This is a different kind of recession—one that started quietly in late 2007, before the very big bangs hit the very big banks. It's driving a different kind of U.S. ad cycle as well.
There are two kinds of ad outlets: national (including, among others, broadcast TV and cable networks) and local (including, among others, newspapers and radio).
It's not unusual for one sector's fortunes to fare better than the other in an ad downturn, as is the case with national this time around. And whichever segment goes into a recession first—observers say local markets, in this case—also generally comes out first. But some say the pattern may not hold this time, and a recovery in local markets won't mean an automatic bounceback in local ad revenues.
Part of the issue is that local advertising encompasses several media in severe generalized declines, such as newspapers and yellow pages. Such media also suffer uniquely when the purely local ad category of real estate sours, and local lacks a sector that's significantly outperforming the rest, as national cable markets are doing. Michael Nathanson, an analyst with Bernstein Research (AB), believes cable networks' ad revenue dropped 4% in the first quarter of '09. Not great, but media buying firm Zenith Optimedia expects overall U.S. ad spending to drop 8.7% this year, and Nathanson estimates that local TV stations' ad declines will exceed 25%.
VANISHING AUTO ADS
There are also the oddities of how ad dollars are divvied up. Each May, in the rite known as the upfronts, advertisers commit well over half of the billions they spend on network TV for the next 12 months. This means many current dollars were allocated to TV in more sanguine times. (This year's upfronts will prove an excellent dipstick check of big advertisers' moods.)
Automotive advertising has been a drag on everything—Ford Motor (F) and Chrysler each cut ad spending more than 33% in 2008, according to TNS Media Intelligence. But the rapid pullback late last year hit the local sphere especially hard, as the spigots on auto dealership advertising suddenly shut tight. To cite one vivid example, Meredith Corp. (MDP) disclosed in late January that it expected ad revenue at its 12 local TV stations to be down 40% in the first three months of this year, driven by a 70% drop in auto advertising. (Local TV stations are not helped by comparisons with 2008, in which hundreds of millions were spent on political advertising. But even with all that coin, local stations still had a lousy 2008.)
Meanwhile, the relative steadiness of ad buys from companies that sell soap and shampoo—the Procter & Gambles (PG), Unilevers, and Colgate-Palmolives (CL) of the world—are buoying the properties in which their ads are concentrated. According to Media Industry Newsletter's data, ad page counts in the traditional women's service magazines Redbook and Ladies' Home Journal—the warhorses that are routinely proclaimed dead by coastal media types—have shown remarkable stability this year. Ad pages at many glitzier titles, including Vogue, Gourmet, and Martha Stewart Living, are down 30% or more. (A senior magazine executive told me last month that "30% down is the new 'up.'" He was joking, kind of.)
The ad migration to newer media continues. And since advertisers typically don't spend as much online as they did elsewhere, it's all but inevitable that even the stronger national media built around video—network TV and cable—will eventually have to get by with less. But it's hard to see huge advertisers wholly reworking nine-figure ad budgets quickly; institutional inertia and fear of the unknown will stop a General Motors (GM) from, say, dropping all TV ads in order to build a bunch of promotional Web sites. This is not true for small local advertisers, who can more easily slash a bantam-size budget; recall how quickly those car dealer ads disappeared.
There's one wild card: the next wave of local online-only players, which includes Web directory Yodle and consumer review site Yelp. They may be growing too quickly to be ignored in favor of, say, another radio ad, and they might—might—become the first such players to pull in significant ad dollars. That, too, will depress established local media revenues. On top of the built-in advantages national outlets enjoy over local players, add this: The biggest anomaly to this ad cycle is that those advantages may persist for a long time.