Libyan Crisis, Rising Commodity Costs May Cool Upfront Market
As trivial as it seems in light of his grisly lunacy, Moammar Gadhafi's continuing effect on the oil market might trickle down and impact the TV upfront market. On Thursday as the Libyan crisis continued, the price of oil climbed to its highest level since 2008, potentially lowering corporate profits and curtailing marketing dollars.
Soaring oil prices can hurt a slew of heavy advertisers, particularly retailers and quick service restaurants. Both need to keep delivery trucks coming and consumers willing to fill up their gas tanks.
Retailers dealing in clothing are also grappling with all-time high cotton prices, a problem rooted not in the Middle East, but India and China, where the supply has been contracting.
Other commodity prices are rising, prompting at least one major buyer to suggest that expectations about soaring upfront pricing may be premature.
“Consumers aren’t going to be willing to pay 40% more for a cotton T-shirt, 40% more for a pair of jeans,” said MEC’s Gibbs Haljun at an industry event. “So when you look at that from an economic standpoint. I’m not sure the market can support huge increases … from a company standpoint, earnings are not going to be there, when many have 40%-plus increases in commodity (costs) that cant be passed on to the consumer.”
Clothing store chain H&M, which runs significant print advertising, said Thursday profits fell 30% for the three-month period ending Feb. 28, partly due to the higher cotton prices. H&M indicated it would not raise prices since much of its brand is centered on affordable products.
Another major world event, the Japanese earthquake and tsunami, could also hurt categories from movies to consumer electronics.
Sony halted production at six Japanese plants after the disaster, including where some components are made for Blu-ray DVDs. Also, maufacturers making parts for the iPad 2 have been affected. And indications are that Apple will have to pay more for the supplies to keep the hot-selling product moving.
Still, one company’s trouble can be another’s treasure. Higher oil prices may hurt Kohl’s, but help Exxon Mobil.
Which means sweeping predictions about a cut in upfront spending can be risky. “It depends on the category,” said Optimedia executive Greg Kahn.
Further, marketers dealing with turmoil and fluctuations in commodity markets is hardly new and many are well-versed in how to adjust corporate strategy. Something as seemingly minor as the resin market can hurt P&G, while Southwest Airlines has been deft at managing fuel prices.
Also, as unemployment has remained high and consumer confidence flimsy over the past year, the TV ad market has been healthy, suggesting marketers with higher costs may still continue with significant investments.
And a lot can change between now and early June when the upfront market kicks off, notably with Gadhafi's fate.