• by Karlene Lukovitz  @KLmarketdaily, March 14, 2007

U.S. advertising expenditure growth for 2006 was relatively sluggish--rising 4.1% to $149.6 billion, according to just-released year-end TNS Media Intelligence data.

Core growth, excluding special events such as political elections and the Olympics, was closer to 3%.

"Key forecasters were calling for 5% to 6% growth, so it was a bit weak--certainly not robust," comments Bob Liodice, president and CEO of the Association of National Advertisers. "After inflation, you're probably looking at basically flat year-to-year performance." (See related article, for more on overall factors affecting ad spend.)

In a nutshell, significant growth in the pharmaceuticals and telecommunications categories was offset by a large drop in domestic automotive spending.

Pharma was the fastest-growing category--jumping 13.8%, to $5.3 billion (although remaining in the #10 position among the top 10 categories). Growth contributors included Merck's marketing launch of an HPV vaccine and increased advertising by Pfizer and Astrazeneca.

However, 2007 could be another story. "Pharmaceuticals spending has been on the rise for many years now, but the unknown is how the category will be affected by Capitol Hill's increasing scrutiny on pharmaceuticals advertising and marketing," points out Liodice. "Depending on how this plays out, there could be a big impact this year and beyond. It's worrisome."

Telecommunications spending jumped by 10.3%--to $9.4 billion, lifting the category from #3 to #1 in the top 10 category rankings.

Nearly half of that growth came from AT&T (up 30.8%, to $2.2 billion, moving it from #5 to #3 in the top 10 advertiser rankings). "A good deal of AT&T's increase is clearly due to its acquisitions of BellSouth and Cingular, and the need not only to convey the name branding change by reaching out to those customers, but to achieve company integration," observes Ross Rubin, director of industry analysis for NPD. (That need for integration is also the presumed factor behind rumors that AT&T may rethink the Yahoo portal agreement brokered by SBC years ago, in favor of rebranding its Internet service through AT&T, Rubin notes.)

AT&T's competitors also upped budgets considerably (notably Verizon, up 10.4%, to $1.9 billion), reflecting the other driving factor behind rising telecom ad spend--a "battle of the titans," as traditional phone and cable companies move to aggregate voice, video and data services, says Rubin.

"The triple play concept itself isn't that complex, from a consumer's standpoint--a lot of it's driven by price and the convenience of having all these services on one bill," he says. "But there are a lot of details 'under the hood' that probably need more explanation than is possible in a 30-second commercial."

Thus, marketers are using a variety of different messaging approaches. Verizon, for instance, is using some radio spots to sell the advantages of circuit switch telephony over voiceover IP or digital phone services, and some TV spots to sell the superiority of fiber TV delivery over cable, Rubin points out.

The TNS data also shows a substantial 10.3% increase (to $8.7 billion) in "local services and amusements," a broad category that includes "a diversified mix of small advertisers outside the Top 500 rankings whose collective size and multimedia budgets have made it an important contributor to the overall advertising economy."

Other categories showing moderate or small ad spend growth included direct response (up 4.7%), financial services (2.0%), personal care PDT's (1.1%) and miscellaneous retail (0.8%).

As noted, domestic automotive spending was by far the major category on the negative side of the ledger, dropping 11.7%, to $7.6 billion, and driving the category down from #2 to #6 in the top 10 rankings. Ford's increase in spend (up 8.5%, to $1.7 billion) was offset by continued ad cutbacks by General Motors (down 23.7%, to $2.3 billion) and DaimlerChrysler (down 10.7%, to $1.4 billion).

This was hardly surprising, given that automotive spending has been down for six consecutive quarters. "Automotive ad spending overall won't increase until the top automakers fix their financial issues," sums up Liodice. Non-domestic auto ad expenditures also slipped, declining 1.2%, to $8.7 billion. In this category, higher ad spend by fast-growing Toyota failed to outweigh budget decreases by Nissan and Volkswagen.