Good News for Ad Insertion!!
Study Says Ad Fears May Be Exaggerated But Spending Will Shift
Dow Jones Online News, Thursday, October 22, 1998 at 12:52
NEW YORK -(Dow Jones)- Fears that advertising spending will decline
if the economy slows may be overstated, although spending will continue
to shift to the Internet and cable television away from the broadcast
networks, a report on the media industry said Thursday.
Even if the stock market's current gyrations do indicate a recession
is imminent, a study by media-investment firm Veronis, Suhler, &
Associates says advertising levels should wax, but not wane.
In fact, overall media spending should rise at a compound annual
growth rate of 7.7%, according to the report, reaching $613.7 billion by
2002. For the previous five-year period, between the 1992 to 1997, the
compound growth rate was 7.2%, according to the report.
The firm's annual Communications Industry Forecast, which analyzes
expenditures for newspapers, broadcasting, and several different
publishing segments between 1997 and 2002, sees compound annual growth
in the high single digits for spending by advertisers, institutions and
consumers alike.
The report anticipates more moderate growth in 1999 and 2000, and
then a strong surge forward after the turn of the millennium, said John
Suhler, the firm's president. "By no means are we calling these real
strong, robust growth rates," he said, "but they are noticeably
different than the pall mood that is currently being discussed in the
headlines."
Certainly, such predictions should calm media investors, who have in
recent weeks fretted that a volatile or slowing economy could have a
negative effect on advertising - and the companies that depend upon it
for sustenance.
"The measures that we typically look at to forecast seem to be
pointing in the direction that things are fairly strong," said Audrey
Steele, who oversees ad forecasting at Zenith Media in New York. Still,
she said she has noticed "a lot of skittishness about a potential
recession."
If any shakeout is to occur, she believes, it won't be in the amount
of advertising being done, but in how it is placed. "Network
television's health is not as strong as we predicted," she said. "That
spending is not going away, but it's probably going to be shifted to
alternate venues."
The Veronis, Suhler report appears to concur. The study predicts that
advertising on the Internet will increase to $6.5 billion in 2002 from
$906 million in 1997, while ad spending on cable and other subscription
video services will rise to $16.4 billion in 2002 from $7.9 billion in
1997. Media supported by consumer spending is winning more attention
from users than media supported by advertising, the report said.
The current skittishness stems from announcements over the past
several weeks, which saw a number of traditional media companies report
a drop in the third-quarter results or said the fourth quarter will be
tougher than they thought.
The McGraw-Hill Cos. (MHP), for example, witnessed a revenue fall at
Business Week magazine in the third quarter, saying ad pages were
relatively flat. Knight-Ridder Inc.'s (KRI) Miami Herald last week shut
down its Tropic Sunday magazine, which its editor said has eaten $2
million a year; industry observers suggested the magazine vied too often
with daily newspaper advertising - and lost. Dow Jones & Co., publisher
of The Wall Street Journal and this newswire, reported a 3.8% decline in
third-quarter net income on lower financial advertising revenue. And
technology publisher Ziff Davis, hit by a chill in the once-hot computer
and software advertising market, said it will cut its work force by 10%
and close three magazines.
Newspaper analysts are concerned about a slower rate of advertising
revenue growth. Television broadcasters were shaken badly by the General
Motors strike. Only radio has remained relatively strong in terms of its
advertising outlook, according to analysts.
But Bob Coen, the director of forecasting at McCann-Erickson
Worldwide, believes investors are perhaps placing too much emphasis on
stock market fluctuations. Advertising is actually moving forward, he
said, especially when compared with a downward trend that lasted from
the mid-'80's to the early '90's.
Now, he said, "a greater reliance on advertising is underway." And a
recession will only affect ad levels if it is long and sustained, he
said.
Copyright (c) 1998 Dow Jones & Company, Inc.
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