Advertising, Enhancement And Economics

Michael Hedges October 24, 2011 Follow on Twitter

That advertising powers a considerable portion of the media world is clear to one and all. The advertising people know this and leverage their investments for maximum benefit. Media people know it, too, and want their piece of the action. What advertising means to broader economics is the stuff of late night debate.

Several media and advertising groups gathered at the European Parliament (EuroParl) last week (October 19) to make their case that advertising could very well be an engine for economic growth. This was the second in what is planned to be annual Media Lounge events with Members of the European Parliament and representatives of the European Commission. Represented were the Association of Commercial Television in Europe (ACT), the Association of European Radios (AER), the European Publishers’ Council (EPC), the European Association of Communications Agencies (EACA), the association of television and radio sales houses (egta), the European Magazine Media Association (EMMA), the European Newspaper Publishers’ Association (ENPA), the Internet Advertising Bureau (IAB) Europe and the World Federation of Advertisers (WFA). (See the joint statement here)

Did we miss anybody? Yes, the public broadcaster association European Broadcasting Union (EBU) seems not to have been officially represented even though most of its member broadcasters find some level of funding from advertising and sponsorship, often quite substantial.  Sales house association egta indirectly represents public broadcasters through their marketing arms. But tensions between public and private sector media require a higher level of diplomacy.

Common to each presentation was the theme of economic growth and the role of advertising in it. With EuroParl as the venue, the private media and advertising support groups wanted to make their case for less regulation of advertising or self-regulation programs. “We believe that advertising restrictions are not the answer to general interest objectives,” said the joint white paper released at the meeting. “It could halt existing revenue streams and seriously hinder the media’s capacity to invest in European content, including editorial content informing consumers on all major EU and national policy issues and societal challenges. Moreover, self-regulation has been the ongoing driver of a responsible and sustainable approach developed by the advertising industry.”

Austrian MEP Paul Rübig (European People’s Party) pushed the argument further, saying there should be no restrictions on advertising any legal product or service. The Audiovisual Services Directive (AVSD) and other EU rules ban advertising in broadcast news programs, television ads directed toward children and all tobacco advertising on television and radio. Newspapers, generally, face no similar restrictions. Individual Member States have applied more strict rules, particularly to keep ads on television away from children, and several have opened proposals to restrict advertising on online media.

National regulators and self-regulatory groups regularly smack down false advertising and blatantly specious claims. And more and more complaints about “funny” online ads are getting attention. The Advertising Standards Authority (ASA), the UK’s ad self-regulation group, recently ordered UK skin-care company Rodial to remove online ads for “Boob Job”, an, er, enhancement product, reported the Economist (October 22), which used scientific language in its advertising claim. “Pseudoscientific technobabble,” said one critic from the science world. Still, these are legal products.

As policy makers scramble for happy, non-contentious fixes for economic stress, the media and advertising support groups brought in ammunition from big-time consultancy McKinsey to forward the notion that advertising has value beyond the standard economic construct as a lagging indicator of gross domestic product (GDP) growth. “Advertising’s contribution to economic growth is on average about 10-15% and may have been contributing as high as 20% of total economic growth in the past ten years for the G20 countries,” said the “preliminary findings” of the McKinsey Global Institute report, “Advertising and Economic Growth.”  Digital advertising, said the report, “boosts the impact on economic growth, mostly through indirect effects with other investments in the economy.”

The premise that advertising stimulates economic growth – consumer spending, at least – is an accepted article of faith, not just among media and advertising people. Policy makers must also agree since they regularly pass restrictions on advertising certain “sin” products – tobacco, alcohol, beauty enhancements and, even, Spanish hookers – as a means of changing consumer behavior. Several studies, often with the same title, some dating from the last century, have attempted to show stimulating relationships among ad spending, consumption and GDP growth.

A 2003 doctoral thesis by Gérard Nöel, “The impact of advertising and economic growth”, looked at 1991 – 2000 data from Western Europe, the US and Japan and correlated ad spending rates and economic growth efficiency. Service industries, banking and telecoms spending lots of money on advertising brought lots of money into those economies, except in Japan. Hindsight being perfect, those sectors experienced vastly inflated expectation (read: bubbles) over the last two decades.

Another academic study of roughly the same period (van der Wurff, Bakker, Picard, Journal of Media Economics 2008 “Economic Growth and Advertising Expenditures in Different Countries and Different Media”) concluded that television, radio and cinema advertising was immune to economic turmoil with newspaper, magazine and outdoor ad spending highly susceptible to macro-economics. Online advertising during the period of study was non-existent. Overall the researchers found that ad spending in urbanized and industrialized economies follows economic cycles. Other studies have shown advertising’s impact differs significantly between short-term and long-term economic cycles, greater ad spending shortens product life-cycles and, not to be forgotten, economic activity in the United States is an outlier.

As the media and advertising support groups stressed at the EuroParl, advertising “contributes to ensuring high-quality content, the independence as well as the pluralism and the diversity of the European media landscape.” Debates and research on the economic impact of advertising will, like the winds of change, only get better with time.

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