'Softness at the upper end'
"What struck me about 2006 was the widespread softness in ad spending at the upper end of the market, meaning the categories and sectors that traditionally spend the most money," said Jon Swallen, senior VP-research, TNS. "When we look across the top 10 advertising categories, which represent 50% of total ad volume, three had outright declines in 2006 and three others had gains of less than 2%. That's a lot of weakness spread across a number of different sectors but concentrated in higher-spending categories."
"That," Mr. Swallen added, "is a unique and powerful confluence of events."
The strongest category last year proved to be pharmaceuticals, where spending grew 13.8% to $5.29 billion, partly on the strength of Merck's launch of a vaccine for human papillomavirus. Telecom and local services and amusements both expanded spending by 10.3%; direct response added 4.7%; and financial services, miscellaneous retail and personal-care products posted low-single-digit gains. The biggest decline was seen, predictably, in domestic auto, which cut spending by 11.7%.
Of the many media platforms, free-standing inserts grew the fastest, adding 25.5% for a total spend of $1.8 billion. The web, where growth rates are expected to start slowing, turned in another strong performance, as spending rose 17.3% to reach nearly $9.8 billion. And that's not counting paid search advertising, which TNS does not track.
"Search is arguably and by all indications the fastest-growing segment of the internet world," Mr. Swallen said. "The fact that the slower-growing segment is still growing by the mid-teens is quite noteworthy. There still doesn't seem to be any indication of an inflection point where things would slow down."
Declines in other media were few and mostly small. Ad spending in newspapers -- including local, national and Spanish-language papers -- fell 2.4% last year to $28 billion. Taken separately, national and Spanish-language newspapers grew 3.3% and 8.5%, respectively, while local papers took a 3.3% hit.
TV, magazine spending strong
TV and magazines performed well, which should help quiet occasional questions about the future of either medium. Ad spending in consumer magazines rose 4.6% to $23.2 billion; the overall TV market saw spending grow 5.3% to $65.4 billion. Spot and Spanish-language TV both posted double-digit gains, while network- and cable-TV spending posted low-single-digit increases.
The big story for the Spanish-language market, which is dominated by TV, was last year's World Cup. Advertisers looking to get in on Cup coverage often had to commit to extended packages that increased spending even outside the summertime event.
Despite all the chaos and innovation in marketing today, though, the all-important media mix didn't change much. TV spending represented 43.7% of the pie, up a bit from 43.2% in 2005. The web reached 6.5%, up from 5.8%. Magazines nabbed 19.9%, essentially unchanged from 20% the year before. And newspapers (18.7%) and radio (7.4%) stayed about where they were in 2005.
Among top advertisers, Procter & Gamble Co. reigned supreme again last year, outspending everyone else with a $3.34 billion outlay, 3.3% higher than in 2005. In a reflection of the trouble in Detroit and its impact on advertising, General Motors Corp. just barely held onto the No. 2 spot, with $2.29 billion in spending -- down a whopping 23.7% from 2005. AT&T took third place with a $2.2 billion spend that was 30.8% higher than the year before.
Johnson & Johnson cut its ad spending by 19.8% to $1.3 billion and fell to ninth place from fourth. Like GM, DaimlerChrysler cut its spending, removing 10.7% from the budget for a total spend of $1.4 billion; that was good for eighth place on the top-10 list.
But it was GM's slashed spending that made the biggest impact. "If General Motors had maintained its spending levels last year, we'd be talking about close to a 5% growth rate in overall ad spend for the year," Mr. Swallen said.
TNS has predicted that ad spending in the U.S. will show just a "tepid gain" of 2.6% in 2007.