• by Karlene Lukovitz , March 14, 2007

It's hardly surprising that TNS Media Intelligence attributes much of 2006's slow growth in overall U.S. advertising expenditures--4.1%, or 3% when the effects of special events like political campaigns and the Olympics are extracted--to the slowing overall economy.

Since ad budgets reflect consumer spending indicators, ad spend generally correlates closely with GDP, and GDP grew just 2.5% in the second half of '06, points out TNS Senior Vice President/research Jon Swallen.

Indeed, based largely on projected continued 2.5% GDP growth through this year's first half, TNT is projecting just 2.6% U.S. ad spend growth for 2007.

But Swallen adds that critical changes in the advertising economy are also contributing to slowing adverting spend growth.

First, he says, continued fragmentation of media and the expansion of advertising media options, particularly in the digital realm, have created a "supply and demand imbalance" in the market. This has constrained media's ability to raise prices--which is, of course, reflected in ad spend data.

Overall, media spend figures also reflect advertisers' shift into experimental digital media that are not yet tracked. "Some money is hidden from view," explains Swallen.

Further, marketers' shifting of dollars from traditional media to measured digital media is creating below-the-surface effects on overall budgets. (According to TNS, Internet ad spend rose 17.3% in '06, to $9.8 billion, while overall TV media rose 5.3%, overall magazine media rose 3.8%, overall radio media rose 0.3%, and overall newspaper media declined by 2.4%).

"Many of the digital media--the Internet being the best example--offer additional measurement capabilities that help marketers measure ROI," Swallen says. "Over the past six years or so, major marketers have worked very hard to drive inefficiencies out of advertising budgets, and they are getting greater productivity out of their budgets than in the past.

"This means that the chief marketing officer has two options: increase the budget in the hope of increasing market presence and share, or let the budget savings drop to the bottom line," he says. "Many of the large marketers, driven by short-term financial considerations, are choosing to pocket that money, since they can constrain marketing budgets without impacting overall marketing and sales results."