TV Viewing Up But Revenues Down 13%, Magazine Ad Pages Off 29%, Newspaper Revenue Off 30%, Overall Marketing Spend Down 15% -- With Auto Advertising Down So Much Can The Good Old Days Ever Return?

Philip Stone September 9, 2009 Follow on Twitter

Traditional media’s shocking first half results were grizzly – no matter where you looked the results were abysmal but will it stay this bad or will the “good old days” return? Media eyes are focused on auto advertising, down 35% so far this year and that $2.7 billion deficit is going to be very very difficult to replace in the short-term.

Television may be the medium more than any other where the pinch may continue the longest. There is actually some good news for television -- people are spending more time than ever before actually watching the box – but that is not translating to the revenue side which is a real mess.

Who would have thought, for instance, that CBS actually has to knock off its arrogance hat in trying to sell spots for next year’s Super Bowl game – the biggest US TV event of the year. This year NBC sold most of its 30-second spots at $2.7 million but got a few at $3 million, but for next year CBS is trying hard not to fall below $2.7 million and it is going out of its way to be helpful with advertisers to ensure they get the most overall media bang for that kind of money. If American football is feeling the pinch then you know not everything is right in America!

And network program scheduling is no longer dictated by just ratings alone; production costs take an ever more important role in deciding a renewal -- a star’s willingness to take a pay cut, or at least not get an increase for a marginal show could well make the difference. And the industry is watching anxiously how Jay Leno’s new primetime weeknight show that starts next week will do – its costs far less than drama and if the ratings and revenues hold up well  then other networks may get similar ideas.

According to the Television Bureau of Advertising (TVB) US television broadcast revenue nosedived 12.8% in Q2 with the networks down just 6.9% -- not too shabby, really under the circumstances – but local stations had a disastrous 26.3% fall.  And yet Nielsen reports that US TV viewing is at a record high – around 141 hours a month. So the problem is not a lack of viewers although they are far more spread out now with so many cable choices, but rather the amount of money the advertisers are now spending. More spend is going on cable but with an overall ad spend decrease it means far less goes to terrestrial. And Nielsen figures show that the cable TV ad spend actually rose about 1% in Q2, whereas network and local terrestrial nose-dived.

Turning to print, consumer magazines ad pages were down a whopping 29% in the first half and combine that with a 12%  newsstand sales drop and it’s particularly nasty, witness Condé Naste inviting in McKinsey to nose around – they’re even taking a real close look at Vogue -- and everyone knows what McKinsey snooping around  means – dust off the resumes!

Newsstand sales make up only about 10% of a magazine’s overall circulation – but it is an important 10% because the newsstand  price is often three, four, sometimes five times that of a subscription. Also research shows that those people who subscribe by completing a newsstand copy subscription insert are usually most likely to resubscribe. So a drop in newsstand sales could signal stagnating subscription sales to come. The newsstand declines have hit most consumer sectors – Ladies Home Journal down 46%, Car and Driver down 25%,  People down  12.77%, National Enquirer down 11.14%,  Glamour down 14% so Vogue actually did pretty well, down just 2.79%.

But there is another whammy hitting magazine revenues and that is the rate card that is no longer the rate card. Word in the industry is that in many cases the rate card has been tossed away – it’s a buyer’s market. MediaPost did some “back of the envelope” figuring recently   and said that Time Inc. magazines were discounting at 50% or more, and at Meredith it thought the number was closer to 80%!

And that brings us to newspapers where revenue dropped by 30% in Q2 from the year before, but newspaper shares have moved up well off their all-time lows set earlier this year because although the revenues are still awful it seems newspapers have finally got their costs in line with current revenues. That doesn’t mean an end to bankruptcy filings – Freedom Newspapers just last week -- but for most there is now some meaningful balance between revenue and cost.

McClatchy shares, for instance, had actually sunk as low as 35 cents each but now stand at $1.94. That’s still really terrible but at least the company is now compliant with New York Stock Exchange  capitalization rules and also the regulation that for the past 30 days its share price is at least $1 – it had been facing delisting in January if it couldn’t get the share price up. Gannett had sunk to as low as $1.85 but now stands at $7.96 – again a ridiculous price  but four times off that nonsensical low, but it, too, has done on it on the cost side, not revenues.

Publishers are saying they think things have bottomed out – they don’t expect to see worse – but it’s something else again to say revenues will improve any time soon. Nielsen, for instance, reports that the overall US media ad spend  in the first half was 15.4% down from the year before -- that translates into $10.3 billion less ad spend and that’s a lot of money!

So from where has the big advertising hit come and will that revenue return once the economy improves?  According to Nielsen the biggest culprit by far is, as luck would have it, the most prolific advertising sector – auto, including dealers. It was down 35% for the first half of the year compared to the same period a year back – that’s $2.7 billion less spend.  With so many auto dealers now gone – remember what Chrysler did  as just one example – and now there is a much smaller General Motors with less brands to push -- do  you think all of that ad spend is coming back?

Department stores were down 4.4% -- some $72 million – but once the economy improves that money could well come back but it’s still a drop in the ocean compared to that auto spend loss. Same with furniture stores – their spend was down $29 million and that will come back, too, and service restaurants (not fast food such as McDonalds)  were down  $33 million and that, too, should pick up once people feel confident to buy more than hamburgers. But add all of that together and it comes nowhere close to replacing that lost auto spend. It’s doubtful, too,  that those sectors that  have actually increased their spend  this year – quick service restaurants, wireless telephone services,  and movies – will make much of a dent in making up that auto downfall.

If the recent Association of National Advertisers survey is correct that the spend for the second half of the year should be better than the first half  then slight improvement may well be underway, but making up that huge lost auto spend is going to be an awful hard slog out there for a long time to come.