US Media & Advertising

US advertising finished 2009 with -13.2% negative growth although growth is expected to gain momentum in 2010, to record an improved -2.0% growth, based on a consensus of recent forecasts compiled by MediaTel Insight.
With continued improvements in expectations on economic recovery, MAGNA forecasts that the first quarter of 2010 will represent the last quarter of decline for the US advertising economy during this recession.
For the first quarter of 2010, MAGNA forecasts that US media suppliers will collectively generate 3% less advertising revenue on a normalised basis than they did when compared to the prior year period, even accounting for the very weak economy experienced in early 2009. Industry revenues will fall from $38.0 billion in the first quarter of 2009 to $36.8 billion during the first quarter of 2010.
2009 will be the first year that ad spending online is greater than local and national spot TV, with online expenditures rising from 10.6% of the total in 2008 to 12.2% this year. The rise in market share will occur despite a 0.5% drop in spending forecast for online in 2009, to $24.55 billion.
The rebound in growth of US advertising spend, forecast for 2010, will be led by strong growth in internet, TV, satellite radio, mobile and video game ad spending. In the online sector, video/social network spending is projected to post the fastest growth rates, followed by search.
Highlights
US Media & Advertising
Total US Advertising
US advertising grew at an average annual rate of 4.0% between 1998 and 2007, according to historical data from MAGNA. This is at a lower rate than the combined growth of non-US countries’ ad markets, at 5.6%, and is consequently slightly lower than the global average over the same period, which stands at 4.8%.
Until 2007, just one year in the last ten had returned a negative growth and that was the nadir of 2001. Advertising spend fell by 6.5% in the US and barely recovered in 2002 to just 2.4% growth.
The dip in 2001 came after a boom year in 2000, when the emerging internet sector took off in a big way. Dotcom businesses were proliferating and their venture capital-fuelled marketing budgets led to a surge in ad revenues for most media. This was particularly true in the US where a great deal of internet investments were being generated. However, as is well-documented, the euphoria and hype died away and this left 2001 looking pretty weak in advertising terms. A number of high-profile corporate accounting scandals and an ailing economy did nothing to help 2001’s ad market in the US.
Advertising growth steadily improved over the next three years, peaking at 7.4% growth in 2004, before dipping back down to 2.8% in 2005, with 2006 recording overall growth of 3.9%, as demonstrated in Table 1. However, 2007 saw US advertising record negative growth of -0.7%. MAGNA had expected a slowdown in advertising growth since 2007 was a post-election/Olympic year. However, advertising failed to keep pace with 2008’s forecasted economic growth – leaving the advertising picture in the US even worse than previously anticipated. 2009 looks set to have continued this downward trend, however, with continued improvements in expectations on economic recovery, MAGNA forecasts that the first quarter of 2010 will represent the last quarter of decline for the US advertising economy during this recession.
Trends by Media
Historical Background And Trends
Total magazine ratecard reported advertising revenue for the full year 2008 closed at $23,652 million – posting a 7.8% decline against 2007, according to Publishers Information Bureau (PIB). A total of 220,813 advertising pages were generated throughout the year, a drop of 11.7% compared to 2007. In the fourth quarter, PIB revenue generated $6,569,577,476, which was a 13.8% decrease compared to 2007’s fourth quarter. There were 60,814.50 advertising pages counted for the quarter, a decline of 17.1% compared to the same period in 2007.
“Like other ad-supported media, magazines have been affected by the economic slump, which deepened as 2008 progressed,” said Ellen Oppenheim, executive vice president and chief marketing officer, Magazine Publishers of America, which administers PIB. “Advertiser decisions for the fourth quarter were influenced by a range of factors. For longer-lead time monthlies, consumers cut spending during the summer due to soaring energy prices, which caused advertisers to buy fewer ads in year-end magazine issues. In the fall and early winter, rising unemployment and steep stock market declines led to restrained ad spending in weekly titles.”
Radio’s fortunes paralleled the US economy in 2008. While the year began optimistically, factors impacting myriad industries combined to create economic uncertainty by the end of the year and radio finished 2008 down -9%.
Reflective of the consumer mindset, advertisers who focused on the home, as well as value or price, strengthened their commitments to radio in Q4 and throughout the year, even as many traditional mainstay spenders pulled back on their advertising. Advertisers increasing radio budgets may be heeding their own “value” message and capitalising on the medium’s efficiencies.
“There were some standout advertisers that increased Radio spending this year across all sectors, Local, National and Network” commented Radio Advertising Bureau (RAB) president and chief executive officer Jeff Haley. “Major retailers in big box, QSRs, supermarket, and home improvement came on strong in Q4, as did accounts in the Communications and Insurance categories.”
Continuing the 2007 trend, off-air advertising paced well ahead of total radio spending. Radio has stepped up its efforts to follow advertiser trends to emerging media channels and it has clearly paid off in 2008. Radio operators’ commitment to growing off-air business opportunities netted a 7% increase in this platform for the year. This area will remain a focus as radio rises to meet the challenges of 2009 and beyond. At the current growth rate, off-air is on target to reach $2 billion in 2009.
Newspapers
Newspaper advertising was hit hard in the 2001 downturn and failed to show any real recovery in 2002. Revenues nose-dived by 9.0% in 2001 and continued to fall the following year, down by 0.5%. 2003 saw the first recovery for two years, with revenues slowly climbing back to the high of 2000; see Table 5.
Within the total newspaper market, the classified advertising category suffered most in the 2001 downturn and has taken longer than both national and retail categories to bring about an upturn in advertising revenues. Online classified specialists, such as the free craigslist.com, have made this task even harder in recent years.
Between 2004-5, with the US labour market showing signs of improvement, an increase in recruitment advertising led to the classified category fuelling a newspaper revenue upswing, with growth returning to the market.
Digital success has become a critical component of newspapers’ transformation, and record audience numbers provide further proof that Americans continue to rely on trusted newspaper brands for news and information
in print and online.
According to the Newspaper Association of America (NAA), total newspaper market revenue in 2008 dropped by -17.7% to $34.7 billion, with classified down -29.7% to $9.97 billion. National ad spending fell by -14.4% to $5.5 billion, while retailers reduced their ad spending by -10.7% to $18.7 billion.
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US Media & Advertising
Advertising Forecasts
US advertising finished 2009 with -13.2% negative growth although growth is expected to gain momentum in 2010, to record an improved -2.0% growth, based on a consensus of recent forecasts compiled by MediaTel Insight; see Table 6.
Final US figures for 2009 show very poor advertising growth, due to the US economy facing crises in its financial, real estate, automotive and retail sectors as the year began, according to MAGNA.
The most optimistic forecast for final 2009 figures comes from GroupM at -8.0%, with Carat forecasting negative growth of -16.3%. MAGNA, meanwhile, lowered its US advertising forecast for 2010 to -15.5%. Most of the recent economic and marketing developments in the US have been generally unfavourable for US advertising.
With continued improvements in expectations on economic recovery, MAGNA forecasts that the first quarter of 2010 will represent the last quarter of decline for the US advertising economy during this recession.
Among major economic measures, Industrial Production (IP) and Personal Consumption Expenditures (PCE) have the highest correlations with advertising, and forecasts of these variables inform MAGNA’s predictions of advertising revenue growth and decline. As expectations for IP have improved and should post positive year over year growth by the second quarter of this year, the forecaster believes this will mark the turning point in media suppliers’ recovery. As a result, MAGNA is modestly upgrading its 2010 full year forecast and now expect normalised advertising revenues (excluding local TV political and national TV Olympic revenues) to effectively be flat this year, only -0.1% below 2009 levels.
This compares with its previously published expectations for a decline of 1.3% during 2010. In total, suppliers are expected to generate $161 billion of normalised advertising revenue this year.
For the first quarter of 2010, MAGNA forecasts that US media suppliers will collectively generate 3% less advertising revenue on a normalised basis than they did when compared to the prior year period, even accounting for the very weak economy experienced in early 2009. Industry revenues will fall from $38.0 billion in the first quarter of 2009 to $36.8 billion during the first quarter of 2010.
These figures reflect a moderating pace of decline compared to estimated revenue reductions of 7% during the fourth quarter and a 15% decline during the third quarter of 2009.
In 2010 the advertising economy will also benefit from the presence of political and Olympic advertising. MAGNA includes these figures separately to avoid skewing analysis of year-to-year underlying trends.
The forecaster estimates that political advertising will account for approximately $2.7 billion in advertising revenues for local television suppliers (both broadcasters and local cable) during 2010. This contrasts with the $2.4 billion in revenues the sector generated in 2008 and 2006, and represents a 15% increase over those years. MAGNA also measures the impact of Olympic advertising on an incremental basis (supplier revenues which are estimated not to have otherwise occurred were it not for the Olympics – an important distinction as many advertisers alter their creative to represent Olympic themes but would not otherwise change their budgeting) and estimate $488 million in incremental revenues this year. This compares to the $650 million incremental total estimated to have been generated during the 2006 Winter Olympics.
Longer-term forecasts have also been modestly increased to reflect higher confidence in economic recovery. MAGNA now forecasts total normalised media supplier advertising revenues will rise by a compounded annual growth rate (CAGR) of 2.3% between 2010 and 2015.
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Forecasts by Medium
Print will lose even more US ad spending share than previously forecast but remain on top, while online is set to grab the second-largest slice of the ad spending pie this year, according to estimates by Myers Publishing.
2009 will be the first year that ad spending online is greater than local and national spot TV, with online expenditures rising from 10.6% of the total in 2008 to 12.2% this year. The rise in market share will occur despite a 0.5% drop in spending forecast for online in 2009, to $24.55 billion.
Myers predicts online’s share will continue to climb, hitting 13.4% in 2011—when it will surpass print to become the top medium—and reaching 13.6% of total ad spending in 2012.
The fastest growth in 2009 is expected to occur in video game advertising, at 12%, followed by mobile (9%). Branded entertainment/product placement and satellite radio advertising will inch upward.
Internet ad spending will start climbing again in 2010, with 0.7% growth, picking up the pace to see 5.1% and 7.2% gains in 2011 and 2012, respectively.
The picture is much less rosy for total US advertising spending, expected to drop 13.3% this year. Myers’ previous forecast, from May 2009, projected only a 12.1% decrease. The firm pegs next year’s decline at 4.8% (revised upward from a 5.1% drop), with recovery beginning in 2011, at 1.1% growth. US advertising spending is expected to increase by 5.3% in 2012 to nearly $205 billion.
The rebound will be led by strong growth in Internet, TV, satellite radio, mobile and video game ad spending. In the online sector, video/social network spending is projected to post the fastest growth rates, followed by search.
A key theme within many of the forecasters’ reports over the last few years has been the continued rise of the Internet. This year Jack Myers projects that online advertising spend will rise to almost a 13% share of total media, see Table 7.
According to MAGNA, national mass media will capture a disproportionate share of advertising in the future, partly because weakness in the auto and real estate sectors had a disproportionate effect in causing the downturn in local advertising. The negative effects caused by these sectors will liklely prove to be cyclical, while other more profound trends – such as advertisers’ shifts from media into marketing services – could curb media industry growth in the years ahead.
A mostly open development environment, the internet, has established itself as one of two ‘primary’ media types in the US, alongside television. The reach of the medium is a key factor: total internet home access penetration is around 64% and should reach 69% by 2014. As a result, the internet has become an integral part of media budgets for traditionally mass-audience targeting advertisers, particularly as media suppliers have continued to build digital extensions for their content.
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Current Market Indicators
Newspaper firm Gannett, which owns regional publisher Newsquest in the UK, reported Group ad revenues totalling $790.8 million for the fourth quarter, a 17.9% decline, with US ad revenues down 18%. Classified revenues fell 21.9% in Q4, reflecting declines of 1.8% in the US and 23.5% at Newsquest, said Gannett.
Craig Dubow, Gannett chief executive, said: “Advertising demand firmed with the stabilisation of the economies of the US and UK. Our fourth quarter revenues comparisons were the best of the year with sequential improvement during the quarter. We are much stronger and well positioned as we move into 2010.”
Aegis has reported a 10.8% year on year fall in underlying organic revenues for the nine months ending 30 September. However, total group revenues for the period were up 1% on last year. Organic revenue at the group’s Aegis Media division fell 10.4% year on year, with Synovate, its market research business, reporting an 11.5% fall in organic revenue.
John Napier, Aegis chairman and interim chief executive, said: “Our strategy to perform resiliently in a downturn has continued to deliver and we are pleased to confirm further progress in a difficult and challenging market environment.”
Google’s net profits hit $1.97 billion in the last three months of 2009, according to the company’s latest financial results. Revenues were up 17% for the quarter, rising to $6.67 billion from $5.7 billion in the fourth quarter of 2008. Despite these increases, shares in Google fell 5% in after hours trading due to analyst predictions of higher revenue.
Google chief executive Eric Schmidt said: “Given that the global economy is still in the early days of recovery, this was an extraordinary end to the year”.
Latest Growth Data
Total measured advertising expenditures in the first nine months of 2009 dropped by 14.7 percent as compared to the same period in 2008, according to data released by TNS Media Intelligence. Ad spending during the third quarter of 2009 was down 15.3% versus last year, the sixth consecutive quarter of year-over-year declines.
“The updated monthly trend line on total advertising expenditures still shows no meaningful improvement through October,” said Jon Swallen, SVP Research at TNS Media Intelligence. “The slump has now passed its first anniversary and year-on-year comparisons will become easier in the upcoming months. Going forward, the timing, strength and durability of an advertising recovery will ultimately be determined by the way consumer activity rebounds.”