Ratings agency looks at ad prospects for coming year

December 30, 2008 by Dave Haynes

Global ratings agency FitchRatings says the world’s major econmoies will see a downturn as steep as anything seen since the end of the Second World War, with with a big drop in GDP and spillover effects that include serious weakness in the advertising industry.

A MediaPost Research Brief, received by email, reports that FitchRatings “is more cautious than most major advertising forecasts, none of which currently predict advertising to be nearly as weak as 2001.”
Fitch’s cautious view about advertising is, in part, supported by these underlying conditions: 
  • The 2001 ad downturn was concentrated in national advertising, while the 2008-2010 downturn will include both local and national components. Political and Olympic spending masked the local market weakness in 2008, but the report says the absence of these revenue sources in 2009 will expose the depth of this weakness. 
  • This weakness in local markets will be compounded by national advertising pressures due to the impact of the credit market events that hit while many large national advertisers were planning their 2009 ad spending budgets, forcing many companies to emphasize capital preservation and liquidity, not just earnings growth.
  • With advertising being one of the most easily scalable fixed costs, some major advertisers could plan to pull back on national campaigns considerably until there is more visibility in the market.
Five of the top 10 advertising categories, or over 40% of the ad mix (according to Advertising Age), will be under meaningful pressure next year, says the report: 

No.1 Retail (12% of total) 
No.2 Automotive (12%) 
No.5 Financial Services (6%) 
No.6 General Services (6%)
No.9 Airlines, Hotels and Car Rentals (4%) 

And, notes the report, advertising inventory has proliferated (from online and emerging mediums as well as traditional ones) since previous downturns. Media companies are likely to compete more heavily on price in this downturn to fill the vast supply of ad space available. 
Advertisers have many more options in the current environment than at any other time for maintaining a presence with consumers while trimming their budgets and scaling back high Cost Per Thousand (CPM) advertising campaigns, says the report.
Even healthy advertisers are likely to use this increased bargaining power to command better price terms and concessions from media companies.
One bright spot in all this is outdoor, based largely on the efficiencies brought on by networks digital screens.
Fitch believes the potential negative effects of increased inventory from digital roll-outs should be tempered by increasing appeal to national advertisers, as well as decreases in price per unit. Cost structures should benefit from digital billboards, as displays can be centrally managed without physical deployment of work crews. Low CPMs and better networked national sales pitches, position outdoor advertising companies to endure the downturn and rebound with the economy.

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