• by Patrick Quinn , October 3, 2007

Recent news of a media industry recession reminded me of a little axiom we use here at PQ Media: Although the advertising sector accounts for less than 25% of overall media industry spending, it garners more than 90% of the news media coverage. This has held true, apparently, since the 1st century, when an enterprising young ad man posted a billboard on the Colosseum promoting the gladiator "bout of the century."

While onlookers and local scribes marveled at this artful tapestry and its ability to build awareness, a canvasser for the bout's sponsor reported that there were other tactics that were not only more cost-effective, but generated superior engagement, albeit to much less fanfare. Among them, the in-program placements with the city's news reader, who hyped the upcoming bout between dispatches in the downtown square; the direct-to-consumer leaflets distributed in the various marketplaces; and the word-of-mouth campaign that spread like wildfire. Evidently, not much has changed in 2,000 years. Case in point: the recent release and subsequent news media coverage of gloomy advertising spending data from TNS Media Intelligence and Nielsen Monitor-Plus.

While I'm typically averse to criticizing my friends in the news media or at other media research firms, I found the recession issue too important. Several irritated clients and associates urged us to respond, but more telling, we're witnessing another seminal period of transformation in the media industry's long history, an era in which changing consumer demographics and behaviors and frenetic advances in digital technology are sending shockwaves through the traditional advertising sector.

As a result, brand marketers, media companies and financial institutions are demanding new research methodologies and measurement systems because, make no mistake, the traditional ad business is shrinking. Old media metrics won't work in a new media order. Nevertheless, following the release of TNS's and Nielsen's data in mid-September, which indicate ad spend declined between 0.3% and 0.5%, respectively, in the first half of 2007, I viewed or listened to numerous reports that led off with headlines like "Ad Industry In Recession" or "Media Industry Slumps Into Recession" or even a MediaPost headline that played on the actual definition of a recession -- which is two consecutive quarters of declining GDP -- inferring, of course, a media recession.

Now, I chuckled at the first couple reports, well aware that TNS's ad tracking data only covers about 70%-85% of total ad spend, lacks key growth segments and encompasses merely 15%-25% of the entire media industry, which also includes marketing services (direct marketing, event marketing, promotions, etc.), consumer end-user (box office, recorded music, videogames, etc.) and institutional end-user spending (business information services, educational media, corporate training, etc.). Nielsen's system tracks even less of the media industry, and it doesn't even publish spending figures, only growth estimates. Which leads me to wonder exactly what it is that Nielsen measures -- estimated ad occurrences multiplied by standard rate card?

In spite of these shortcomings, the news media gobbled up this data and their coverage accelerated as September progressed, with one reporter trumping the news with ever more dire predictions for the "faltering" media business. After a week or so, my little chuckle degenerated into a whooping cough, following a CNBC segment indicating that all signposts were pointing to a media recession, quoting -- you guessed it -- TNS tracking data. How anyone with any historical knowledge of the media business could come to such a conclusion, when a full-blown economic recession has been a prerequisite for even a mere advertising recession since World War II, is beyond me. And, of course, we're not witnessing an economic recession yet either, but more on that later.

In a nutshell, the assumption that the U.S. media industry, or even the ad sector of the media industry, descended into a recession in the second quarter is at best premature and misguided; at worst, it's irresponsible and harmful, especially when the basis for this assumption is data that tracks only a fraction of the overall industry. The media industry is not recession; in fact, it's relatively healthy compared to other economic sectors. The chances of a recession remain in the lower quartile, similar to that of the broader economy. The ad sector also is not in a recession, although you wouldn't know it from the recent TNS and Nielsen press releases or the subsequent news media coverage, which, unfortunately, lacked much of a challenge to this assumption and the supporting data.

So, let's take a closer look at this assumption and the supporting data.

TNS and Nielsen track only traditional, or "measured," ad-based media segments as defined by PQ Media and Veronis Suhler Stevenson (VSS), which partner on the annual VSS Communications Industry Forecast: broadcast and cable television, broadcast radio, daily newspapers, consumer and b-to-b magazines, out-of-home media and the Internet. In many instances, both TNS and Nielsen track only a portion of a particular ad media segment, often missing the faster-growing segments, such as local cable, satellite radio, weekly newspapers, alternative out-of-home media, such as video ad networks, among others, and Internet search, local online, and consumer-generated media and social network advertising.

Additionally, TNS and Nielsen don't track several other fast-growing ad segments, like cinema, videogame and mobile advertising, nor do they measure yellow pages (including the Internet component). It also appears that Nielsen doesn't include traditional media online and mobile extensions, such as CNN.com, SI.com, NBC.com and NYTimes.com, although TNS apparently includes some, but not all, in their Internet tracking data. As a result, while TNS and Nielsen have the "total" ad sector declining 0.3% and 0.5%, respectively, for the first half of 2007, their spend figures don't include a considerable swath of ad spend -- at least 15%, but perhaps as much as 30% or more.

For comparison purposes, the VSS/PQ Media econometric mapping, tracking and forecasting system that drives the VSS Communications Industry Forecast 2007-2011 projects the overall ad sector -- including traditional and alternative ad spend -- will grow 4.2% for full-year 2007, driven by a 30.3% expansion in the alternative sector. Our data and analytics through the first half of 2007, which serve as the basis for the full-year projection, essentially agree with TNS and Nielsen that traditional ad spend will be virtually flat at 0.4% growth, a sharp deceleration from 2006.

As the VSS Communications Industry Forecast 2007-2011 indicates, growth in the advertising and marketing services sectors is being driven by the alternative media segments, those that are, for the most part, not tracked by TNS or Nielsen. And alternative advertising and marketing services will continue to drive growth in these sectors as brand marketers shift budgets from conventional to new media that provide a number of attractive features, including: stronger ROI measurements, immunity to ad-skipping technology, higher degrees of engagement, better targeting capabilities, and connections with the youth market, among others.

This point was made abundantly clear by an Anheuser-Busch executive who recently confirmed to Advertising Age that while the company has cut traditional ad spend at a double-digit rate this year, which TNS figures indicate, A-B is increasing its alternative ad and marketing spend at a higher rate, resulting in more overall media spend this year by one of the nation's biggest brand marketers. Therefore, without even factoring in a slower-growing economy or possible recession, there are strong secular trends hampering traditional advertising's growth prospects. A further analysis of ad spend data shows that VSS/PQ Media sizes the ad sector at $218.45 billion by year-end 2007, while TNS estimates the business at about $152.1 billion (based on its 1.7% growth projection over its $149.6 billion estimate for year-end 2006) -- a whopping 30% difference in total size. Nielsen, meanwhile, does not publish an overall ad spend figure.

Perhaps even more important here is that neither TNS nor Nielsen track the marketing services sector -- traditional or alternative - which represents more than half of all spending by brand marketers today. It is expected to grow much faster than the overall ad market in 2007, rising 7.3% to $272.61 billion, according to the VSS Communications Industry Forecast 2007-2011. When combined with the vigorous institutional end-user sector (7.7% growth in 2007) and solid consumer end-user sector (6.0%), there is simply no basis currently for an assumption of a media recession in 2007.

In fact, economic, industry and segment indicators through the third quarter bear out our forecast of 6.4% growth to $941.71 billion for the overall media business in 2007. And our historical databases indicate that the signs of a near-term media recession just aren't there yet, in addition to a long-standing trend that the overall media industry is not as severely impacted by an economic downturn as the ad sector, particularly the traditional ad business.

This is not to say that a deceleration in quarterly GDP growth and softer auto, real estate, and retail advertising would not have a more significant impact on the overall ad picture and broader media landscape. However, GDP growth actually accelerated in the second quarter and other economic indicators -- consumer spending and prices -- have also recently come in more positive than expected, with the exception of housing. Additionally, declines in some ad categories would likely be tempered by a slight increase in political media spending in the third and fourth quarters in selected states, such as Iowa, New Hampshire and states with January primaries. Therefore, it's just too soon to be calling any kind of a recession -- economic, advertising or overall media.

As for the overall economy, there may be some additional downside news to come from the real estate, retail and auto sectors in the next couple months, the degree of which will matter much. But as for a defined recession -- that remains to be seen. Much of the economic outlook will depend on how consumer spending develops for the remainder of this year. While PQ Media forecasts a GDP slowdown in 2007, our team of media economists say the economy is likely to hold up relatively well, as a period of slow growth -- similar to others we've had over the last 25 years -- will likely prove to be highly therapeutic. So let's put the doomsday predictions on ice, at least until we've got the comprehensive data to prove them.