The numbers look rosy for ad spending in 2004, but some unsettling signs are appearing. Spending on advertisements should grow by 6.9%, to $266.4 billion this year, according to Universal McCann (IPG). It will be fueled by big events such as the Olympics and the elections, along with major pushes for health and beauty products, drugs, and cars. Network TV ads should surge by 12%, to $17.4 billion; cable also can expect a 12% boost, to $15.8 billion; and Internet advertising will grow 10%, to $6.2 billion. Yet older media -- radio, magazines, and newspapers -- will see just single-digit gains, projects Universal McCann.
In short, TV will grab the biggest pot. Network slots during "must watch" programs like the Super Bowl will remain the favorite of those who can afford them. "I fail to recall when the networks held guns to people's heads forcing them to buy ads," quips John Wagner, media director at major buyer Starcom MediaVest.
Yet cracks are appearing in marketers' devotion to a medium that has been charging ever-escalating prices despite ever-declining viewership. This year, neither the networks nor their ad sponsors can afford to be complacent. As audiences tire of the networks' reality programming and defect to cable's creative offerings, network TV's steep premium -- as high as 40% -- over national cable seems unjustifiable. Plus the effectiveness of TV spots in general is waning, as personal video recorders let viewers skip ads entirely and some key groups -- notably young males -- watch less and less.
Even big spenders such as General Motors Corp. (GM) and Procter & Gamble Co. (PG) have expressed misgivings about what they're getting for their money. So far, the four major networks have scored strong pricing increases by excluding cable execs from their negotiations with buyers in spring "up-front" meetings. Yet this won't continue much longer. The change in the next few years will be "dramatic," predicts Peter Gardiner, chief media officer at agency Deutsch Inc.
In the meantime, those who stick with TV will do more to get their money's worth. They'll step up efforts to embed their brands in programming to prevent viewers from bypassing them. Some agencies are hatching plans to develop programming themselves, as WPP Group PLC (WPPGY) will do for ABC (DIS). Deutsch's Gardiner predicts that others will shift some ads to more efficient channels, such as Microsoft Corp.'s (MSFT) MSN and Yahoo! Inc. (YHOO). That's one script the networks don't want to see.
By Gerry Khermouch in New York