.7% at its regional newspapers. That’s an overall 10.6% decline and the company says it is conducting its business for the rest of the year on the assumption there will be no improvement.

At Johnston Press, the UKs third largest regional group that operates some 300 regional newspapers, advertising was down 9.7% for the first five months of the year, although circulation revenues were ahead.

The company, which is used to margins in excess of 30%, understands the future is multiplatform and has announced it is converting about 70 newsrooms into multimedia operations.

And at Gannett, which besides being the largest US newspaper publisher is also the second largest in the UK via its Newsquest division which publishes some 300 regional titles including 17 dailies, a recent company statement said that  “operations in the UK continue to experience soft ad demand.”

Now compare those numbers with numbers just released by the UKs Advertising Association that said in 2005 advertising expenditure in the press declined 3.7%, but on the Internet the increase was 62.3%. Balance all of that and the overall 2005 advertising growth was just 0.6% with monies obviously re-directed from traditional to alternative.

The press, including the national and regional titles, takes in about 45.3% of the total spend but if you strip out the classified advertising it is just 31.8%. It’s that money between the 31% and the 45% that is going more and more to the Internet that is giving the UK papers their real problems.

At Trinity Mirror only property classified increased because of a buoyant housing market; otherwise it was jobs down 21%, autos down 12.9% and even display down 6.7%.

And there is no one out there who can really see things improving in the near-term. Trinity-Mirror, it should be noted, has been making sizable investments recently buying online sites, and it had been under some pressure to sell its national titles and concentrate on the regional newspapers.

The problem is, as Northcliffe discovered a few months back, with the advertising downturn there is a world of difference between what a newspaper owner says the property is worth and what a buyer accepts.

The only really good news lately for newspapers came in the US from Scarborough Research. It found that more than 75% of newspaper readers use newspaper advertisements to plan their purchases, looking for sales to save money.

Come to think of it, not a bad marketing spin. Buy the newspaper, find that sale and the savings pays for more than a year’s subscription. In other words, a newspaper pays for itself many times over.

Back to basics!

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