When I knew less than I do now, I thought that the "audience" would move to the web and bring the money. I thought that we had more time in TV to adapt. But for a year or so now I have seen that the money is moving first. The web is simply the most cost effective place.
Now with the economy in free fall and the anchor of advertising being in the auto sector and financial services - the shift is accelerating. With much less to spend, they have to make the best of what they do and the web is where the smaller amounts of money will go.
There is no time left. If my simple alarm call does not speak to you - then the brilliant Diane Mermigas has a more detailed argument here.
Big autos’ big dive in stock market valuations and sales spells serious problems for domestic advertising, as it thrusts local television stations and newspapers into what could be their darkest days yet.
The fate of the U.S. automotive industry and media ad spending are inexorably linked. When one suffers, the other is sure to follow. General Motors’ stock price falling to a 53-year low on fears that its forecast revenues, earnings and cash reserves will be further dashed by irrepressible oil prices and its legacy costs was not an aberration. GM’s woes are painfully reverberating for most of its peers. All will have a decisive impact on spending over the next 18 months by advertising’s largest category–and a critical one for local media.
That means all bets are off for 2009–a year that was already looking scary without political and election-related advertising to offset lower general ad spending in a fragile economy. Local broadcasters will become digital after Feb. 19, 2009, which theoretically gives them more ways to generate new revenues. But increasingly, local ad dollars are being siphoned off by the Internet, cable and their affiliated broadcast TV networks, no matter how low ratings go. The digital marketplace allows content creators, owners and distributors to bypass local TV stations, leading them to more wisely leverage their core community franchises.
Last year, local broadcast television advertising declined nearly -6%, partly driven by 7% lower auto-related spending, according to Morgan Stanley. In 2009, local broadcast TV ad spending is expected to decline at least -2.5% from $46 billion in 2008, which will be buoyed by presidential politics and the Olympics. Still, total TV advertising was down -1% in the first quarter of 2008, as the 65% growth in political ads was more than offset by a -4% decline in non-political advertising, driven by a collective 10% decline in autos and retail.
“To the extent political is an upside surprise in the second quarter of 2008, we believe it will only temporarily mask the secular challenges as share shifts to the Internet and creates difficult 2009 comps,” observes Morgan Stanley analyst Benjamin Swinburne.
The $26 billion in local ad spending that is generated by TV stations will steeply fall by -6% in 2009. Local TV will struggle just to hang on to that level of advertising support, even with the ebb and flow of quadrennial spending, straight through 2015. Average recession years in the past have recorded flat or falling ad spending. However, the adverse impact of the ongoing recession could be worse as it is compounded by major global and digital paradigm shifts that will require long periods of adjustment and change. Short-term, some economists say it will be late 2009 at the earliest before consumer and corporate confidence in asset values and available funding begins to rebound.
Given the unique confluence of factors, local media–television stations, newspapers and radio–already feels the brunt of a staggering economy, despite the much-hyped increase in political spending, due to half of revenues riding on auto, retail and financial ads. If cracks are already starting to appear in national TV advertising, then it’s only a matter of time before major breaks occur at local stations, where normal recovery will be impeded by macro trends, such as the digital conversion. Local TV advertising budgets will continue to be the most impacted medium, due to the faltering economy, Morgan Stanley concludes from a recent survey of major advertisers.
With major automotive brands like GM indicating plans to shift as much as half of their advertising budgets to the Internet over the next few years, local ad dollars will follow suit, leaving major gaffs in local TV station and newspaper revenue projections. A significant share shift of the auto vertical alone, in these troubled times, has the ability to create deep, protracted fiscal trauma for local media. Automotives (which source one-quarter of all local ad dollars) were just about tied with retail as a top advertiser category in 2007, down -6.4% from the prior year with its biggest allocations to spot television ($4.8 billion) and newspapers ($4.5 billion), according to Ad Age.
Looking deeper at GM and the U.S. auto industry in general reveals why their problems are far more than a marketing challenge that can be solved by the right advertising in the right places. Retail and fleet vehicle sales are down an estimated -17% from a year ago and down -13% from last month. GM, Chrysler, Ford and Toyota are expected to report huge sales and earnings declines as a result.
Special financing and pricing and production cutbacks don’t begin to address the deeper, more formidable issue of having to rebuild the domestic auto industry’s infrastructure to make it more cost-efficient. Heightened concerns that GM does not have the liquidity from investments and sales needed to finance a turnaround and make good on its outstanding financial commitments have driven its stock to a 53-year low June 26. With a stunningly slim $7 billion market value, and burning through most of its $20 billion of cash to deal with short-term problems, legitimate concerns prevail about who will rescue GM.
The continuing collapse of the U.S. auto industry, however far it falls, will have a negative impact on all ad-supported media–particularly local TV and newspapers–which will complicate its own dramatic change. That means local broadcasters can’t move fast enough to cut their losses and to avoid a major pileup of their own.