Ad Forecasts For 2009? You Just Don’t Want To Go There!

Philip Stone October 16, 2008

Every December during New York’s Media week the biggest names in advertising forecasting trot out their estimates for the coming year, with the trend the past few years of reducing those forecasts come July and September. But given the current economic mess, that advertisers are aggressively putting their hands in their pockets does anyone really want to go out on a limb for next year? For those who insist on something, it’s going to be down, big-time.

And the popular feeling seems to be the more “traditional” your media, the more the numbers will be down next year and overall 2009 declines will be worse than 2008.

An example of the row backs came from Zenith Optimedia last week that for the third time so far this year has downgraded its 2008 global ad expenditure forecast, this time to 4% from its previous 7%. But for the US it has lowered this year’s growth to 1.6% from  3.4% readjusted just in June and it says growth next year will be less than 1% as opposed to its 2.6% forecast, again from just last June (want to bet the “less than 1%” is still too optimistic?) 

“Fears for the future will cause consumers to cut their spending, while companies carefully inspect their budgets to find cost savings," the research firm said.

Media futurist Jack Myers paints a bleak outlook on his web site. “For the first time in more than 40 years, total marketing communications budgets will be flat or down for two consecutive years. Historically, even during recessionary periods, marketers have shifted budgets from advertising to sales promotion and retail allowances, and many marketers increased ad budgets in hopes of gaining share. In the recession of 2009, marketers will be making cuts almost across the board and will seek safe harbors and cost efficient alternatives.”

It’s already been well documented how bad it is for newspapers. The Newspaper Association of America has said that advertising revenues for the first half of the year really got nailed, down to $18.8 billion. The smart thinking would be that the second half will be better because of the elections and Christmas, but other smart money is saying this is going to be an awful Christmas season so it looks highly likely that total revenue for the year could fall below the psychologically important $40 billion mark, and it hasn’t been that low since 1996. Respected newspaper blogger Alan Mutter wrote at the weekend that with his dissection of the numbers he projects newspaper sales will this year be down 16.5% to $37.9 billion.

With newspapers desperate to cut costs and the revenue forecasts going from bad to worse perhaps the big question for daily newspapers next year will be whether they continue to print on Mondays, the day traditionally with the least advertising.

At this week’s Media and Money Conference held in New York the 2009 forecast debate centered on “just how bad will it be?” rather than “will it be bad?”  The general agreement was that a long and deep consumer recession is on the way and it will hurt the media and ad industries really hard.

NBC and CBS executives are downbeat about the future. CBS has cut its 2008 profit forecast, and GE said it was “cautious” about its Q4 performance.  The problem is not just national advertising but also on the local level for their TV stations. There seems to be little argument that 2008 numbers will be down in general around 2.5% over last year, perhaps worse since the so-called scatter market of buying ads at the last minute seems to be real quiet these days.

Michael Nathanson, a Bernstein Research analyst, summed it up best to the Wall Street Journal, “It’s really a scary time. It’s going to get worse.”

And the downgrades about profit bring up yet another fear – will even some of the large media companies still be able to handle their debt loads? An inkling of what may be ahead occurred just last week when Viacom Chairman Sumner Redstone sold $233 million of Viacom and CBS stock in order to stay within debt covenants. The company’s debt payments are said to be more than 50% of net earnings. Will the banks be willing to restructure such debt?

Then there’s Westwood One, the largest producer and distributor of news, talk, traffic, and sports programming, that has experienced 12 straight quarters of revenue declines. It’s in talks with the banks to restructure $85 million in debt, its shares have been delisted from the New York Stock Exchange and they are now worth around 25 cents each – a year ago they were $2.40.

And now that Mel Karmazin has got his satellite radio merger he now needs to deal with debt refinancing. The company must make $1.1 billion in loan repayments in 2009, including $300 million in convertible bonds due in February. It all goes to show why the media industry will be watching real close to see just how fast the federal government’s action to free up credit markets actually starts working.

All of this seems to point to one four-letter word: fear.  As WPP CEO Martin Sorrell told a New York conference last month, “The smell of fear is incredible. People are terrified. The next 15 months are not going to be easy.”