Before concluding that US advertising spending in 2005 would be significantly lower than he'd earlier predicted (6/30/05 RBR #128), Universal McCann guru Bob Coen analyzed what's been going on so far this year. What he found was that national advertisers were spending somewhat less than he had expected - - and ad demand at the local level was particularly soft.

As we noted yesterday, Coen said retail consolidation has reduced the number of potential ad buyers in local markets, with big chains like Wal-Mart and CVS pushing price and spending as little as possible on marketing - - a trend he thinks will change, but not anytime soon. In addition, he thinks new accounting rules and regulation has made manufacturers cut back on promotional practices that used to pay part of the cost of advertising by local distributors (such as co-op ad programs). He found that for Q1 of this year, local retail advertising in newspapers was up only 2.8% (although classifieds gained 3.6%), local radio 2%, yellow pages 1.7% and that local spot TV was actually down 1.2%.

The numbers were better for national advertising, particularly for cable TV, which jumped 18.2% in Q1. Magazines were up 9.5%, direct mail 8.5%, Internet 8.2% (softer than expected), the big 4 TV nets 5.1%, syndicated TV 4.2% and national spot radio 3%. The laggards were national spot TV, which fell 5.8% (explained by the lack of Olympics-related and political advertising), and newspapers, down 0.6%.

"The reports so far this year for the cable TV networks are better than we had expected at the beginning of the year. Throughout 2003 and 2004, cable enjoyed double-digit ad revenue growth, but it does not appear possible for cable to grow fast enough to totally overcome he weakness appearing in broadcast television demand this year," Coen said in his forecast update. We've put Coen's TV vs. cable growth rates into a side-by-side chart.

Quarterly ad revenue change

Yr./Qtr.	Big 4 TV nets	Natl. spot TV	Cable nets
2002/Q1	7.0%	6.5%	-13.8%
2002/Q2	-1.3%	9.8%	-8.5%
2002/Q3	14.4%	22.0%	16.7%
2002/Q4	6.3%	29.3%	18.7%
2003/Q1	-6.5%	-2.4%	20.5%
2003/Q2	4.9%	-1.7%	15.6%
2003/Q3	2.1%	-10.5%	18.5%
2003/Q4	5.6%	-18.0%	13.5%
2004/Q1	11.5%	9.5%	16.2%
2004/Q2	6.1%	8.6%	20.0%
2004/Q3	30.4%	14.5%	14.0%
2004/Q4	3.6%	24.9%	20.0%
2005/Q1	5.1%	-5.8%	18.2%

Source: Universal McCann