Boom and gloom: End may be near

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So long, recovery, we barely knew you.

Since the current ad spending "boom" began in May 2002, the ad market has cut 41,000 jobs across media, agencies and marketing services-on top of the 162,000 jobs slashed in the recession. Five of six agency stocks on the AdMarket 50 have dropped since the upturn began, as have the majority of media stocks. Now three forecasters have cut spending predictions for 2005.

The prognosticators-Robert Coen at Interpublic Group's Universal McCann; TNS Media Intelligence, tracker of measured media; and Merrill Lynch-all came down with a case of June gloom, cutting forecasts for 2005 spending (see chart). Both Mr. Coen and Merrill Lynch predict a slight uptick in 2006, when media will cash in on Olympics and midterm elections. TNS, best known for predicting the past, didn't offer a guess about next year.

Even the most optimistic forecasts-north of 5% spending growth-hardly mean heady times. Measured ad spending grew far faster in 2004 and 2003, yet the industry felt mired in a media malaise.


Is the party over? Yes. Did it actually ever get going for the traditional ad business? Not really. Madison Ave.: It's time to admit you have a problem. For you, this recovery was dead on arrival, the victim of changing consumer behavior and a new agenda for marketers that is upending old media, old agencies and old methods.

Some of the money that used to flow to the ad and media businesses is likely now moving to other disciplines and techniques that go mainly unmeasured by the forecasts released last week. A look at the holding-company results reveals that CRM, direct marketing, branding and even research have all shown better growth than traditional advertising in recent years.

It's hardly news that the market is changing: Read the AdWatch coverage above or re-read Bob Garfield's "Chaos Scenario" (April 4;, QwikFIND aaq48m).

But what may be surprising is how the numbers-jobs, stocks, spending-tell the story of the change that has already occurred since the end of the last recession.

Strip away the often-overstated measured numbers, and the malaise is real: ABC, CBS and NBC collectively didn't surpass their boom-time 2000 revenue until last year, according to actual revenue figures they give the Broadcast Cable Financial Management Association. Revenue then fell 2% in this year's first quarter.

This economic expansion will be 4 years old in November, and it's fair to ask if we are closer to the end than to the beginning. Pick your poison: a bursting of a house bubble, rising interest rates, record oil prices, a weak overall job market. (U.S. employment has risen an anemic 1.8% since the recession ended. The ad market is down 6.7%.) According to the National Bureau of Economic Research, the average expansion since 1945 has lasted 52 months-March 2006, if this one fits the norm.

But this expansion-weak jobs, strong consumer demand, war, opportunity and threat from China-fits few norms.

Marketers are adapting-they have no choice. That means hammering agencies on fees (and then ordering them to play whack-a-mole on media). Advertisers must play hard given pressures they face to deliver their financials. Regardless, it's a buyer's market.

To be sure, there are winners in the media world. Branded entertainment is growing, though how bankable the dollars or results are is open to debate. Research firm PQ Media guesses product-placement spending this year will grow 23% to $4.25 billion, equal to 1.5% of Mr. Coen's $278.8 billion ad spending forecast.

The real winner, at least for now, is Google, which has surpassed Time Warner as the most valuable media company. It'd cost $80 billion to buy Google, but you can sponsor a key word for as little as a nickel. Those dollars and cents added up to $1.3 billion in worldwide ad revenue in the first quarter alone. Want to sponsor "The party's over"? Somebody already did.

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