The Wachovia Media team issued a transcript from a recent conference call with a major media buyer as part of their Equity Research Advertising Market Update. The general theme, as you’ll read are things are bad out there—especially for radio and newspapers–and likely to get worse in 2009. Exceptions continue to be cable and Internet:
* "We are starting to hear about ad budgets being cut," stated our guest speaker on a recent call. The main takeaways were: 1) ’08 challenges to continue and ’09 will likely be worse, 2) in the industry is in a period of significant transition, increasing the importance of a holistic approach 3) many forms of traditional media will continue to struggle to raise prices for advertising.
* Ad budgets starting to be accessed/cut as advertisers suffer from macro. Our guest speaker singled out financials as a particularly challenged category. Political should buoy ’08 somewhat, especially local TV and Radio in swing states. However, ’09 is going to be a really tough year, where "everybody’s going to be battling it out". ’09 budgets should begin coming in late summer to early 4Q, but early feedback indicates budgets will not be larger than ’08.
* Newspapers and Radio the most challenged mediums. Newspapers will have difficulty getting rate increases so long as circulation declines continue, especially with increasing alternatives to newspaper buys. Radio’s ability to raise rates is limited by likely declines in listeners, as well as poor quality of content – in many cases. Broadcast TV continues to achieve rate increases, as it’s the most effective medium for mass audiences.
* ’08/’09 season could be an inflection point for broadcast TV. Due to the significant level of inventory sold in the upfront, broadcast networks could be disadvantaged if they don’t deliver ratings. Not only would this reduce available scatter inventory (while also raising prices), but it will also better position advertisers/buyers in next year’s upfront, potentially limiting rate increases.
* Cable gaining momentum on improvements in programming quality. Our guest speaker pointed out Discovery and Nickelodeon as two of the better performing networks, while MTV seems to be struggling somewhat. Interestingly, he cautioned that cable could suffer self inflicted damage, if it continues to increase already high amount of advertising – diminishing the product.
* Online still gaining traction. As consumers spend more time online, ad dollars are sure to follow. Online is an effective national medium for smaller advertisers, with limited budgets. Social networking is an increasing part of the media planning discussion.
* Agencies attempting to limit the impact of an advertising pullback. Faced with a likely pullback in ad budgets, agencies are attempting hold on to revenue by implementing media plans that are hard to cut, and switching to a retainer based service. The declining budgets and shifting spend to online means that agencies with strong digital capabilities are best positioned in 2H08 & ’09.