Insight Analysis: Media Healthcheck – August 2002
Are we to experience a double-dip or a return to growth? This is one of the key questions that has been posed by market analysts over the last month. The spectre of a second economic dip was raised after recent worries over corporate profitability and a waning consumer confidence have rocked the markets, particularly in the US.
Global There are fears, particularly in the US, that falling consumer confidence is starting to temper advertisers’ spending; the latest round of newspaper financials there revealed poorer than expected ad revenues. Sorrell has warned that recovery may not really start to be felt now until 2004.
Jack Myers, of Myers Reports, quotes one global analyst as saying that there is currently a discrepancy between the fairly bright outlook being offered by media owners on the one hand and the downbeat statements coming from ad agencies on the other. This may partly be due to the fact that increased media bookings are taking place in anticipation of a strengthening general economy, whilst the global ad agencies are reporting current conditions.
Analysts at Merrill Lynch believe that advertisers are rationalising their spending in the face of economic uncertainty. The broker also notes that media companies are likely to see increased spending before the agencies do, as there is a lag effect, with advertisers running older campaigns for a longer period of time.
UK Conditions remain on the weak side in the UK media markets, although some improvements are now starting to show through.
ITV, despite suffering its lowest ever viewing share in July (see ITV Viewing Hits Lowest Ever Share In July), is seeing gradually strengthening airtime revenues as the year progresses, albeit as against easy comparables. August is looking to be up by around 6.0%, although a fairly weak September (0.5%) is expected to substantially underperform the market. Early indications for October show a 4.0-5.0% growth in a market up 10.0%, according to Merrill Lynch. The broker expects a full-year decline of around 1.4% for ITV.
UK publisher Highbury House Communications said that it was still finding the UK advertising market conditions difficult, with nothing to indicate any improvement. The business publishing market continues to be much tougher than consumer.
United Business Media (UBM) said at the beginning of August that the ‘challenging advertising conditions’ are continuing, although the UK and Europe are looking stronger than than the US, with an ‘encouraging’ outlook. In the US, the business outlook remains ‘mixed’.
The latest figures from the Radio Advertising Bureau (RAB) show that UK radio revenue grew by 2.1% in Q2 2002. This heralds a consecutive quarterly growth for the sector, representing an out-performance of the broader UK media market.
Meanwhile, consumer confidence is taking a dip in the UK, according to the latest survey from the Confederation of British Industry (CBI). The CBI had expected the services and entertainment sectors to show a boost in the three months to August, but this failed to materialise and a gloomy end to 2002 is now expected. The consumer situation here is therefore starting to mirror that in the United States.
US The high profile financial scandals and the accompanying fall in share prices has led the International Monetary Fund (IMF) to revise down its 2002 growth estimates for the United States. Previously, it had predicted economic growth of 2.5% this year and 3.3% in 2003; it now has estimates of 2.2% and 2.6% respectively.
The IMF does not anticipate a recession but hinted that corporate accounting scares and the ongoing weakness of the world’s markets had reduced business and consumer confidence in the economy at large.
Most US media are now showing positive advertising growth, although this is largely due to the easy comparables of last year rather than a lift in underlying advertising budgets, according to analysts at Merrill Lynch. The broker believes that this slow recovery will continue, but notes that it is a fragile one, as most ad agencies are not really experiencing much of a pick-up in activity at present.
CMR data showed overall adspend fell by 0.2% in H1, suggesting that there is virtually no real pick-up, given that H1 2001 was itself so weak. However, H1 figures from Nielsen Monitor-Plus, also released last month, put adspend growth at 2.3%.
Network television is showing continued strength in spend, where upfront commitments by agencies are on the whole being honoured, with only a 5% cancellation rate (in 2000, 10-15% of holds were dropped). If advertisers are maintaining their commitments, says the broker, it is likely that they are planning on booking new ads.
Radio continues to post mid single-digit gains, against easy comparisons; June’s revenue rose by 3.0%, with national spend up 7.0% and local up 2.0%, according to the US RAB.
Newspapers are now just entering positive growth, but again as against increasingly easy comparisons, says Merrill Lynch; H1 revenue was down 1.8% according to the NAA and company financials have been weak. Magazines are already in positive territory, supporting a cautious optimism in this sector; July revenue was up 8.6%, according to the PIB.
Merrill Lynch says that whilst new product introductions are beginning to emerge and the US economy is improving, overall media and advertising growth is likely to remain muted for some time yet.