How Wall Street's Black Sunday Will Affect Ad Spending

Mad Ave Sees Little Fallout in Short Term but Consumer Confidence Is Big Question Mark

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NEW YORK (AdAge.com) -- The news that three well-known firms -- Lehman Bros., Merrill Lynch and American International Group -- are either ceasing to be, being purchased or facing concerns about raising capital rocked Wall Street but so far has had surprisingly few repercussions on Madison Avenue. In fact, advertising-industry analysts are predicting little short-term fallout -- though the longer-term effects on consumer confidence could be a lot more serious.
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There were few immediate fears because Merrill and Lehman are tiny players in the world of media spending. Lehman's spending was trimmed in recent years, falling to $1.2 million in 2007 and accounting for only $501,900 in the first half of 2008, according to TNS Media Intelligence. Merrill, likewise, is not a huge spender: $37.1 million in 2007 compared with $38.2 million in 2006.

Moreover, by absorbing Merrill Lynch for $50 billion, Bank of America looks to become an even bigger player when it comes to marketing spending.

Print, B-to-B could hurt more
But there are still worries about the already hurting print and business-to-business sector, which are expected to be roiled by Lehman's demise, Merrill's sale and AIG's woes. Media and marketing executives looking ahead though, think the pain could easily become more widespread.

"We knew over a year ago that the credit crisis was going to have an impact on financial advertising, which was then and still is, obviously, a pretty big concern. It's the largest category of advertiser in our space," said Vivek Shah, president of Time Inc.'s Fortune/Money Group. He added: "Specifically, the firms that have been specifically most impacted have not necessarily been our largest advertisers, but it's created a general malaise that I think has affected the financial category, and frankly, the economy in general."
Vivek Shah
Vivek Shah Credit: Buck Ennis

By buying Merrill Lynch, Bank of America will have a continued need to advertise. The bank has grown in recent years to become a rival to other buy-'em-up financial companies, including Citigroup and Wachovia, all of which are trying to get consumers to use their various pieces for banking, trading, planning -- any sort of help with money that can be of use. Bank of America's media spending increased to $406.2 million in 2007 from about $237.3 million in 2006, according to TNS Media Intelligence. As such, Bank of America will continue to advertise, particularly if its rivals keep up spending and as it needs to make sure consumers understand what a combined entity such as Bank of America and Merrill Lynch stands for.

WPP Group's JWT works on the Merrill Lynch account. Bank of America works with several agencies, including Omnicom Group's BBDO, Publicis Groupe's Starcom and Interpublic Group of Cos.' Hill Holliday.

BofA's spending breakdown
As befits a big bank (and one that's getting bigger), Bank of America spends across most platforms. It spent nearly $60 million on network TV in 2007, TNS said, compared with $40.1 million in 2006 and $41.2 million in 2005. It spent nearly $26.9 million on cable in 2007, compared with $13.4 million in 2006, and has also increased its spending on local, or spot, TV and in magazines, national newspapers and local newspapers.

"When an entity like Merrill Lynch is acquired, there is not much overlap for its brokerage business with Bank of America, and investment banking arms don't really do much consumer advertising," said Brian Weiser, senior VP-director of industry analysis at Interpublic's Magna. "If you're a trade publication in the financial sector, it was a bad year that got worse, but other than that niche as it related to consumer-centric advertising, it was already a bad year and it's just as bad as before without further impact."

History shows, however, that there is some cause for concern over the longer-term outlook. As a spate of mergers among retailers and telecommunications firms earlier in the decade reveals, initial bursts of spending to drum new combinations into consumers' heads often slow down. In the aftermath, companies look for efficiencies in marketing spending and the overall sector has fewer players.

For its part, AIG has trimmed its spending in recent years on network TV as well as magazines. Spending on network TV fell to about $25.6 million in 2007 compared with nearly $29 million in 2006, and in magazines spending fell to around $10.7 million in 2007 compared with nearly $13 million in 2006. The bright spot has been cable: AIG spent about $57.9 million in 2007, according to TNS, compared with around $36 million in 2006. Omnicom's BBDO, New York, handles some of the company's account, such as retirement planning; PHD is the company's media agency.
Donna Speciale
Donna Speciale

Sports and events sponsorships
These Wall Street troubles could also have an affect on other forms of marketing, particularly sports and events sponsorships. "The Lehmans and the Merrill Lynches [do] more sponsorship advertising, so not your traditional everyday advertising," said Donna Speciale, president-investment and activation at Publicis' MediaVest USA. "That stuff probably may not be as robust."

Bank of America did not return calls for comment about how the merger might affect its advertising and marketing. A Lehman Bros. spokeswoman declined comment, and an AIG spokesman said the company is "evaluating all our alternatives right now."

Ad-industry analysts appear more concerned with the domino effect on consumers of such distressing news. The moves "could affect unemployment drastically over time, which affects travel and credit cards and consumer spending. I think there is more of a long-term effect for us than there is short term," Ms. Speciale said.

How do media dependent on financial-services ad dollars survive? Mr. Shah, whose unit publishes such stalwarts as Fortune and Money, said executives have seen very modest ad-page growth by placing more emphasis on other categories, including technology and luxury goods. He also sees a need for media outlets to come up with better propositions so in order to win dollars from financial-services clients who have grown more tight-fisted.

More advertisers are seeking to "really partner with one entity," he said. "I think we are in a winner-take-all environment."

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Contributing: Rupal Parekh
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