How Local Media Feel Recession

Advertising May Be Cut as Regional Markets Take Impact of Credit Crunch

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NEW YORK (AdAge.com) -- Unlike the last recession around 2001, when local markets stayed relatively insulated from the fallout of the dot-com bust, they are anything but immune to this one. And that's bad news for local media.

"The flu is universal," said Paul Jacobs, CEO of radio consultancy Jacobs Media, in an e-mail. "If the big auto companies cut back on advertising because sales are down, the dealerships follow. And if potential car buyers can't clear credit, then sales fall, leading some dealers to question why they need to advertise in the first place."

That could be a particular problem for local media, whose advertisers view advertising differently than big national ones: They often see advertising less as a strategic investment and more as a necessary evil.

"There is a saying in the local-media business: Local businesses don't 'buy' advertising; they're sold it," said David Dague, VP-marketing at Localeze. "Add economic crisis to the equation, and the challenge is exacerbated."

Vulnerability
Historically, local markets have been less susceptible to economic cycles because they are driven by small- to medium-size businesses that don't have public shareholders to please and, thus, have less pressure to cut costs such as advertising. But given the broad implications of the credit market, "this is one time when a national situation is driving a local outcome probably more dramatically than it would ordinarily," said Steve Ridge, president-TV and exec VP at Frank Magid Associates.

It's hard to know exactly what will happen since the effects of the credit crunch are just starting to be seen. According to American Express' Open Small Business Monitor, which has monitored small-business issues for seven years, concerns about cash flow have risen since last year, and capital- investment plans are the lowest in the history of the study. Just under half the small-business owners surveyed planned to cut back or delay marketing expenditures.

Of course, small businesses aren't necessarily local businesses; a separate Kelsey Group survey from August showed that 32% of companies were still planning to increase ad spending, compared with only 6% who said they were during the economic downturn in 2002. "People were more bullish in this economic downturn than they were in 2002," said Kelsey Group's Matt Booth. Still, he concedes, "a lot could have changed in the past six weeks."

Of course, offline local media were already under assault. As Mr. Jacobs points out, car companies and local dealers were cutting back ad spending on analog media -- including radio -- before this recent crunch and shifting it to digital. And several people cited anecdotal evidence that there may be some retrenchments in the Yellow Pages industry. Yet online local-media agencies and sellers all report they're still seeing growth, suggesting that while spending might be slowing, it's still shifting.

Non-expendable services
The bright spots in the local economy include necessities: emergency-service providers such as plumbers and electricians and areas such as health and personal care.

Gary Pruitt, chairman and president-CEO of McClatchy Co., said local retail been the company's best category, both online and off, and has held up the best in print. "Our largest retail and national retail accounts have shown a bigger decline than the local-retail accounts," he said, noting that that's been a trend for the past few years. The American Express study jibes with that sentiment, saying that retailers, at 81%, were among the most likely to have plans for growth.

"If you can't afford to take the long view, it's hard to see how a station can make it through these times," Mr. Jacobs said. "We continue to advise our clients to focus on the value of their audiences and the core benefits that radio provides: immediacy, localism and a relatively large audience."

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Contributing: Nat Ives
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