| Spots & Space September 12, 2007 |
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Companies Pledge To Stop Promoting Junk Food How Does 2008 Look? Advertising Watchdogs On The Prowl... AGENDA
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US Advertising Spend Drops In First Half, and Newspapers Particularly Get Nailed, Down 5.8%, But Even The Internet’s 17.7% Increase is DisappointingThe US report card for the first half’s advertising spend is in and the trend line is bad – media advertising expenditures have dropped for two consecutive quarters, the first time that has happened since 2001-- and while some media did better than others newspapers, as usual, have the poorest results.
The Internet spend, not including search, increased 17.7% ($829 million) so does that mean the spend has just shifted to the Internet or is there an actual spend cutback. It seems both, spending is cut back and spend is being diverted to the Internet. “While the protracted downturn in automotive spending has been a prime contributor, the overall results reflect weakness across a wide range of industries and advertisers. Given the uncertainties about near term economic growth and consumer spending, we expect core ad spending will continue to face challenges during the second half of the year,” according to Steven Fredericks, TNS president and CEO. The survey showed that consumer magazines did well, up 6.9%, outdoor was up 3.6% and cable TV increased 2.8%. Network TV, on the other hand, was down 3.6% and radio dropped 2.7%. The total ad spend for the first six months dropped 0.3%, to $72.6 billion. The survey said that the top 10 US advertisers collectively reduced their spending by 2.2% to $9 billion with most of that in the first quarter with the spend improving in the second quarter. Even so, General Motors slashed its ad budget by some $100 million in Q2. And according to Jon Swallen, TNS senior vice president, research, the top 50 advertisers, responsible for one-third of the total spend, are cutting back.
“The cutback in advertising is being led from the top of the market by big blue chip companies, manifesting itself in fewer brands being supported with ad money. It indicates a retrenchment,” he declared. While the Internet did well at 17.7% growth, it wasn’t the 20-30% growth many had been predicting. “The Internet continues to take in a larger share of the pie, even as the total pie is shrinking,” Swallen said. And he laid it out exactly why newspapers are in trouble even though their total online revenues are increasing. “The newspaper industry’s own tracking shows that the rate of growth in Web advertising on newspaper sites continues to get larger, but getting larger at a smaller rate,” Swallen said. Recent research from Harvard University has shown it is only the top 20 newspapers that are really seeing Internet revenue growth and for the rest it is now basically stable, if not declining. Swallen said that for every dollar brought in for a print ad, the counterpart Web ad costs between 20 - 30 cents. So, he said, newspapers are still short by up to 80 cents on the dollar for every ad that moves from print to its web site. So if that wasn’t enough bad news for publishers, out come two financial analysts painting a bleak newspaper future ahead. John Janedis at Wachovia Capital Markets said in a client note that newspaper revenue trends are going to continue trending down and there is considerable risk exposure to any 2008 forecasts. He sees that the employment, property and automotive advertising weakness experienced thus far this year will continue. He in particular mentioned the Journal Register Co., Lee Enterprises, Inc, the New York Times, and Gannett as being particularly at risk. Those comments did nothing to help their share prices. Over at Banc of America Securities analyst Joe Arns started coverage on six newspaper companies listing them as “neutral” – not exactly a ringing endorsement. He doesn’t see any short-term solutions. “We project the industry ad revenue decline to continue through 2008, given the slump in real estate and fallout on broader economic activity,” he wrote in a client note. He blamed the slump in real estate advertising for most of this year’s revenue drops. On the other hand he also said there would eventually be light at the end of the tunnel. “We believe the longer-term prospects for the newspaper industry are better than what is implied by current share prices.” That all came on top of a survey from Fitch Ratings that says newspapers are doing far worse than had originally been forecast at the beginning of the year – and Fitch began the year with a negative outlook for the sector. "Fitch's outlook for the sector remains negative," analysts Michael Simonton and James Rizzo said. But what must be really distressing to publishers who still cling to the theory that the advertising decline is cyclical is that the Fitch report carried the sub headline “More Secular than Cyclical" – making the point it believes the ad declines in print to be permanent. Competing rating agency Standard & Poors (S&P) issued a similar analysis with a title that basically told its story,“Newspapers' Declining Revenues Mean Further Downside Risk To Credit Quality”. It warned that declining advertising revenues will probably force the ratings company to continue downgrading newspaper debt. “The potential for further downgrades this year remains significant,” it said. S&P rates 13 newspaper companies and it already has three placed on CreditWatch with negative implications, and has rated three others with negative outlooks. It said total newspaper industry advertising revenue is expected to drop by low- to mid-single percentage digits this year. And unless next year’s Presidential elections and the Olympics that are expected to help broadcast spills over to newspapers then there is little good news in sight. | |||
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And the poor results, as compiled by TNS Media Intelligence, hit all newspaper sectors – national newspapers, local newspapers, and even Hispanic newspapers that were considered the real growth area for print. At national newspapers the spend was down 6.4% ($113 million), local newspapers were down 5.8% (672.6 million) and Spanish language newspapers saw a 4.4% drop ($7.9 million). That’s a total down of 5.8% ($793 million.)