Mixed Messages in Outlook for Media Advertising

The New York Times juxtaposes conflicting views on the outlook for media spending and the recovery of the ad industry in “The Outlook is Murky for Media Advertising.”

On one side of the debate are analysts like UBS’ Matthieu Coppet, who thinks there will be a “relatively robust recovery in ad spending” beginning in 2010. On the other side are people like Gerhard Zeiler, the chief executive of the RTL Group, the largest European TV broadcaster, who thinks “the good times will not return anytime soon.” Zeiler goes on to say “Nor do I think they will return to previous levels as fast and easily as some of us may think.”

Although this particular dialog is focused on large advertisers that buy national media, we think it’s quite relevant to the local ad space as well. When it comes to an overall prognosis for local ad spending, count us at BIA/Kelsey as closer to the perspective of Mr. Zeiler. In our recent Media Ad View forecast, we projected a decline of 9 percent in local ad spending, from $155.3 billion in 2008 to $141.3 billion in 2009. And significantly, we project that in 2013, local ad spending will have recovered only to $144.4 billion, still well under the 2008 level.

(Like most other analysts, we’re continually reviewing our forecast, and will be updating it in October. From what we know now, however, we don’t think the picture will be rosier than it was in the spring.)

Much of this debate is framed in terms of the net effect of the structural changes in the advertising market vs. the recent collapse — and projected recovery — in the business cycle. Being closer to Mr. Zeiler’s perspective, we believe that over time, the structural changes will outweigh the cyclical rebound. Our research and experience tell us that digital and online media are having a profound and lasting impact on media selection and spending levels.

The net impact will be overall ad spending lower than it is today, both in dollar terms, and as a percentage of GDP. We believe the power of these structural changes cannot be overcome by even a robust economic cycle, and that a new baseline for advertising spending is in the process of being established.