Media Advertising Spending Will Grow 6.4%

Consumers Tighten Wallets, but Marketers Still Find Ways to Reach Them

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A correction has been made in this story. See below for details.


NEW YORK (AdAge.com) -- Consumers may have slowed in their media spending habits, but that hasn't stopped advertisers from aggressively pursuing new ways to reach potential shoppers. The Advertising Spending data of the 2006 Veronis Suhler Stevenson Communications Industry Forecast indicates that consumer spending on media increased 2.8% to $185.90 billion in 2005, the lowest growth rate for the communications sector in 30 years. Overall ad spending is expected to increase 6.4% to $210.9 billion in 2006.
Overall ad spending is expected to increase 6.4% to $210.9 billion in 2006. 'Some of the traditional media companies are catching up by getting products and services into new media,' says Chris Russell of Veronis Suhler Stevenson.
Overall ad spending is expected to increase 6.4% to $210.9 billion in 2006. 'Some of the traditional media companies are catching up by getting products and services into new media,' says Chris Russell of Veronis Suhler Stevenson.

Room for growth
Yet despite the decrease in box office, music and video-game sales, the amount of money spent on entertainment-based advertising -- such as in cinemas, videogames and at websites about recorded music and consumer book sites -- continues to grow, with a projected increase of 23.6% to $918.0 million in 2006. And that advertising still has room for growth in untapped markets, said Chris Russell, managing director, private equity at Veronis Suhler Stevenson.

"Advertising and entertainment go into movies and music, but you don't historically link the two," Mr. Russell said. "New models are forming based on iTunes that don't sell advertising but could get into the commercial market."

Elsewhere in the report, Veronis Suhler Stevenson found the internet continues to spike overall advertising spending. "Some of the traditional media companies are catching up by getting products and services into new media, whether it becomes an online version as well or through traditional media," Mr. Russell said. Pure-play internet spending -- such as for keyword search or user-generated online advertising -- is expected to increase 25.8% to $13.95 billion in 2006. If traditional media-related online advertising is included, overall internet advertising will increase 26.9% to $22.27 billion.

TV happy for 'even' years
TV is good, for now. Spending on broadcast TV advertising, including online advertising, is projected to rise 8.3% to $46.36 billion in 2006, because, Mr. Russell said, "even years are always the good years." With the Winter Olympics and mid-term elections, 2006 will be a strong year for a medium that is expected to have a major drop off in 2007. "It's more of a question mark for advertisers in general," Mr. Russell said. "Some economists are hinting at a downturn in the third and fourth quarter." Still, the major broadcast networks' collective schedules continue to perform well with advertisers. "The share of the voice in the broadcast sector is shrinking for the advertiser, but the bigger networks are still strong because they're an effective medium for reaching a big portion of the audience."

Newspapers are down, but not quite out for the count. Spending on print advertising, including online, is expected to increase 1.9% to $56.6 billion in 2006, a paltry number that should surprise no one remotely familiar with the state of the newspaper industry.

"Besides the erosion of the readership and people getting information from other sources, part of it is the loss of the classified, help wanted and all the back-of-newspaper advertising," Mr. Russell said. "That's clearly gone to the internet -- everything from Craig'slist to Monster. Having said that, newspapers do have a chance to call back some of that because they're still in a decent position to sell regional and local advertising opportunities."

Web boosts b-to-b
Online readership has boosted business-to-business media advertising, which should see an increase of 7.1% to $11.06 billion in 2006. The growth owes thanks in large part to weekly and monthly trade publications taking on more daily functions with their websites and e-newsletters.

"All smart publications are putting a portion of their content online to try to maintain readership," Mr. Russell said. "The ad relationship grows as a result because you sell more advertising around that readership, which is added to your traditional print advertising." There is potential for business-to-business media to become vertical portals to readers as well, he added.

Advertisers haven't tuned out radio, which is expected to grow 2.3% to $20.62 billion, a surprisingly high number for the medium hit hardest by the migration to digital media. Sure, a large number of the advertising is now going toward satellite stations, but Mr. Russell said not there are still growth opportunities for the traditional format. "There are certain fast-growing markets where advertising is an important part of their media. Las Vegas and Phoenix, for example," Mr. Russell said. "The industry in general has gotten a little tougher but it's still an attractive area."

Technology improves outdoor buys
Never underestimate the power of the on-the-go consumer. Out-of-home media is expected to increase 7.9% to $6.80 billion in 2006, with double-digit gains in digital billboards and lengthier commute times. The traditional format continues to thrive, Mr. Russell said. "What we hear in the industry is that billboards are still performing very well, capturing people in cars. And the community keeps increasing. On top of that, when you add the technology impact, some of these ads are still coming from cutting-edge companies who are just using the traditional approach but using screens and different types of advertising billboards."

Finally, don't count out the yellow pages. Spending should grow 1.8% to $15.73 billion in 2006, with strides made in internet and independent directories. "There's still a lot of growth there, but one issue has been too many competitors," Mr. Russell said. "Some markets have multiple publishers serving the same market and the consumer will get anywhere from two to five directories delivered to their door annually or semi-annually, so part of the decrease in growth is those publishers pulling out. It's still a good growth market because people still use the print product."

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Correction: An earlier version of this story carried an incorrect headline. Ad spending is expected to grow 6.4%, not 23%, as originally stated. Also, clarification has been added to the 'Room for growth' paragraph to make it clear that the advertising growth of 23% is referring to cinema and videogame advertising.
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