Growth for the first half of 2005 is expected to rise 4.1 percent, and a 2.7 percent growth rate is expected for the second half of the year, said Steve Fredericks, TNS Media Intelligence's president and CEO. Fredericks presented the forecast at the AdWatch 2005 conference at the Grand Hyatt New York City in Grand Central Terminal.
"Our expectation is that the first half of the year will show a 4.1 percent growth," Fredericks said. "Early indicators from the second quarter show that TV spending is softening, while magazine comparisons are improving and Internet expenditures also are advancing steadily. In all, we think second quarter will lag first quarter slightly."
The projected 3.4 percent increase in ad dollars for 2005 is behind the 9.8 percent increase that was seen in 2004, Fredericks noted, adding that he is nevertheless encouraged to see the numbers remain on the plus side as opposed to the minus column.
The softness in TV ad spending is being balanced by "strong growth" in cable television, Hispanic media, the Internet, and consumer/Sunday magazines. Still, segments such as spot TV, business-to-business magazines, and radio are lagging behind their 2004 numbers, Fredericks said.
In particular, cable TV and Hispanic media ad spending are the big growth areas Fredericks cited, estimating that Hispanic media--which includes TV and print--will be the second-largest growth category in 2005 with 10.5 percent.
And as for cable TV ad spending, that area is expected to rise 11.6 percent for the year--the highest increase of all media sectors, Fredericks said. This was contrasted with network TV, which he projected to have only a 1.1 percent increase, while spot TV was down 6.4 percent.
"As cable continues to narrow the CPM gap versus network TV, it will increasingly be perceived as a commodity that can be substituted," Fredericks said. "Future revenue growth will then be more dependent on monetizing audience gains, and less dependent on attracting bargain shoppers seeking a deeply discounted price. Network TV will manage a little over one percent gain--but again, we're comparing against 2004, when there was an incremental $850 million dollars in ad spend from the Summer Olympics. As you can see, spot TV, with a 6.4 decline, will have a challenging year. And this is a difficult comparison versus 2004, when political spending in local TV reached 1.2 billion dollars. In addition, spot TV faces growing competition from local cable."
Turning his focus to online advertising, Fredericks said the Internet will continue in a steady growth pattern of 7.6 percent, as it "continues to attract non-endemic advertisers" who take advantage of its ability to target and accountability. Nevertheless, he cautioned, the medium is entering a phase in which year-on-year comparisons are becoming more difficult.
"I don't think we've seen such buzz surrounding a media industry since its first heyday in 2000," Fredericks said. "There is considerable press attention not only on who is moving ad dollars to the Internet and what percentage the Internet is of an overall brand marketing budget--but also many opinions on how the industry is and will be tracked in the future. In the aftermath of the dot-com bust, measured Internet ad spending bottomed out in 2002 at $5.2 billion dollars. However, in 2003, expenditures jumped 17.6 percent, and last year we saw an increase of 21.4 percent over the prior year. During the last two full years, the net increase has been more than $2.2 billion dollars."
He also pointed out that the recent growth in Internet ad spending is coming from traditional advertisers at the expense of dot-com brands. Over the past four years, these traditional brands have grown their total online ad spending by 50 percent, from $2.8 billion to $4.2 billion. On a share basis, these brands now account for 57 percent of total ad spending on the Internet, versus 48 percent in 2001. As a disclaimer, TNS representatives noted that Internet ad projections don't include paid search advertising, which comprises nearly one-half of all online ad spending.
And as the upfronts are being wrapped up, Fredericks told AdWatch attendees that the TV upfronts are a "poor" indicator of actual ad spending because advertisers can opt-out of and cancel their ad buys at various points and fluctuations in network inventory. Only fourth-quarter ad dollars are "firm," he said. Interestingly, Fredericks noted that the category "TV promotion," which essentially consists of house ads in which broadcast and cable networks promote themselves, accounts for the largest advertising category. In 2004, he said, the TV promotion segment racked up $17.1 billion. In 2003, the category attracted $16.1 billion, and in 2002, $14.7 billion. Fredericks said that 11 percent of total ad spending and 22 percent of total TV ad spending is for the TV promotion category.
"TV promotion actually ranks unofficially as the top category of U.S. advertising," Fredericks said, denoting it as a "mystery category."
"To give you some perspective, $17 billion dollars is equivalent to the size of advertising spending for the entire automotive category--both domestic and import," he said. "But auto manufacturers deploy their budgets across all media. The TV media puts over 95 percent of its promotional investment just in TV, on its own air time. Despite the handicap of being a one-medium advertiser, it's consistently the top category as ranked on total, multimedia ad spending. We don't include the value of these TV house ads in our public reporting of advertising spend. But if we did, this category of advertising would account for nearly 11 percent of total ad spend across all of our measured media. And it would represent a staggering 22 percent of TV ad spend."
In political ad spending, Fredericks identified "Election 2004" as a watershed event with spending exceeding $1.4 billion dollars--42 percent of that went to promoting the presidential election, 27 percent for federal offices, and 14 percent for state and local offices. Fredericks estimated political spending for 2005 to be between $80 and $100 million.
"It changed how future election campaigns will be implemented," he said. "Advertising for both the presidential and other down ballot races was historic in size. The number and diversity of advertisers and messages created a roadmap of new standards by which future campaign advertising battles will be waged. For so long, we treated political advertising as a bi-annual event. But there was something that happened in 2004, which has now made politics an annual advertising category. It's called campaign financing laws. While those laws were intended to level the playing field on how much candidates were able to spend on advertising, they left a wide-open loophole for advocacy groups to pick up the slack. This may be the lasting legacy of 2004, with hundreds of advocacy groups emboldened by the prospects of becoming the next Swift Boat Veterans for Truth!"
As for political ad spending in 2005, Fredericks pointed out that there are over 400 mayors up for election this year, and so far over $18 million dollars has been spent on TV for a variety of political offices this year. Outdoor and radio are primed to gain from political ad activity. Fredericks said.
And if the past is any indicator, New York TV will be getting a huge chunk of change from Mayor Bloomberg--TNS noted that he spent $22 million on TV alone back in 2001. Other major cities gearing up for mayoral spending are San Antonio, Pittsburgh, Cleveland, Detroit, and San Diego.Tobi Elkin contributed to this report.