TV stations likely to bear brunt of downward trend in advertising spend

MEDIA & MARKETING:EXPERTS ARE divided about advertising spend projections for 2009, with two recent reports providing different outlooks, writes Siobhán O'Connell

A KPMG survey of 300 companies reveals that three out of four businesses plan to maintain or increase their marketing investment next year.

But the view from big-brand advertisers, as reported by management consultancy Billetts, is much more gloomy.

Billetts forecasts that advertising spend will decline by 7 per cent in 2009, with most of the decline in the first half.

As a result, Billetts managing director Nigel Brophy expects that advertisers and their media agencies will be in a strong position to negotiate big discounts from media owners.

Brophy predicts TV commercials will be 16 per cent cheaper in 2009, bringing TV costs back to 2004 levels. The deflation is being driven by a drop in demand and increased supply.

"We expect the demand for advertising airtime to decrease by 8 per cent next year," says Brophy. "The main terrestrial TV stations will suffer most, as satellite and cable channels have a larger share of impacts among younger audiences.

"We are expecting luxury goods and financial advertisers to substantially decrease their spend in 2009. These categories normally pay a higher price for their airtime than advertisers of grocery products. Television is a cheap form of entertainment and people are more likely to stay in during 2009, increasing audiences and thus lowering the cost of airtime for advertisers."

David McRedmond, chief executive of TV3, says it is difficult to predict what will happen with TV advertising spend in 2009, primarily because marketing budget decisions have still not been made.

"Next year's budgets are all being decided really late and that is delaying the whole understanding of what next year will be like," he says. "But my feeling is the first two quarters of 2009 will be very tough and there will then be an improvement in the second half of the year."

Unlike RTÉ, TV3 sells its advertisements for a fixed price. McRedmond acknowledges that advertisers are looking for bigger discounts and more creative packages from media owners.

"We all have to become more sophisticated with the packages we can offer to advertisers," he adds.

According to Ed McDonald, chief executive of the Association of Advertisers in Ireland: "The real impact of the downturn is likely to be felt in staff cutbacks and a pay freeze in 2009. One in five of the companies we have surveyed say they would cut staff next year, while 95 per cent stated that salaries would not rise for their marketing staff."

Although Billetts also expects newspaper advertising revenues to fall in 2009, print will still garner the biggest share of advertising expenditure by media.

When search advertising is included, Billetts predicts that online advertising spend will grow by 15 per cent in 2009, making it the third-largest advertising medium in the country, ahead of radio and cinema.

However, website owners cannot rest on their laurels. Though digital growth is strong, the growth rate is in decline. It is also estimated that about half the advertising spend online is in search, with about 90 per cent of that going to Google. Search advertising has exploded as it places advertisements in front of consumers who want to purchase.

Online display advertising attaches advertisements to content and is part of the persuasion process.

In a recession, Google is likely to trump the persuaders. The growth in content sites is much larger than the growth in online spend, so in a recession it is likely that the price for advertisements on websites will tumble too.

In all media, therefore, advertising is going to be cheaper in 2009. But will anyone have the funds to take advantage?

"There's a strong commercial argument for strengthening brands in tougher times through focused investment in marketing," says JP Donnelly, chief executive of advertising agency Ogilvy Ireland. "Brands that have proven to be a long-term success don't risk cutting back on marketing investment. So despite the challenges, we are seeing a real focus on staying front of mind, especially when there are pressures on disposable income."

siobhan@businessplus.ie