While we have been asked questions about the ad revenue expectations for local for 2015 and to provide a recap on advertising investment in 2014, the majority of the response was based on what they saw or feel about national ad dollars from the biggest players. Local-direct is still looking very positive throughout 2015 with most local advertisers feeling optimistic about the economy and, as such, are looking to increase their spending. Let us know your thoughts. Philip Jay LeNoble, Ph.D.
Media economy
Flat spending in third quarter could be a sign of things to come
January 14, 2015
Third quarter ad spending was flat to last year, according to Kantar Media, and the big reason why was cutbacks by the top 100 advertisers. Some were making up for money moved to first quarter of last year, when they advertised in the Winter Olympics. But others pulled back for different reasons. A handful of auto manufacturers simply didn’t have any big car launches to hype. A few companies are still feeling cautious following the brutal recession. And a couple are moving money from more expensive media, like television, to cheaper ones, such as mobile, which means they aren’t spending as much overall. The big question, though, is whether those cutbacks in spending will continue into 2015. There’s a chance that they will, as advertisers worry about being caught off guard by another recession. Jon Swallen, chief research officer at Kantar Media, talks to Media Life about the latest spending numbers, what they mean for big advertisers, and why the very smallest advertisers pulled back as well.
Why did the biggest advertisers cut back on spending in third quarter?
Not any one reason. Everyone had a slightly different situation and their own particular needs and situations to deal with.
Broadly, the most common denominator is the fact that they’re large advertisers, so they are often the most cautious because they’re investing so much money. They watch the bottom line and marketing budgets more carefully. They represent an economic barometer or gauge of what may lie ahead.
It’s a reflection of the size of their budgets but also a reflection of forward-looking caution. Not that they lack confidence, but they’re being more prudent looking forward.
Does this say something about the state of the media economy, or does it just balance out big spending earlier in 2014 on the Olympics?
I think it does [balance out] to some degree.
Some of those big advertisers had big first quarter spending in the Winter Olympics, and you could see that when you looked at many of their budgets in second quarter. Spending was lower, which was just a reflection of the fact that money got pulled forward for Winter Olympics.
But Winter Olympics have been muted somewhat because it’s now part of a nine-month figure, so I attribute it less to the hangover affect of a first-quarter surge.
It’s not necessarily a predictor of future ad economy trends, but I do think it’s a reflection of current psychology, or their view looking forward and being a bit more cautious. That may or may not prove to be the case.
But looking into 2015 it’s looking like they’re playing their cards more cautiously.
Do you think these top advertisers will increase spending next year? Why or why not?
They certainly have the capability to. Each is in a different competitive situation. So depending on where they’re at in their cycles, the opportunity to increase or decrease spending varies.
In auto, what typically drives higher budgets is new model launches. I don’t know what the coming schedule is for Toyota, Chrysler or GM, which landed in the top 10, but if you looked at that it would be a pretty good indicator of whether they’re likely to increase budgets in 2015.
For a company like Pfizer, where their increase has been driven by a handful of prescription drugs that still have patent protection and market-leading positions, I would expect they’d continue to support those strongly. Perhaps not at the growth rate of the past year, since they’re about a full year into the cycle. But the conditions that prompted them to increase their spending, a lot of those conditions still exist today.
AT&T is kind of a wild card depending on its merger with DirectTV. If and when it goes through, it now creates the opportunity in the short term for their spending to decrease while they go through some integration, but then coming out of that after three or four months, a big campaign to announce the merger or launch or announce new products.
So everybody’s situation is a little bit different.
Why did mid-level advertisers bump up spending when larger ones were cutting back?
So the top 100 advertisers represent 43 percent of all ad spending. That next tier, the guys between about 100 and 1,000, are about 34 percent. So that’s the torso of the ad market.
I think the fact that they’re increasing budgets, one of the common reasons is those advertisers are the second, third or fourth advertiser in a category, and often have to compete aggressively. They have to spend more to stand out in their competitive categories.
And that’s why growth rates in that sector are often higher than for their direct competitors that are a tier above them.
It doesn’t hold up every single quarter, but [it does] over the past three or four years. We had the horrible recession in 2008 and 2009, and in 2010 as I recall the market was being led by larger advertisers. But in 2011 and continuing into ’12, ’13 and into ’14, the higher growth rates have been more in that belly of advertisers.
How about smaller advertisers — what was their spending like in third quarter? Why?
Outside the top 1,000 advertisers represent about 23 percent of ad spending. For that bottom group, ad spending was down 3.4 percent. That again is a pattern that I’ve seen over the past two or three years. Spend is flat or declining in that lower tier and lagging the rest of the market.
These are the long-tail advertisers–predominantly small budgets, and honestly we may be undercounting their budgets because a lot of their budgets may be digital and we don’t have all of that measurement.
They’re also local-market advertisers, few are national. So ad spend tends to be more in newspapers and radio, which are two media that had soft results, and there’s a direct relationship there.
We’ve heard a lot from analysts and TV network owners about a second-half slowdown in advertising, both cable and broadcast. Are you seeing evidence of this? Why or why not? If so, do you expect it to carry into 2015?
More so for broadcast than for cable.
It’s hard to say if it will carry into 2015. September is the beginning of a new selling period where TV dollars are concerned. So third quarter patterns probably are not a good harbinger of what pricing and ad revenue levels will be in fourth quarter. But I’ve seen many of the same reports talking about third quarter and fourth quarter trends and softening in the marketplace, so I’m expecting fourth quarter numbers will show slower rates of growth, particularly for cable networks.
Why is retail in negative territory? Why was spending down over the summer, when you’d expect a flurry of back-to-school ads?
Retail budgets are now heavily skewed to fourth quarter and the holiday period, from mid-October through Christmas. In a lot of retail categories, 30 percent of total annual ad spend may be packed into that eight-week period. So it’s very heavy.
Often what’s happening in third quarter, while there’s back to school for some retailers, it’s not a big season for many retailers. But the holidays are big for all retailers. So when third quarter slows down it’s often a reflection of saving resources for key holiday periods.
On the consumer side, retail sales leading into holiday season have been okay but not gangbusters. And so some of that affects aggregate ad budgets across the industry, and that shows up in the weaker growth rates through the summer months.
Why did the biggest advertisers cut back on spending in third quarter?
Not any one reason. Everyone had a slightly different situation and their own particular needs and situations to deal with.
Broadly, the most common denominator is the fact that they’re large advertisers, so they are often the most cautious because they’re investing so much money. They watch the bottom line and marketing budgets more carefully. They represent an economic barometer or gauge of what may lie ahead.
It’s a reflection of the size of their budgets but also a reflection of forward-looking caution. Not that they lack confidence, but they’re being more prudent looking forward.
Does this say something about the state of the media economy, or does it just balance out big spending earlier in 2014 on the Olympics?
I think it does [balance out] to some degree.
Some of those big advertisers had big first quarter spending in the Winter Olympics, and you could see that when you looked at many of their budgets in second quarter. Spending was lower, which was just a reflection of the fact that money got pulled forward for Winter Olympics.
But Winter Olympics have been muted somewhat because it’s now part of a nine-month figure, so I attribute it less to the hangover affect of a first-quarter surge.
It’s not necessarily a predictor of future ad economy trends, but I do think it’s a reflection of current psychology, or their view looking forward and being a bit more cautious. That may or may not prove to be the case.
But looking into 2015 it’s looking like they’re playing their cards more cautiously.
Do you think these top advertisers will increase spending next year? Why or why not?
They certainly have the capability to. Each is in a different competitive situation. So depending on where they’re at in their cycles, the opportunity to increase or decrease spending varies.
In auto, what typically drives higher budgets is new model launches. I don’t know what the coming schedule is for Toyota, Chrysler or GM, which landed in the top 10, but if you looked at that it would be a pretty good indicator of whether they’re likely to increase budgets in 2015.
For a company like Pfizer, where their increase has been driven by a handful of prescription drugs that still have patent protection and market-leading positions, I would expect they’d continue to support those strongly. Perhaps not at the growth rate of the past year, since they’re about a full year into the cycle. But the conditions that prompted them to increase their spending, a lot of those conditions still exist today.
AT&T is kind of a wild card depending on its merger with DirectTV. If and when it goes through, it now creates the opportunity in the short term for their spending to decrease while they go through some integration, but then coming out of that after three or four months, a big campaign to announce the merger or launch or announce new products.
So everybody’s situation is a little bit different.
Why did mid-level advertisers bump up spending when larger ones were cutting back?
So the top 100 advertisers represent 43 percent of all ad spending. That next tier, the guys between about 100 and 1,000, are about 34 percent. So that’s the torso of the ad market.
I think the fact that they’re increasing budgets, one of the common reasons is those advertisers are the second, third or fourth advertiser in a category, and often have to compete aggressively. They have to spend more to stand out in their competitive categories.
And that’s why growth rates in that sector are often higher than for their direct competitors that are a tier above them.
It doesn’t hold up every single quarter, but [it does] over the past three or four years. We had the horrible recession in 2008 and 2009, and in 2010 as I recall the market was being led by larger advertisers. But in 2011 and continuing into ’12, ’13 and into ’14, the higher growth rates have been more in that belly of advertisers.
How about smaller advertisers — what was their spending like in third quarter? Why?
Outside the top 1,000 advertisers represent about 23 percent of ad spending. For that bottom group, ad spending was down 3.4 percent. That again is a pattern that I’ve seen over the past two or three years. Spend is flat or declining in that lower tier and lagging the rest of the market.
These are the long-tail advertisers–predominantly small budgets, and honestly we may be undercounting their budgets because a lot of their budgets may be digital and we don’t have all of that measurement.
They’re also local-market advertisers, few are national. So ad spend tends to be more in newspapers and radio, which are two media that had soft results, and there’s a direct relationship there.
We’ve heard a lot from analysts and TV network owners about a second-half slowdown in advertising, both cable and broadcast. Are you seeing evidence of this? Why or why not? If so, do you expect it to carry into 2015?
More so for broadcast than for cable.
It’s hard to say if it will carry into 2015. September is the beginning of a new selling period where TV dollars are concerned. So third quarter patterns probably are not a good harbinger of what pricing and ad revenue levels will be in fourth quarter. But I’ve seen many of the same reports talking about third quarter and fourth quarter trends and softening in the marketplace, so I’m expecting fourth quarter numbers will show slower rates of growth, particularly for cable networks.
Why is retail in negative territory? Why was spending down over the summer, when you’d expect a flurry of back-to-school ads?
Retail budgets are now heavily skewed to fourth quarter and the holiday period, from mid-October through Christmas. In a lot of retail categories, 30 percent of total annual ad spend may be packed into that eight-week period. So it’s very heavy.
Often what’s happening in third quarter, while there’s back to school for some retailers, it’s not a big season for many retailers. But the holidays are big for all retailers. So when third quarter slows down it’s often a reflection of saving resources for key holiday periods.
On the consumer side, retail sales leading into holiday season have been okay but not gangbusters. And so some of that affects aggregate ad budgets across the industry, and that shows up in the weaker growth rates through the summer months.
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