Collapsing ad markets mean that only redundancies will keep the bankers happy

I see that the media buying agencies are starting to catch up with the real world.

Well, sort of. Carat has just issued a forecast suggesting that UK ad markets will decline in value by 7.1% YOY during 2009. Only four months ago, they were predicting a decline of 2.2%.

With ad revenues at ITV down by 20%+, Associated Press predicting a Q1 YOY decline of 24%, regional ad revenues collapsing by up to 40%, and digital media reduced to single-digit growth, I can only guess that marketers are going to buy shedloads of radio, cinema, magazine and outdoor space between Q2 and Q4.

Or maybe not.

By the way, you can ignore Nielsen’s bizarre suggestion (available at the previous link) that ad spend in the regional press fell by 2.1% during January.

For a taste of reality, take a look a handy guide to what happened to regional ad revenues during 2008 recently published by Johnston Press. It goes like this:
 

Q1 2008
– YOY percentage revenue decline: 7.3%
– YOY revenue decline: £8.4m

Q2 2008
– YOY percentage revenue decline: 11.9%
– YOY revenue decline: £13.6m

Q3 2008
– YOY percentage revenue decline: 22.9%
– YOY revenue decline: £25.3m

Q4 2008
– YOY percentage revenue decline: 28.1%
– YOY revenue decline: £28m

2008 Full year:
– YOY percentage revenue decline: 17.1%
– YOY revenue decline for 2008: £75.3m
 

These are astonishing numbers. Still more remarkable are the implications of the 36% decline in ad revenues for the first nine weeks of 2009 reported by Johnston Press a fortnight ago. 

Here’s how this nine-week performance would play out across the current quarter, with historical comparisons to the same quarters in 2007 and 2008.
 

Q1 2007:
– Ad revenues: £115.8m

Q1 2008:
– Ad revenues: £107.4m
– Percentage decline: 7.3%

Q1 2009
– Ad revenues: £68.7m
– Percentage decline: 36%
 

Today, Dominic Ponsford, editor of Press Gazette, reprised what has become a frequently-voiced thought: that there’s a mismatch between the current bloodbath of redundancies and what look like healthy profits at places like Johnston Press, Trinity Mirror and Northcliffe.

In recent weeks, these three companies have reported operating margins of 24%, 17% and 16% within their respective regional press operations.

But remember: this downturn only really turned into a rout last October. By comparison, the first three quarters of 2008 were a cakewalk. What’s happening now is unprecedented.

Ponsford is correct when he says that many titles have “slipped into the red in recent months and that has yet to be reflected in reported profits”.

My calculations suggest that if ad revenues keep falling at the current rate, Johnston Press will be lucky to break even in 2009.

Forget about fat-cat dividends; they’re long gone. If Johnston Press can’t sell its Irish papers soon, you can forget about profits, too. The company will have to fire employees simply to make its interest payments to the banks.

Indeed, by 2010, the regionals’ primary revenue stream will almost certainly have halved in value from peak to trough.

A sobering thought.

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