Will Recession Impact Advertising Spending?

Media companies are expecting a slowdown in advertising spending this year as they become convinced the national economy is entering a recession. The 2008/2009 Upfront season promises to be unlike any experienced before, and not only because of the economy and the now-ended writers’ strike. Although this is an Olympics and election year, and although national TV scatter market prices are at an all-time high, the mood remains cautious and wary.

The media industry feels the pinch when economic times are tough, but by classical definitions, the media economy does not begin to experience a true recession until one is well underway in the overall economy. Since a recession is not official until there are two consecutive quarterly economic downturns, we are still not officially in a general market recession and definitely not in a media recession. Depending on how sustained an economic downturn is, many sectors in the media economy may escape its effects entirely.

In the last recession, The New York Times, MTV Networks, News Corp. and many others made significant cut-backs to their digital units, blaming the economy. They all came to regret their decisions, and companies choosing to cut-back on their investments in new media today – including marketers – will be equally regretful if they fail to compete for market share-of-voice. Historically, most national marketers have been reluctant to cut back on certain “non-discretionary” media that they consider vital to the foundations of their branding efforts. The savviest of marketers have learned this lesson in past periods of economic stagnation when they or their competitors did cut back, only to experience profound losses in market share and brand equity when the market rebounded.

Conversely, some marketers actually stepped up spending during economic down cycles and reaped the benefits of increased market share and brand stature. Details of these patterns are available in the JackMyers Media Business Report January 2001 Media Vitality Report, available for $195 at www.jackmyers.com/research. In this report, we accurately predicted the major downturn in the media economy for 2001 and, although no one could have predicted the September 2001 terrorist attacks that decimated ad spending for two quarters, we correctly projected the 2002 turn-around and sustained upturn for the media industry.

JackMyers Media Business Report has been the most bullish of economic forecasters and we continue to view 2008 as a growth year for most major media. Our 2008/2009 Media and Marketing Forecasts project overall ad spending growth of 6.9 percent, with only newspapers and yellow page advertising in the losing column. Television, online, out-of-home, magazines and even radio appear to be healthy, even as economic indicators turn downward.

The rule of thumb has been that the ad industry generally lags the U.S. economy by as much as a year going in and coming out of economic downturns. In recent years, marketers and media have experienced virtually no meaningful impact during or after downturns in the U.S. economy. But economic downturns impact specific media differently, and the positive impact of the four-year Presidential election and Olympic year coinciding with an economic downturn is unprecedented. The last recession was 2001/2002 and the prior full recession was a full decade before that, in 1991/1992. It’s extremely difficult to compare economic patterns today to that media stone age.

With sophisticated planning and buying systems, with return-on-investment analytics, and with sophisticated marketing and media mix analytics, marketers are far more sophisticated about their marketing investments and less likely to scale back to gain short-term bottom line efficiencies. Local retail-sensitive media like newspapers and yellow pages are likely to be hardest hit by the economic downturn while established media like television and emerging media appear most resistant to it effects. Out-of-home is benefitting from increasing national ad revenues and is also less susceptible to declines than it might have been during past recessions. If the patterns of 2001 and 2002 hold this time around, we will see the most modest impact on newer media such as digital out-of-home, cinema, the Internet and wireless. Television, both local and national, should show no meaningful short-term signs of serious downturn resulting from overall economic conditions in 2008.

Even the categories that are most dramatically impacted by a recession – retail and automotive – have not significantly scaled back spending in past recessions. While they might cut back on ad spending, other categories like entertainment increase budgets. In past recessions, the technology category weathered the economy altogether without any cuts.

As media companies forecast 2008 economics, especially as they look at sales organization and trade marketing investments, they should follow the patterns set by marketers during previous recessionary patterns. Cut-backs in marketing and sales support could result in profound losses in market share, while increased investment spending is likely to reap rewards.