As election fades, ad dollars drain away

By Robert MacMillan and Paul Thomasch - Analysis

NEW YORK (Reuters) - The hangover that some Barack Obama fans probably woke up with on Wednesday morning will last a day. Media companies that lapped up millions of political advertising dollars in 2008 might feel queasy for a year.

The billions of dollars spent during the 2008 election cycle gave media companies a sorely needed boost, but the world financial crisis that exploded this fall will keep rattling them well into 2009.

Television stations, cable networks, newspapers, radio and the Internet are the front line for spinmeisters and supporters trumping their candidates' strengths and their opponents' faults. Every election year, that's reflected in their profits.

That was no exception in 2008, which saw the presidential race boil down to a showdown between John McCain, the Republican senator and war hero beloved by many as a maverick, and Barack Obama, the Democrat who made history by being elected the first black president of the United States.

Local TV broadcasters, which the major parties and their supporters used the most to drive home those perceptions, will feel an acute loss, said Leo Kivijarv, vice president of research at PQ Media, a research firm.

Historically, local TV broadcasters suffer advertising declines in years that follow major elections as political spending virtually disappears, Kivijarv said. "And it just will be worse in 2009 because of the credit crisis and a weak ad market in the first place."

A record $4.4 billion to $4.5 billion went into political advertising and marketing services in the 2008 election cycle, with about $3 billion going to advertising -- the largest portion for broadcast TV commercials, Kivijarv estimates.

Overall spending is up about 40 percent from the 2006 election cycle, an increase that he attributes to record fund-raising, heated presidential primaries and close contests in battleground states as the economy became a major issue.

"There was so much of shifting of dollars and so many battleground states in play so late that the number of media companies that were affected increased compared with what were initial expectations," Kivijarv said.

Now that the election is done, companies that depend on advertising will have to face the stark reality of a U.S. population tightening their grip on their pocketbooks. That often forces advertisers to curtail their spending.

"Can there be some kind of advertising recovery by mid-next year? That's the most optimistic scenario," said Outsell media analyst Ken Doctor. "The worst case is nothing happens until 2010. Advertising oriented media is just a creature of the consumer economy and this is just the low ebb."

Late last month, three of the world's largest ad groups issued dire slowdown warnings, and media companies from U.S. newspapers to conglomerates such as Viacom Inc (VIAb.N), CBS Corp (CBS.N) and News Corp NWSa.N have had little but gloomy things to say about the state of play in advertising.

Time Warner Inc (TWX.N), which reported third-quarter financial results on Wednesday, defended the company's ability to keep up its ad performance.

"The election spending was definitely up, but we don't generate ... that much extra profit from high ad growth at CNN in news in an election period because the news gathering costs are up," Time Warner Chief Executive Jeffrey Bewkes told analysts on a conference call. "We're very optimistic about being able to continue this progress on the network ad side."

(Additional reporting by Yinka Adegoke, editing by Richard Chang)