April 27, 2009 / 4:53 PM / 11 years ago

Ad recovery elusive even as media stocks rally

NEW YORK (Reuters) -If the recent run-up in media company stocks is any indication, a number of investors believe advertisers are again ready to open their checkbooks for television campaigns, radio spots or a roadside billboard with a 14-foot-tall underwear model.

Television monitors in a file photo. REUTERS/File

Trouble is, that may reflect just wishful thinking.

In the past month, Time Warner Inc TWX.N and News Corp (NWSA.O) shares have risen nearly 20 percent, while CBS Corp CBS.N has surged about 40 percent. Overall, the Standard & Poor’s Media index .GSPME, made up of companies that count on advertising for big chunks of revenue, has added 11 percent and outperformed the broader stock market.

Still, experts warn advertising budgets are not yet showing indications of a comeback, after corporations heavily cut spending on everything from print campaigns to Web banners as the recession worsened late last year.

“We haven’t seen any real signs of anything increasing this year,” said Cathleen Campe, director of media communications, broadcast & video investment at RPA, a Los Angeles-based advertising and media agency. “I’ve heard some talk about 2010 getting better — well, let’s hope so.”

Just how devastating the advertising crash has been to the media business will be clear over the next 10 days as the major conglomerates report earnings. Walt Disney Co (DIS.N), Viacom Inc VIAb.N and News Corp, for instance, are all expected to post 35 percent to 50 percent declines in profits.

Omnicom Group Inc (OMC.N), the parent company of major advertising agencies like BBDO Worldwide and DDB Worldwide, reported a 21 percent drop in quarterly profit on Monday.

“I think the people who are at all optimistic are looking toward the real back end of this year and the beginning of next,” Omnicom Chief Executive John Wren said on a conference call. “I think you’ll continue to see similar caution in the second quarter that you’ve seen this quarter.”


Raising concern about the outlook, another big advertising company, Publicis Groupe (PUBP.PA), made a sharp downward revision earlier in April to its closely watched advertising forecast, issued by its ZenithOptimedia agency.

The forecast is now calling for worldwide ad spending to fall 6.9 percent this year. Just four months ago, the agency had forecast essentially flat spending for the year.

As for a recovery, the report noted ad spending “correlates strongly with corporate profits, and the ad market is unlikely to start its recovery until profits start to pick up again.”

In this economic downturn — as in most — the fall in advertising trailed that of the broader economy. As consumers stopped spending, credit dried up and profits fell, companies rushed toward cost-cutting. Discretionary costs, like marketing, were among the hardest hit.

“Generally speaking, advertising is cut late in a recession and comes back a little late,” said Clark Kokich, chairman of Microsoft Corp’s (MSFT.O) Razorfish, a top digital agency, who does not expect ad spending to rally before 2010.

“My feeling is when talking to our clients that we appear to be bouncing around the bottom. How long are we going to be there? I have no idea, but I think once we get a sense the economy has turned around, you’ll get advertising following by about six months,” he said.


Another industry expert who thinks advertisers will wait for sure signs that the economy has recovered before ramping up spending is Brad Adgate, senior vice president and researcher at ad buyer Horizon Media.

“There’s a lag time between ad spending and recovery — it’s a lag coming in and coming out. When the recession began, nobody was really talking about what was happening to advertising dollars,” he said.

Even today, as more marketing money is shifted to web advertising, television will still be the best indication of overall spending patterns, said Adgate.

As such, Adgate believe that one important signpost will be next month’s upfront market — when the major TV networks sell billions of dollars worth of ad time. This time around, TV networks will be selling commercial time for the 2009-10, which will give an indication of how marketers are feeling beyond the here and now.

“The real bellwether is the upfront,” said Adgate. “That’s a pretty good read on what the major companies feel about where the economy is and when it’s going to bounce back.”

Most advertising pros believe that depends on when the job market bottoms, housing rebounds and consumer confidence picks up significantly. Other factors, like the Olympics in 2010, will help, but those will largely be incremental shifts.

Yet even among big marketers, there is little consensus about when the turnaround will occur.

“I can tell you that everybody’s opinion is all over the board,” said Keith Levy, the vice president of marketing at Anheuser-Busch, a top advertiser and division of Anheuser-Busch InBev INTB.BR.

When asked when he thought the turnaround would occur, Levy said, “I’d hate to even speculate on that.”

Additional reporting by Ben Klayman in Chicago; Editing by Steve Orlofsky

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