National newspaper ad markets: Beware the professional optimism of Sir Martin Sorrell

The feelgood forecasters are out in force. Sir Martin Sorrell is talking up print and free-to-air TV. Zenithoptimedia foresees a mere 7% decline in TV advertising next year. And Billetts, the media auditing firm, is predicting a similarly modest fall for the national newspaper ad market in 2009.

These rosy forecasts are buttressed by the fact that ad revenues at the nationals only fell by around 10% YOY during October. Compared with the 20%-30% declines in the regional press, this is mild.

Sorrell also likes to make the point that the cost of advertising in major media like TV and newspapers is approaching a historic low — if you make adjustments for inflation.

Of course, the pre-Christmas rush explains much of the gentleness visible in October’s decline. Retailers have barely five weeks left to shift the goods that will generate the majority of this year’s profits.

With consumers planning to reduce seasonal expenditure by 6%-7% YOY, some marketing directors feel the need to grab market share.

Others are grappling with on-the-fly adjustments to business models. Sometimes the results have been negative for the nationals; sometimes, they’ve been positive.

Take the banks and building societies. Desperate to attract fresh capital, they are spending cash on promoting their accounts to savers.

And mainstream food retailers are throwing money around in a bid to stop punters from defecting to Lidl and Aldi.

On the debit side, the mobile operators are switching their focus from acquiring customers to keeping those they’ve got. Almost certainly, this means more investment in discounts and customer service — and less in advertising.

The result is an ad market that’s all over the shop.

Ford’s expenditure was down by 21% YOY during the six months to September. At Tesco, ad spend increased by 18.8%.

Unilever – one of the UK’s biggest advertisers – added 4.7% to its budget. But Marks & Spencers cut back by over 20%.

Schizoid behaviour like this makes life hard for ad sales teams. It also makes the rosy forecasts from Sorrell, Zenithoptimedia and Billetts look plausible. For the moment.

But worse news is coming –- as was evidenced by the collapse of Woolworths and MFI this week. Admittedly, both were basket cases. But both collapsed at the most profitable time of year. As Gordon Rayner puts it at the Telegraph:

No one in the retail industry wants to contemplate what will happen in January and February, when the pre‑Christmas spending splurge is over.

The collapse of retailers like Woolworths directly reduces the amount of ad spend available. But it also extracts an indirect toll.

Fairly obviously, the retailers that remain in business are able to reduce ad spend if there’s less competition about.

Collapses also bring in their wake a more immediate problem. As Sanjay Vidyarthi, retail analyst at Dresdner Kleinwort, puts it:

“The consequences for the rest of the high street could be significant. Short term, if the business is run for cash, this could adversely impact the likes of Game, WH Smith and HMV.”

Vidyarthi is referring to the way in which Woolworths’ administrators will use discounts to shift large amounts of stock. In response, at Asda, they’re already selling TVs and DVD players VAT-free.

This is significant. Price promotion and ad budgets tend to be negatively correlated. In a recession, the pull of bargain-hunting replaces the push of ad spend. 

As retailers pile goods high and sell ’em cheap, there’s less cash available to spend on advertising.

In addition, 2009 will surely bring a rapid expansion of online retailing. This impending switch has the power to change advertiser behaviour. For example, it may encourage big players to invest more in online marketing, particularly paid search. The results may include less money for print and TV.

Reduced competition, increased price promotion, more emphasis on e-commerce: the signals all point in one direction.

The professional optimism of Zenithoptimedia, Billetts and Sir Martin Sorrell is understandable. But don’t make the mistake of writing a budget on the back of it. 

On this score, the prediction of a 22% decline in national press ads during 2009 from Enders Analysis looks a lot more realistic.

Where the regionals lead, the nationals will follow. By February, we’ll look back at October’s 10% slide with something like fondness.

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