In First Quarter, Marketers Wary Amid Temperate Ad Growth

Though There Are Signs of Life Going Into the Second Quarter, Advertisers Fear Getting Ahead of Recovery

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The ad market is picking up after a sluggish start to the year, but a lot still rides on advertisers' behavior in the second quarter. So it's too bad General Motors just cancelled up to half of the second-quarter TV time it had previously committed to use.

It's tempting to think the ad market should already be getting a little steadier. The U.S. economy accelerated last quarter, delivering its fastest growth in a year and a half. Last month unemployment fell to its lowest rate in three years, the government said Feb 3. Fears of a second recession are dissipating.

All that may be true, but advertisers aren't going to risk getting ahead of the recovery, meaning growth will remain tempered.

"Without the political and Olympic money, it would be a flattish year," said Vincent Letang, exec VP and head of global forecasting at Magna Global, part of Interpublic Group. Elections and the Olympics mean 2012 looks like a "decent" year.

"We are still in positive territory but with very small growth," Mr. Letang said. "I guess it's good news in a way, because six months ago some would have predicted probably a worse outlook in 2012."

Demand for TV's scatter inventory -- the commercial time that marketers buy closer to airtime -- was still soft as the year began, continuing to suggest that the next upfront marketplace will be weaker than in 2011. "I don't think the next upfront will be as strong as the last, but if it comes close, that will be considered a success," said Rich Goldfarb, senior VP-advertising sales at National Geographic.

General Motors' cuts to its second-quarter TV plan -- which it described as the "normal course of business as we adjust our media mix to align with our priorities for the year" -- doesn't augur any better for the upfront.

The good news, however, is that General Motors doesn't appear to have company in making major cancellations. Mr. Goldfarb, for one, said few advertisers were taking cancellation options. And Viacom -- whose networks include MTV , Nickelodeon, BET and Comedy Central -- said last Thursday that cancellations were "very low."

Viacom also reported scatter sales were improving, with many buyers returning to the market. Others made similar cautiously optimistic reports.

"In the last couple of weeks we have seen more activity, specifically from financial, pharma and telecom," said Chris Raleigh, senior VP-cable and cross-platform ad sales for The Weather Channel.

TV ad prices also continue to rise, increasing by double-digit percentages from the level set at the upfront, according to Barclays Capital analyst Anthony DiClemente.

The past several weeks have been strong, but the second-quarter scatter market will ultimately provide the best indication for upfront spending, said Mel Berning, exec VP-ad sales at A&E Networks. TV ad revenue should increase 6.8% this year once election season and the Olympics have their effect, according to Magna Global's forecast on Jan. 23.

Magazines also began the year slowly: Ad pages in monthlies' January and February issues fell 8.4% from January and February issues last year, according to the Media Industry Newsletter. "The first quarter was definitely soft," said Scott Kruse, managing partner-director of print at Group M, WPP's consolidated media-buying and -planning operation. "I think the second quarter's likely not going to be down as much."

Pharmaceutical advertising is likely to prove a drag on magazines this year, while food and packaged-goods marketers continue to face challenges that affect their magazine buys. But luxury, mass beauty, retail and automotive are performing better to varying degrees, Mr. Kruse and others said.

Magazines as a whole can expect a 5.2% decline in ad revenue this year, according to Magna Global.

Investments in digital media, for their part, seem to be ramping up again in the new year after a fourth quarter that saw advertisers tap the brakes in categories such as packaged goods and retail. Rich Antoniello, CEO of Complex Media, said his company is projecting that first-quarter revenue will more than double from the quarter last year, with strength in auto and liquor categories.

Andy Wiedlin, chief revenue officer of social-sharing platform Buzzfeed, said that following a fourth quarter that "was slower than expected," signs are pointing toward increased demand this quarter. He said part of the uptick could be attributed to advertisers' increasing eagerness to push deeper into advertising on social networks and other platforms that encourage social sharing.

And at Bleacher Report, the sports site that is built largely on user-generated content, CEO Brian Grey said that his sales force has experienced good momentum in a quarter that is typically healthy for sports properties, with big events such as the Super Bowl and the NCAA basketball tournament.

Magna Global expects internet ad spending to increase 10.9% this year.

Contributing: Jason Del Rey

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