x
Advertisement
Scroll to Continue

When Will This End?

The List of Those Cutting Marketing Budgets Reads Like a Roll Call of the Top Advertisers. Worse Still, No One Expects It to Get Better Anytime Soon

By Published on . 1

Photo: Steve Krongard

NEW YORK (AdAge.com) -- Can't see where this ends? You're not alone.

Last summer, half the marketers that responded to an Association of National Advertisers poll said they'd be forced to reduce ad budgets within six months. That was before the financial meltdown. Last week, the ANA released new findings that paint an even bleaker picture: 71% of marketers have already slashed ad budgets; 77% plan to slash media spending; 72% are reducing production costs; and 68% are asking agencies to rejigger (read: cut) their fees.

The numbers are bad enough, but what's really scary is that no one feels they can safely predict how long we're going to have to travel this road. "The ANA findings don't surprise me, given the overall state of the global economy," said David Jones, global CEO of Euro RSCG. "The reality today is that we are all driving in fog at the moment, and no one really knows if the fog will lift in one year, two years or more. 2009 will certainly be a tough year. I don't anticipate that we will see a rebound before mid-2010."

At Time Warner, President-CEO Jeffrey Bewkes told analysts and investors his company has "limited visibility into the ad market." News Corp. Chairman Rupert Murdoch, meanwhile, told investors on a conference call that the current economic climate reflects "a recession that is deeper than anyone predicted," and his company "may never return to record levels." Even new-media behemoth Google no longer looks unstoppable. In recent weeks the company called it quits on both its audio- and print-­advertising programs.

Package-goods marketers, which traditionally hold up well in recessions and have historically helped buoy the advertising and media businesses during tough times, are being hit hard. At Unilever, new CEO Paul Polman rocked analysts when he refused to provide a forecast: Rather than continuously revising annual profit outlooks downwards, Unilever has decided that offering targets is simply "inappropriate," he said.

Renegotiating media costs
In December, Procter & Gamble Chairman-CEO A.G. Lafley noted that the company was renegotiating contracts with media companies globally to get better deals in light of rapidly declining ad markets and the wholesale retreat of entire sectors of advertisers, such as automakers and financial players, from media. Similarly, Ian Cook, CEO of Colgate-Palmolive, said on a conference call last month that the company had negotiated media rate cuts as deep as 25% in the fourth quarter in some parts of the world.

Walmart, a rare bright spot in the ad world in recent months, last week announced plans to lay off as many as 800 employees, including marketing staff. The retail giant did have some good news for one agency last week -- it tapped Publicis & Hal Riney to polish up its Great Value brand -- but even that was interpreted by some marketers as a worrying sign that the most powerful retailers are going to focus increasingly on private-label offerings as opposed to others' brands.

PepsiCo last week reported a 43% drop in fourth-quarter profits on write-downs and restructuring and a 9% drop in full-year profits. During Coca-Cola's fourth-quarter earnings call on Feb. 12, CEO Muhtar Kent said the marketer has slashed its agency roster by more than half. "We have consolidated, " he said. "Agency numbers have gone down by more than half, and I think we have driven a lot of efficiencies in our marketing, our market-research costs."

Yes, even market research is hurting. The 2009 Annual Survey of Market Research Professionals, released last week, showed buyers of research services expect to decrease their 2009 budgets 9.5% compared with last year, ending a 20-year run of research-spending increases in the U.S.

Agency pain
And, of course, when the marketers hurt, the agencies hurt too. Mega-marketing organization Omnicom Group, which cut more than 3,000 staffers at the end of 2008, last week posted its worst fourth quarter in 16 years. "The pace of change that Omnicom and the other ad agencies are facing is unprecedented, so it is not going to be easy to manage the cost structure in this environment," said Deutsche Bank analysts. "Ad-market conditions are deteriorating faster than we can lower numbers, giving us no basis to believe the cutting process is over."

Even perennial hotshop Crispin Porter & Bogusky made layoffs earlier this month, cutting 60 of its 900 employees. And anyone with an auto account, of course, is being squeezed. Last month Deutsch, Los Angeles, another hotshop, cut 3% of its overall staff -- 40 to 45 people -- due to pressure on its Saturn account. Deutsch's IPG sibling, Campbell-Ewald started its second round of staff cuts at the end of 2008, after letting go 50 employees in the spring. Although the layoffs hit most departments, hardest hit were those working on General Motors' Chevrolet account.

GM is now busy slashing a total of $600 million from its ad and promotions budget, which will go through 2012. Nor is it just Detroit in this mess. Even Japan's Nissan Motor Corp. last week forecasted a loss for its current fiscal year, ending March 31, and announced it will cut 20,000 workers globally, including in the U.S. The Japanese parent of Toyota Motor Sales USA said it expects a loss of $3.85 billion for its fiscal year ending March 31 -- its first loss since 1950 -- and that it would reduce costs by another 10% across all its operations.

Cutting, cutting, cutting is what the nation's historically biggest ad spenders are doing. "This year will be terrible the entire year, and in the second half, many clients will go dark completely or go on hiatus with their agencies," said Jon Bond, co-founder and co-chairman of New York-based agency Kirshenbaum Bond & Partners. "The second half will be the worst ever for agencies."

Mr. Bond's outlook is hardly cheerful, but it seems to be about the only confident prediction anyone is prepared to make right now.

~ ~ ~
Contributing: Michael Bush, Brian Steinberg, Andrew Hampp, Natalie Zmuda, Jack Neff and Jean Halliday

Some (slightly) less serious signs of the times

  • Shares in The New York Times Co. on Friday slumped to a low of $3.99. That means you can pick up a share for less than the Sunday paper.

  • Bob Lutz, retiring vice chairman of GM, complained on NPR recently that never in his career has he had to fly commercial. Rumor has it Omnicom chief John Wren is also forgoing the private jet.

  • Cessna, maker of private jets, is so worried it launched an ad campaign last week: "Timidity didn't get you this far. Why put it in your business plan now?"

  • Starbucks, once-swanky purveyor of high-price java, is readying the launch of Via -- essentially an instant coffee.

  • Richard Beckman, Condé Nast Media Group honcho and sharp-suited architect of sexy offerings such as "Fashion Rocks," is being considered for the chairman-CEO job at the somewhat less glitzy Parade Publications.

  • While we're on fashion -- no Marc Jacobs after-party at Fashion Week! What? Next you're going to be telling us there was no Playboy party at the Super Bowl. Oh, wait ...
In this article:

Comments (1)