Media unit costs (percentage change from the previous year) (chart) Media CPM trends (percentage change from previous year) (chart) A decade's worth 10-year change in media CPMs (percentage change from base years 1982-1984) (chart) LOOK FOR BID UP OF DESI

For most of the U.S., the economic recession has long since ended. But the marketing community is just starting to emerge from a slump in ad spending and media prices that has lingered for several years. The outlook for 1995 is somewhat optimistic: Media prices are expected to rise, faster and higher for some forms of media than others. Media inflation fires are starting to smolder. Robert J. Coen, senior VP-director of forecasting at McCann-Erickson Worldwide, New York, shares his price predictions for traditional media in the coming year. Soaring inflation isn't yet evident in the total economy, or in the nation's media. Nevertheless, there is growing concern that suppressed pressures for upward prices could break out in several places in the coming months. Now that demand for advertising time and space has improved, the prices of many of the most desirable media units may be bid up sharply. However, it's not likely a surge in prices will take place across all media and all media vehicles. Some may be driven up sharply, but others may be driven down by a slackening in buyer interest. Here are looks at each individual medium: Newspapers The outlook for newspaper advertising is better than it has been for nearly a decade. Classified and national ad linage has improved considerably, and retail sales are picking up in many markets. But newspapers also face large increases in their operating expenses as the costs of newsprint and other items increase. Most newspapers will be cautious about seeking rate increases next year that could appear to be excessive. Unit rates and CPMs will likely be up on average 3.5%, depending on the economic health of the region. Network TV The demand for network TV time has come full circle in the last 10 years. From 1983 to 1988, a strong economy and an expanding base of national buyers resulted in network prices rising nearly three times faster than consumer prices. From 1988 to 1993, a weak economy; restructured national marketers; the addition of Fox TV; and audience erosion from cable and syndication combined to hold CPMs to annual increases only half as large as the yearly rise in consumer prices. In 1994, the cycle gradually turned back upwards as a result of the Winter Olympics, strong bidding by selected industry categories and growing confidence in sustainable economic expansion. In 1995, the momentum will continue, as business confidence becomes more widespread. Average unit costs for all dayparts on all four TV networks are expected to rise an average of 5.5% in 1995. Although little change in ratings is expected, the average audience levels will edge up a little because of growth in population bases. CPMs, on average, are expected to be up about 5% next year. The variations in price changes will be much greater among prime-time programs. The latest hits and most desirable positions could be in for double-digit rate hikes, but there will be smaller increases and even more reductions. However, when all these many different prime-time changes are consolidated, the average unit price gain will turn out to be about the same size as the average for all dayparts. The average prime-time unit price should rise 5.5% in 1995 and the CPM 5%. Cable TV A decade ago, a handful of cable TV networks were competing with over-the-air TV for ad revenues. Their ratings were low, their coverage was limited and they priced their inventory at CPMs far below the broadcast network rates. Cable went from about a 1% share of national marketers' TV budgets then to about a 10% share in 1993. The medium's growth was primarily based on its efficiency in reaching narrow target markets. In 1994, cable costs continued to rise faster than most media while audience growth slowed and the cable networks became more broad based. As overall ad demand strengthens next year, price pressures on many cable TV schedules will be intense. But buyer resistance also will rise sharply if efficient target audience delivery isn't maintained. Cable unit prices on an overall basis could rise on average about 8%. Modest growth in target audience delivery should bring the overall CPM increase to about 7%. Spot TV Spot TV is frequently subject to more volatility, or sudden change, than most other media. Large swings can occur as new products are rolled out and introduced or as special promotions peak and are then phased out. Additionally, national and local election activity can cause large surges in activity in even numbered years and then fall back in the odd numbered years. In recent years, a weak economy and extensive downsizing reduced the levels of sudden change. But in 1994, the patterns began to change again. The election activities and a spurt in pent-up buying of big-ticket consumer items led to higher prices for the existing supply of spot TV inventory. Spot TV "capacity utilization" rose significantly, and when that happens inflation also begins. Next year, spot TV capacity-or inventory supply-will not be subject to as much political use, but other buyers could pick up the slack. Many marketers of less-costly package goods are just beginning to switch from downsizing to expansion through product introductions. The severely repressed retail sector is finally returning to better growth as higher consumer confidence leads to more spending at retail and less pay down of debt. This could also put pressure on spot TV inventories. Given all of that, spot TV price changes are expected to be much more moderate than they have been in 1994. However, sheer momentum could keep 1995 prices well above '94 levels through the first half of the year. In the third and fourth quarters, prices will probably be about the same, or even lower in some markets. Spot unit prices for full-year 1995 could rise about 4% on average while the average CPM increase next year should come in at about 3.5%, or just about in line with next year's expected inflation rate. Network Radio The radio networks account for just a thin slice of the national marketer's media mix, and the slightest shift in a key marketer's strategy can create turmoil. In recent years, a plot of the composite network radio sales numbers shows considerable irregularity and sluggish recent growth. The cycle is likely to turn back up in 1995 and, as a result of the improved demand, network radio prices should firm up considerably. Unit rates could be up as much as 5%, on average, with the average CPM increase averaging about 4%. Most of the wide price swings will probably be the result of fewer specially negotiated low-priced deals. Spot Radio The spot radio medium has enjoyed a mini-boom for the last two years, as local retailer usage has recovered and many important national marketers have restored prior-year cuts. This year's extra political activity has helped sustain the buying surge. In 1995, political activity will drop off, and unless there is some unexpected widespread surge in buying demand, it will become more difficult for many stations to get a much higher price for their spots. Unit prices will rise, on average, by about 3% in 1995 with CPM's up 2.5%. Price changes on some stations in some markets could be far different than these nationwide averages. Magazines Special discounts and negotiated deals have been running rampant in the magazine ad business during the last five years. Now that the economy is back into expansion, paper, printing, postage and other expenses are rising. The bargain-basement sales may soon be trending downward. In 1995, many magazines will be forced out of business unless they get more ad pages per issue or higher prices for their ad pages. These pressures will probably force the price of an ad page to rise about 5%, on average, over the real 1994 charge. Some modest gains in circulation will bring the CPM average increase in at about 4.5%. These price increases will mainly result from fewer price deals. Outdoor Cigarette and liquor marketers continue to reduce their orders for outdoor ad space. The medium, unlike most others, has a surplus of unused capacity. When capacity utilization rises, inflation soon follows. But when it declines, prices usually fall or remain flat. In 1995, prices for some of the most desirable outdoor units may rise. But in general, it's expected that most buyers will be able to successfully negotiate schedule prices that aren't much higher than what they paid in 1994. Unit prices, on average, for all markets are expected to be up about 3% next year, with CPM increases of 2.5%. Direct Mail There will be a double-digit increase in postal rates next year to adjust for the growth in U.S. Postal Service operating expenses since 1991, when rates were last raised. Other associated costs such as printing and paper are also increasing. The combined cost of all items in a typical mailing are expected to rise by at least 8% in 1995-a CPM jump of 8%. In Summary The war against inflation in the general economy is being waged by the continued efforts of businesses to constrain their individual expenses while Federal Reserve Board applies its control over short-term interest rates. Interest rates are raised when there are signs plant capacity utilization is rising and unemployment is falling. When the supplies of productive capacity and labor become limited during a period of economic recovery, high inflation often breaks out. The signs indicate there should be enough success in the fight against total inflation to keep fairly well in check creeping inflation fires. Media inflation also is subject to the effects of shifts in the available supply of media time, space and changes in advertising demand. Now that demand has improved and caught up with the rest of the economy, it's expected that some smoldering media inflation fires will break out more frequently.

Media unit costs (percentage change from the previous year) (chart) Media CPM trends (percentage change from previous year) (chart) A decade's worth 10-year change in media CPMs (percentage change from base years 1982-1984) (chart) LOOK FOR BID UP OF DESI

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