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March 21, 2007

Sub Prime Meltdown Advertising Impact

In yesterday's Media Madness post on the Northlake Capital Management home page, I mentioned that Reuters stated that 40% of sub prime loans had been made to Hispanics. This had me wondering whether sub prime lenders were substantial advertisers on Hispanic radio and TV stations and networks. I don’t watch or listen to Hispanic media so I have no idea but I've got to think the loss of sub prime lender advertising could be a significant headwind.

In a similar vein, I received a piece of research from Merrill Lynch discussing the potential impact of the sub prime meltdown on internet advertising.....

Merrill showed some data from the Internet Advertising Bureau revealing that financial services advertising represented about 12% of total internet advertising in 2005. The data also showed that mortgage lenders composed 16% of financial advertising. Based on this data, the risks to internet advertising from the sub prime meltdown seem low, as sub prime lenders would account for just 1-2% of total internet advertising at the maximum.

I think that may understate the risk, however. First, according to Merrill, total consumer advertising represents about 50% of internet advertising and of this amount, auto advertising, which has an interest rate financing component, represents 20%. For those scoring at home that suggests that auto advertising represents as much as 10% of total internet advertising. Seems high but no wonder newspapers are seeing consistent double digit declines in their own auto advertising. Second, while mortgage lenders represent just 16% of financial advertising, banks are another 12% and credit cards an additional 11%. Who knows how much overlap there is among advertising targeting sub prime borrowers from mortgage lenders, banks, and credit card companies but it seems plausible to assume it is significant.

I suspect that if the sub prime meltdown stays contained that there is not much to worry about in internet advertising. A greater fear would be a broader consumer led recession that was initiated by the sub prime problems. However, as Doug Kass has pointed out, the sub prime issues can easily morph into something worse and it appears that advertising is something to keep an eye.

With that in mind, I remember an awful of home equity loan and debt consolidation ads on the cable TV networks. I'll have to check that next.

Posted by Steve Birenberg at March 21, 2007 10:17 AM in Advertising