|Fewer People Crying in Their Beer|
That's The Wall Street Journal's scratch-your-head-and-wonder-why-they-even-wasted-the newsprint handicapping that the U.S. economy's funk will continue to deepen into a full-on melancholy in the next 12 months. Too big a spread for your liking? Then here's a sure bet: Recession or not, traditional media is getting ready to feel the pain.
Last week, TNS found that U.S. ad spending fell for the second quarter in a row, the first time that had happened since 2001. Depressing as it might appear, it's a trend you might want to get used to, though not for the business-cycle reasons you might expect. Sure, ad expenditure is linked to the overall health of the U.S. economy. And factors such as the ever-expanding subprime-mortgage mess are sure to play a role, as will the relative health of major mass marketers such as the rather sickly Big Three automakers, whose declining spend is what TNS blamed for the downward slide.
But there's something else going on that has nothing to do with the natural rhythms of booms and busts or the fortunes of Madison Avenue's biggest clients. Simply put, American companies are shifting more and more marketing dollars out of paid media. You see it happening every day as marketers—smart ones, at least—talk about things such as word-of-mouth and conversational marketing, the kind of activity that doesn't feed the coffers of media sellers or traditional ad agencies and hence goes unmeasured in bellwethers such as TNS reports.
Now that long-bubbling discontent, something that was happening before the bottom fell out of the mortgage market, is beginning to show up in macro ways.
Consider a couple:
- ROI-conscious marketers from Procter & Gamble to Jim Beam have been loud and proud about their efforts to cut back broadcast budgets and repurpose dollars to the internet and disciplines such as CRM and word-of-mouth, which don't involve any media outlay.
- The holding companies, despite being most associated with big ad agencies, continue consistent performance through these months of paid-media slippage and don't seem to be sweating it. Even Interpublic Group of Cos., long a laggard, happens to be putting on its best show in years. Attribute all of this to their success over the decades in diversifying their offerings with things such as direct marketing, PR and, most recently, digital and interactive services. For instance, Omnicom Group, biggest by market cap, gets nearly half its revenue from customer-relationship management.
Expect that internet growth to continue, even in a recession.
"The economic impact might have a slowdown," said Bob Davis, managing general partner at the venture-capital firm Highland Capital. "But rather than a decline, its worst-case scenario is slowing growth. Online advertising is destined for many more years of robust growth."
So strong is the internet's growth horizon that it shouldn't be an issue that some of the medium's biggest advertisers are mortgage players now getting spanked. Countrywide Financial, for instance, was the eighth-largest online advertiser during the first half of this year, according to Nielsen NetRatings, spending more than $93 million. Any open inventory from lending companies "got filled up right away," said Steve Weinstein, an analyst at PacificCrest. "Major guys are still spending."
And it might be those guys that keep that aggregate figure from drifting more than it already has. But that won't do much to buck up the hopes of traditional media outlets, which just about everyone agrees are more at risk, recession or no recession.
"Advertising has the dubious distinction of being the canary in the economic mine," said Adam Smith, futures director at Group M, the media-buying unit owned by WPP Group. "TNS's two successive quarters of ad decline is not canary-friendly, but the non-TNS items are the best hope of stopping U.S. advertising into submarining below the rate of economic growth."
It's worth noting that not every consumer-facing company would be shaken by a recession. Package-goods marketers such as P&G could even benefit if their customers, suddenly more cost-conscious, refocus on staples—and might benefit even more if commodity prices fall. Another big-spending category, automakers, already have been cutting back.
All this brings us to the moral of our story, which goes something like this:
If your bread is buttered by some form of media or marketing activity depicted on the TV program "Mad Men," you might want to pour yourself another Manhattan. And make it extra stiff.
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Contributing: Abbey Klaassen, Jack Neff, Alice Z. Cuneo, Ira Teinowitz