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June 08, 2007

Advertising Growth Remains Below Par

According to AdAge.com, advertising spending in the first quarter fell by 0.3% excluding paid search. The data is from a study by TNS Media Intelligence. With GDP growth in the low to mid single digits, historical correlations would suggest that advertising growth should have been closer to 3-5%. Part of the problem was a tough comparison to 1Q06 when Winter Olympics spending added to the total. TNS thinks that adjusting for the Olympics ad spending grew just over 2%, still a weak performance that indicates traditional advertising is losing market share to online advertising. TNS believes that major advertisers have also been spending cautiously given slower economic growth and concerns about the health of consumer spending. An interesting aspect of the study is that for the first time in several years growth in advertising outside of the top 100 advertisers was flat. These smaller advertisers had been picking up the slack and driving overall growth above the rate of major advertisers.

TNS also tracks spending by media and by advertiser industry. There are 19 categories of measured media advertising and in 1Q only 6 were up year over year. Outdoor and Spanish TV were up 2-4%, cable TV and consumer magazines rose 6-7%, Spanish magazines were up 14%, and internet ex-paid search was up 17%. Among industries, domestic auto continues to be a major laggard, falling almost 11%. This is especially negative for newspaper which are losing the most market share in auto advertising to the internet. Other industries with notable declines include telecom, foreign auto, and travel and tourism. The only industry mentioned in the Ad Age article that showed an increase was direct response companies.....

The implications of slower than expected growth in advertising are obviously significant for major media companies reliant on advertising for a significant part of their revenue. Economists may also point out that slowing advertising indicates low confidence by corporations in the pace of economic growth and the health of their customers. Bears on the stock market will find comfort in the lack of advertising growth.

If advertising growth fails to pick up, all the major media companies could see pressure on revenue growth and operating margins later this year. Among the media giants, Viacom (VIA) and CBS (CBS) are most exposed to advertising with News Corp (NWS), Disney (DIS), and Time Warner (TWX) having significant but lesser exposure.

Posted by Steve Birenberg at June 8, 2007 11:39 AM in Media