followthemedia.com - a knowledge base for media professionals
Spots & Space July 4, 2007
Recently in Spots & Space

Companies Pledge To Stop Promoting Junk Food
European governments are serious in attacking obesity

How Does 2008 Look?
'Things don’t look good, but not as bad as you might fear and will get better...'

Advertising Watchdogs On The Prowl...
...and in turning the heat on environmental ads...

Send ftm Your News!!
news@followthemedia.com
AGENDA

All Things Digital
This digital environment

Big Business
Media companies and their world

Brands
Brands and branding, modern and post

The Commonweal
Media associations and institutes

Conflict Zones
Media making a difference

Fit To Print
The Printed Word and the Publishing World

Lingua Franca
Culture and language

Media Rules and Rulers
Media politics

The Numbers
Watching, listening and reading

The Public Service
Public Service Broadcasting

Show Business
Entertainment and entertainers

Sports and Media
Rights, cameras and action

Spots and Space
The Advertising Business

Write On
Journalism with a big J

Most Forecasters Lower Their Full Year Ad Spend Prognoses And Traditional Media’s Angst At The Growing Digital Spend Gets Worse

The prognosis for the US 2007 advertising spend is that it’s not going to be as strong as originally forecast, newspapers in particular should be grateful for whatever they get, but next year will be something else -- US Presidential elections and the Beijing Olympics make for a year to really boost spirits.

arrowsNewspapers are still the really sick traditional media, with perhaps the most negative US prognosis coming from Peter Appert, media analyst at Goldman Sachs who is one of only a handful of Wall Street analysts still following the newspaper industry since the next five years look so bleak that Wall Street doesn’t see the need any more to follow every painful pronouncement.

Appert wrote in a client note that he now predicts 2007 US newspaper ad revenue will drop by 4.4% from a year ago. The cause – the increasing double digit percentage Internet revenue growth is still far less in hard cash than the increasing print single digit percentage losses. He saw no joy from the mid-year Media Review with no publisher really pointing to any specific light at the end of the tunnel. Add to that May’s 9.1% ad drop-off – something Appert called “extraordinary in terms of the scale of the decline and the scope of the challenges it represents.”

Appert sees the big losses coming from classified (10.8%) and national (5%). What really worries him is that these print losses are occurring in what he calls “a relatively healthy economy.” Translation – it’s not that the advertisers aren’t spending, but they are redirecting their spend away from newspapers.

ftm background

US Overall Advertising Forecasts Are Lowered, Outdoor Is Up, Internet Is Way Up, UK Regionals and ITV Are Way Down, US Network Upfronts Are Flat Or Down – Just What Is Going On Out There?
The world’s largest advertising market by far is the US. When it catches cold others sneeze – in the UK right now it’s more like pneumonia! And although the Internet continues its merry way and select segments like outdoor are also up, Wall Street’s most prominent ad forecasters are now revising their full year US figures down.

The 2006 Advertising Forecasts Are In – The Internet Continues Huge Growth At the Expense of Newspapers and Televsion, and the US and European Percentage Growth Will Lag Far Behind Such Growing Markets As Brazil, Russia, India, Indonesia and China
As the major advertising forecasters lower their projected 2005 results and cut back on their predictions for 2006 growth, their common thread is that European and the US traditional media, particularly television, are going to see their existing advertising monies flow ever more to the Internet, especially to broadband.

The Bad News for Newspapers Keeps Getting Worse: “Newspaper Revenue Shifts to the Internet” Cries Out One Headline, “Bank Warns Newspapers of Rough 2006” Screams Another
Just what a newspaper publisher doesn’t want to hear: “The consistent growth in overall Internet advertising shows marketers may be shifting more of their total advertising budgets online,”, according to David Silverman, a partner with PriceWaterhouseCoopers.

Overall Global Advertising In 2005 Is Forecast Lower, But the Internet Spend Keeps Going Up With Television Feeling the Worst Pinch of Ad Placements Going Elsewhere
The television share of global advertising appears to have peaked at 38% and is now on the way down, led by two of the world’s leading television markets – The US and Japan – according to new report issued by the ZenithOptimedia Group.

Media Buyers Revise Global Advertising Forecasts Upwards for 2005, But Traditional Media Fears Record Internet Ad Spending Will Come at Their Expense
At the end of each year global traditional media powerbrokers meet in New York for two media conferences where they prognosticate about the year ahead. This year it was a mixed bag...

He also put a “sell” on McClatchy because the company has little to fall back on except newspapers, and he continued his “sell” on the New York Times Company for pretty much the same reason. On the other hand, Wachovia has raised McClatchy from “market perform” to “outperform” because the company has been steadily reducing its debt taken on from the Knight Ridder buy. So go figure who’s right! And Paul Ginocchio at Deutsche Bank raised Tribune to "buy" from "hold” as he believes billionaire Sam Zell's $8.2 billion plan to take the newspaper publisher private will proceed with financing now in place. The markets are not so sure, discounting the $34 a share takeover offer by some 10% indicating some nervousness whether the deal will go ahead.

The good news for US media is that 2008 is a summer Olympics year and a Presidential election, and for TV in particular that should give a large uptick. Television was amazed particularly at the very strong 2006 political advertising revenue from the Congressional elections, and TV station owners must collectively be very grateful to the Founding Fathers for declaring Congressional elections should be held every two years!  Add to that the Presidential campaign, remembering how sophisticated and wild the spend became as the 2006 election day drew close, and the 2008 elections should give the media industry a much-needed financial boost.  But that’s next year and as FTM has written before the best one can do for this year’s worsening headache is to take two aspirin!

If one is looking for any good news this year it comes from ZenithOptimedia that maintains its 2007 US forecast of 3.7% growth -- they are about the only folks willing to maintain what they had said before. TNS Media Intelligence has reduced its growth rate to 1.7% and even Bob Coen at Universal McCann, usually considered the most optimistic of the forecasters, has lowered his growth forecast from 4.8% down to 3.1%.

“I can’t deny it anymore; things are pretty bad,” Coen explained. When he had first looked at the 2007 spend in June, 2006, he thought it would be some $303 billion. He lowered that to $298.8 billion in December and then six months later it’s down to $290.3 billion -- in other words he is projecting it down 4.4% from what he thought a year ago.

TNS Media had forecast in January that this year’s growth would be about 2.6%; it’s blaming the reduction to 1.7% on cutbacks by large advertisers and the shifting of the spend towards the Internet.

Carat, on the other hand, reduced the US spend by just one-tenth of a point and is still looking for a healthy 5.1% growth, well above Coen’s new forecast.

From all of this it’s obvious such forecasting is an inexact science at best, but as the year progresses one expects those forecasts to be more accurate based on performance so far. But with newspapers in particular reporting worse bad news every month it’s simply too tricky. As Goldman Sachs’ Appert said, no one expected US newspaper ad sales to fall as they have all year and that 9.1% drop in May was an absolute shocker confirming things are nearing free-fall. Watch out if the shocks continue when June’s numbers are announced.

Media trade groups prefer to look at the newspaper business from a global aspect instead of dividing it up geographically – globally the numbers look good powered by the developing world (particularly China and India) but if you dissect the numbers by regions then Europe and the US don’t look particularly well.

So looking for good news, let’s look at the global ad revenue picture as forecast by ZenithOptimedia.  It says that globally by 2009 newspapers will earn about $135 billion in ad revenue, up some $7 billion over this year’s forecast.  But whereas this year’s forecast equates to 28.4% of the global ad spend, by 2009 the increased newspaper spend will be down to 26.8% of the total. Why?  Because the $7 billion increase pales in comparison to the Internet’s expected $14 billion gain within the same period.

Perhaps an even more dramatic figure explains it all – ZenithOptimedia forecasts that online spending from 2006 to 2009 will increase by some 82% with the rest of the market growing by just some 13%. And if forecasts of the past couple of years are anything to go by, Internet growth forecasts has been projected too conservatively while traditional media’s growth projection was too high.

Remembering that  each newspaper print reader is worth somewhere between $500 to $1,200 in terms of circulation and advertising cash whereas the average online reader is said to be worth less than $10, the growth of the long-term newspaper online revenues simply can’t come fast enough to replace print’s losses.  Most analysts say it will take at least another five years for those online revenues to make up what print is losing and become really meaningful to the bottom line.

That begs the question of whether newspapers can hold out that long. Sure they can, but the cost cutting will become even more fierce and there can be little doubt that the cuts will be deep into the bone since the fat is already mostly all gone.

It means publishers settling for profit margins in the low teens – still respectable for many businesses -- but it also means the public in many cases simply won’t have the quality newspaper tomorrow that they read today because more and more hands will be involved in the online operations and there will simply be less coverage in the print edition.

Appert believes that after another painful five years that newspaper publishers will smile again. “Ultimately, we believe newspaper publishers will re-emerge as very healthy and dominant players in the local media marketplace, but with margins that will not likely match the 20 percent-plus level the industry has historically enjoyed.” 

Will those lower margins really add a smile to a publisher’s face?

For comprehensive information on this subject see...

ftm Knowledge

The State of the Print Media in the World

ftm rseports from the World Association of Newspapers Congresses. Includes WAN readership studies, Russian media and Russian politics, press freedom and the state of journalism. 62 pages. PDF file (October 2006)

Free to ftm members and others from €39

Order

Further Complicated: Advertising, Children and Television

Advertising and television face more complaints, criticism and new rules. ftm reports on the debate in Europe and North America 43 pages PDF file (March 2007)

Free to ftm members and others from €39

Order

Media Measurement Moves Forward and Everywhere

Includes: mobile and internet metrics, electronic measurement systems and device descriptions, RAJAR (UK) debate, with comments. 57 pages PDF (May 2007)
Free to ftm members, others from €39

See what's inside

Order

French National Newspapers
publishers, designs, editors all change, with comments. 40 pages PDF (updated July 2006)

Free to ftm members, others from €39
Executive Summary
Order

copyright ©2004-2007 ftm partners, unless otherwise noted Contact UsSponsor ftm