Wall Street Labels Traditional Media's Malady, Terms It 'Media Malaise'

by adam.m , Michael Deibert, Jul 28, 2005, 8:45 AM

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A report released Wednesday by the financial management and advisory company Merrill Lynch cited a "media malaise" that had descended upon traditional advertising, and predicted slow growth ahead for the industry in the coming months.

The report, co-authored by Merrill Lynch research analysts Lauren Rich Fine, Karl Choi, and Hester Change, predicted a slowdown in magazine advertising during the second half of 2005, moribund advertising activity on the newspaper front, and a marked risk to direct-to-consumer (DTC) pharmaceutical advertising from increased government regulatory scrutiny.

Stating that June advertising revenues for newspapers ended up on average in the 2% range--down from 3.0% in April and 2.5% in May and blamed on weak retail, travel, and telecom spending--the report went on to caution that despite rosier predictions from several newspapers for the second half, "we remain concerned about retail, especially in view of the recent closing of the Federated/May merger, and real estate, where comparisons remain difficult."

The May Department Stores Co. concluded an $11 billion merger with Federated Department Stores Inc. this month.

The news for ad pages in business-to-business magazines also wasn't good. Citing numbers from American Business Media, the report noted that B2B magazine ad revenues grew 3.6% in May on a 0.2% decline in ad pages--with health care the big loser, down 12.0%. Looking at the medical field, Fine concluded: "Given the increased regulatory scrutiny, there has been a pullback in DTC pharmaceutical advertising that is likely to accelerate."

An announcement last week by the Pharmaceutical Research and Manufacturers of America (PhRMA) that its Board of Directors had given initial approval to a set of "Guiding Principals" designed to address the concerns of public advocacy groups and legislators regarding direct-to-consumer advertising of prescription medicines was met with skepticism by critics. Advocacy groups such as Consumers Union have been vocal advocates of moves to further regulate advertising for the drug industry, and in the U.S. Senate, Majority Leader Bill Frist has called on pharmaceutical companies to observe a two-year moratorium on direct-to-consumer advertising during a drug's first two years on the market, and also for the Government Accountability Office (GAO) to review the Food and Drug Administration's (FDA) oversight of prescription drug activities, and the pharmaceutical industry's spending on advertising.

The Food and Drug Administration Safety Act of 2005, proposed this year by Iowa Republican Senator Charles Grassley and Connecticut Democrat Senator Christopher Dodd, mandates that advertisements for drugs that have been on the market for less than two years and drugs with a known safety risk be reviewed by the FDA before they air to the public.

The Merrill Lynch report characterized radio revenue as having remained largely static, a finding backed up by the Radio Advertising Bureau's own findings, which this week stated that "all revenue, local spot, national spot, and total combined local and national spot dollars all remained flat for the month compared to June of 2004."

One bright spot in the report came from the big online players, with Yahoo! and Google's combined net online marketing revenue growth of 74% year-over-year and 10% sequentially, although Merrill still estimated global Internet advertising to be $18.3BN or 3.8% of global ad spend.

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