Advertising And Media In The 90’s

An upturn in adspend cannot be expected until the first quarter of 1992, at the earliest, predicts Barclay de Zoete Wedd in its latest Media Sector Review.

“We believe that the level of upturn will be below that forecast by the Advertising Association, despite the fact that Q1 of 1991 was artificially lowered by the Gulf War.” For 1992, BZW forecasts a growth of 4%,reflecting continued pessimism on the effect of continuing high levels of unemployment, ADVERTISING AND THE MEDIA IN THE 90S the poor state of the housing market and depressed consumer confidence (which will give way to more optimism in the run-up to the general election).

Advertising growth forecasts have changed radically during the current downturn: Year Fore- Ad Growth Forecasts *

* – In Real Terms A=June, B=August The report asserts that, in the UK, lower relative rates of growth of GDP and consumer expenditure will help keep back the level of advertising, as a percentage of GDP , to possibly a maximum of 1.4%, rather than the 1.5%+ achieved in 1988-89.

In addition, corporate confidence will be lower than in the 1980s, thus restraining corporate advertising. Structural influences will be more important . Deregulation and wider availability of other media will help intensify the move towards fragment- ation, but “the possibility of further regulation of “what” can be advertised, and what agencies can charge for their services , also provides a counter- balance to increasing structural freedom.”

For national newspapers, some improve- ment in earnings will inevitably result from the advertising upturn, though the installation of sixteen new colour presses by News International could continue to act as a price deflator: “undoubtedly, the dramatic gains of the 1980s will not be repeated.”

The large increases in profits result- ing from the move to Docklands and the introduction of direct inputting have been eroded away by the current advertising downturn ; cover price increases continue to offer the best opportunities to recover some of the margin losses, but are unlikely to keep pace with loss of advertising revenue, during the current recession.

BZW cites the reduction of manpower and the introduction of other revenue sources (inserting etc) as the best long- term prospects of restoring profitability.

For regional newspapers, the outlook is even gloomier . The forecast of continuing high levels of unemployment in 1992, the poor state of new and second hand car sales , and the depressed state of the property market will hold the industry back (after national newspapers and consumer mags have started to recover).

The corporate restructuring through acquisitions which dominated the regional newspaper industry in the 1980s has largely come to a close. The current mood is for further cost savings being effected mainly through rationalisation of printing plants and the introduction of direct inputting of texts.

For consumer magazines , advertising revenue appears to have held up relatively well. However, “advertising volumes for many titles may well have been propped up through substantial discounts against rate card prices, thus reducing the yields. ” Women’s weeklies appear to have suffered more from rate cutting than the monthly magazines , with industry sources suggesting average discounts of up to 40%.

Business magazines’ higher dependence on advertising revenue has resulted in a higher proportion of title closures and company liquidations. Consumer mags have remained more resilient.

The general reduced infrastructure in the magazine industry “should provide a lower cost base for publishers, but also pose problems . With fewer titles, fewer staff and increased competitive pressure on margins, the industry will find it more difficult to justify repeating a new title launch programme of a scale sufficient to generate the level of growth achieved in the 1980s.”

The prospects for the television industry in the 1990s are for much lower rates of growth in Channel 3 revenue , caused by lower GDP growth, less government privatisation advertis- ing and less demand by sectors such as Financial Services and Motors.

BZW expects cable and satellite to progressively achieve a high enough penetration to change buying patterns, whilst the addition of C5 and the possibility of advertising on the BBC will act as additional deflators to airtime rates.

“The income differentials across the country will be less acute , thus acting as a disadvantage to the South. The effect on the regions will be difficult to fully evaluate until the official outcome of the franchise applications is known.”

The major constraint to advertising growth will come from proliferation of channels and delivery methods, acting as a deflator on C3 pricing. A change in advertisers’ strategy away from impacts towards segmentation marketing is also likely to be decisive, and affect the southern stations more.

“Overall, the golden days of C3 tele- vision contractors (with the exception of Central and Scottish) are over.”

Barclays de Zoete Wedd: 071 956 3423