Q1 Ad Market: Lowest Growth Rate Since Q4 '03

Total ad spending for the first quarter of 2005 increased 4.4 percent to $33.5 billion compared to the same time period in 2004, marking it as the smallest period of growth since the 4.3 rise in quarterly ad spending at the end of 2003, TNS Media Intelligence said on Wednesday.

Although TNS initially forecast 6.6 percent growth for the first quarter of 2005 back in January, Steven Fredericks, president and CEO of TNS Media Intelligence, said that despite the difference between previous expectations and current reality, there has been no decision yet whether or not the ad forecaster company would revise its yearly figures downward when it releases its annual spending predictions on June 28.

For one thing, Fredericks cautioned against viewing the Q1 numbers as any sign of an advertising downturn. In January, TNS had also predicted that ad spending would exceed $150 billion, which is a record for the U.S. market. That's on top of 2004, which came in at $141 billion. So far, those numbers seem to be on track, Fredericks said.

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"Though this is the smallest gain in ad spend since the end of 2003, spending continues to increase at a faster rate than the GDP; just as it has in 10 of the last 11 quarters," he said. "I don't look at this as bad news. I still think the advertising industry in terms of ad spend is robust."

Fredericks pointed to a variety of "uncertainties" in the marketplace regarding economic conditions during the first four months of 2005: namely, profit pressures on domestic automobile manufacturers, tighter regulations on pharmaceutical companies, consolidations among telecom providers, large banks, and retail stores that all coincided during in the first quarter. Plus, the ongoing war in Iraq and the rising oil prices lent further impetus for cautious ad budgeting by marketers, Fredericks added. The gains could have been lower had it not been for restaurants and direct marketers increasing their ad spending, he noted.

Ad spending in the top ten categories rose 4.9 percent to $14.3 billion in the first quarter compared to the same time period in 2004. By dollar amount, and despite financial worries and low sales marks, U.S. automakers led all categories at $2.1 billion, closely followed by their foreign rivals at $2.0 billion.

Direct response led all categories in growth--rising 19.3 percent to $1.5 billion, followed by media and marketing with 12.6 percent growth to $1.1 billion, and restaurants with 11.9 percent growth to $1.1 billion. Spending by the top ten categories for the first quarter registered $14.3 billion, accounting for 42.6 percent of total ad spend.

Overall, local magazines led all media categories in percentage growth, rising 26.2 percent to $104 million.

By total dollar amount, local newspapers and network TV led all media at $5.9 billion and $5.8 billion, respectively. Cable TV registered growth of 18.2 percent to $3.5 billion, taking market share from broadcast TV, as broadcast grew 3.8 percent.

"When I look at network TV, I see quarter-on-quarter increases of 3.8 percent, but cable increased 18.2 percent," Fredericks said. "Network TV is doing okay, and comes on the heels of a 2.1 percent increase the previous quarter. It's down very slightly from a year ago, when its share of total ad spend was 17.6 percent, and now it's 17.5 percent.

"You could argue, therefore, that ad spend there is flat," Fredericks continued. "But there's a number of things to consider. Movie studio ad spending on network TV was down 11 percent, and I don't think that has anything to do with movie studios not wanting to advertise on television versus anyplace else. Movie studios have had a difficult year so far. They're continuing a trend a few years old where the box office isn't doing so well, and that's having a direct effect on the amount of advertising going into network TV. Secondly, packaged goods and pharmaceuticals are switching to cable because of better targeting."

Ad Spending: Q1 '05 vs. Q1 '04 (In Millions)

MEDIA

Q1 '05

Q1 '04

CHANGE

NEWSPAPERS (LOCAL)

$5,869.0

$5,850.2

+0.3%

NETWORK TV

$5,845.1

$5,632.9

+3.8%

CONSUMER MAGAZINES

$4,691.7

$4,285.2

+9.5%

SPOT TV

$3,664.3

$3,849.1

-4.8%

CABLE TV

$3,510.1

$2,970.0

+18.2%

INTERNET

$1,948.1

$1,800.5

+8.2%

LOCAL RADIO

$1,612.7

$1,572.0

+2.6%

B-TO-B MAGAZINES

$1,225.3

$1,224.6

+0.1%

SYNDICATION

$987.6

$947.8

+4.2%

HISPANIC MEDIA

$915.6

$865.3

+5.8%

NATIONAL NEWSPAPERS

$801.8

$783.6

+2.3%

OUTDOOR

$725.9

$705.2

+2.9%

NATIONAL SPOT RADIO

$539.4

$515.1

+4.7%

SUNDAY MAGAZINES

$398.3

$347.8

+14.5%

FSIs

$396.8

$392.7

+1.0%

NETWORK RADIO

$224.8

$232.2

-3.2%

LOCAL MAGAZINES

$103.7

$82.2

+26.2%

TOTAL

$33,460.3

$32,056.4

+4.4%

Source: TNS Media Intelligence 1. Figures are based on the TNS Media Intelligence Stradegy2 multimedia ad expenditure database across all TNSMI measured media, including: Network TV, Spot TV, Cable TV, Syndication, Hispanic Network TV, Consumer Magazines, Sunday Magazines, Local Magazines (31 publications), Hispanic Magazines, Newspapers (local and national), Hispanic Newspapers, Network Radio, Spot Radio, Local Radio, Internet and Outdoor. Figures do not contain public service announcement (PSA) data. 2. Spot TV figures do not include Hispanic Spot TV data. 3. Cable TV figures based on 45 networks. 4. Local Radio includes expenditures for 35 markets in the U.S provided by Miller Kaplan. 5. Hispanic Media includes expenditures from Hispanic TV (Univision, Telemundo, Telefutura and Galavision), Hispanic Spot TV, Hispanic Magazines and Hispanic Newspapers. 6. FSI data represents distribution costs only. 7. The sum of the individual media may differ from the total due to rounding.

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