WWW.MEDIAPOST.COM
Most Media To Suffer Retrenchment in 2009
by Jack Loechner, Tuesday, December 30, 2008 8:15 AM
According to a new report by FitchRatings, the company forecasts that the contraction in output among the major advanced economies will represent the steepest decline since the Second World War, with
GDP in the U.S. to decline approximately 1.2%, while inflation is forecast to be 2.7%. Regarding the advertising environment, the Fitch media team is more cautious than most major advertising
forecasts, none of which currently predict advertising to be nearly as weak as 2001. Fitch's cautious view about advertising is, in part, supported by these underlying conditions:
- The 2001 ad downturn was concentrated in national advertising, while the 2008-2010 downturn will include both local and national components. Political and Olympic spending
masked the local market weakness in 2008, but the report says the absence of these revenue sources in 2009 will expose the depth of this weakness.
- This weakness in local
markets will be compounded by national advertising pressures due to the impact of the credit market events that hit while many large national advertisers were planning their 2009 ad spending
budgets, forcing many companies to emphasize capital preservation and liquidity, not just earnings growth.
- With advertising being one of the most easily scalable fixed costs, some
major advertisers could plan to pull back on national campaigns considerably until there is more visibility in the market.
Five of the top 10 advertising categories, or over
40% of the ad mix (according to Advertising Age), will be under meaningful pressure next year, says the report:
- No.1 Retail (12% of total)
- No.2 Automotive (12%)
- No.5 Financial Services (6%)
- No.6 General Services (6%)
- No.9 Airlines, Hotels and Car Rentals (4%)
And, notes the report, advertising inventory
has proliferated (from online and emerging mediums as well as traditional ones) since previous downturns. Media companies are likely to compete more heavily on price in this downturn to fill the vast
supply of ad space available. Advertisers have many more options in the current environment than at any other time for maintaining a presence with consumers while trimming their budgets and
scaling back high Cost Per Thousand (CPM) advertising campaigns, says the report. Even healthy advertisers are likely to use this increased bargaining power to command better price terms and
concessions from media companies. The study offers trends and outlooks for several advertising subsectors in the report, as estimated by Fitch:
Newspapers
Newspaper industry revenue growth will be negative for the foreseeable future as both ad pricing and linage will be under pressure within each of the four main components of newspaper
companies' revenue streams. Fitch believes more newspapers and newspaper groups will default, be shut down and be liquidated in 2009 and several cities could go without a daily print newspaper by
2010.
Yellowpages Few markets will be able to support more than two directories and most markets will eventually only be able to support one book. Another year of
accelerated declines in yellowpages advertising could significantly pressure the intermediate-term solvency of the two pure-play incumbent directories companies.
Terrestrial Radio
Radio has
no unionized workforces, and convert a higher percentage of EBITDA to free cash flow giving them more cushion to endure the secular challenges.
Listenership is likely to continue to fall, though available inventory should remain relatively stable, and pricing could be up on some advertisers. Internet streaming provides additional day parts to
sell. The continued roll-out of factory-installed high definition (HD) radio into automobiles could provide upside to listenership.
Magazines Fitch expects the
larger players to rationalize available print advertising inventory through consolidation and closing down titles. Several categories that used to have multiple titles will likely have advertising
bases that can support only one major title. With limited catalysts for growth in the core print product, magazine publishers have become more proactive online.
Outdoor
Fitch believes the potential negative effects of increased inventory from digital roll-outs should be tempered by increasing appeal to national advertisers, as well as decreases in price per unit.
Cost structures should benefit from digital billboards, as displays can be centrally managed without physical deployment of work crews. Low CPMs and better networked national sales pitches, position
outdoor advertising companies to endure the downturn and rebound with the economy.
Cable Networks Cable industry ad inventory has grown significantly over the past
several years, causing a deceleration of the decades-long increase in ad dollars, but cable continues to be a targeted medium, at a lower price relative to broadcast and with significant reach. Fitch
expects it to continue to gain share from broadcast. Fitch expects the cable networks to continue to embrace VOD and digital strategies, which could provide some modest upside to revenue growth.
Online Online could be negatively affected by advertisers scaling back experimental expenditures in favor of more proven, performance-based mediums. Search is likely to be
more healthy than display. Remnant advertising is likely to be hit by a shakeout in the ad network space. While CPM growth is likely to moderate and could be under pressure, online video and social
networking are likely to support growth. Regulatory issues associated with privacy could be a factor as firms attempt to implement more behavioral targeting. Over the longer term, online advertising
is expected to rebound from economic weakness and continue to capture share from traditional outlets. For
more detailed information within the original report, please visit here.