New Year Brings Wary Ad Forecast: According to a new report by FitchRatings, the projected contraction in output among the major advanced economies will represent the steepest decline since WWII, with GDP in the U.S. to decline approximately 1.2%, while inflation is forecast to be 2.7%. Regarding the advertising environment, the Fitch media team is more cautious than most major advertising forecasts, none of which currently predict advertising to be nearly as weak as 2001. Fitch's cautious view about advertising is, in part, supported by these underlying conditions:
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The 2001 ad downturn was concentrated in national advertising, while the 2008-2010 downturn will include both local and national components. Political and Olympic spending masked the local market weakness in 2008, and the report says the absence of these revenue sources in 2009 will expose the depth of this weakness;
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This weakness in local markets will be compounded by national advertising pressures due to the impact of the credit market events that hit while many large national advertisers were planning their 2009 ad spending budgets, forcing many companies to emphasize capital preservation and liquidity, not just earnings growth; and,
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With advertising being one of the most easily scalable fixed costs, some major advertisers could plan to pull back on national campaigns considerably until there is more visibility in the market. As the report notes, advertising inventory has proliferated (from online and emerging mediums as well as traditional ones) since previous downturns. Media companies are likely to compete more heavily on price in this downturn to fill the vast supply of ad space available. Even healthy advertisers are likely to use this increased bargaining power to command better price terms and concessions from media companies.
For more on this Quick Study, see the January 12, 2009 issue of PR News.