Brian Wieser, Pivotal Research Group analyst, says advertising was already looking weak with the risks of the fiscal cliff heading into the summer. The fiscal cliff refers to a large predicted reduction in the budget deficit and a corresponding projected slowdown of the economy if specific laws are allowed to automatically expire or go into effect at the beginning of 2013.
“Commentary from the industry was affirming to us that a slowdown was upon us, and key economic drivers that we follow reinforced this view. The first signs of a stormy second half of the year for advertising had become clear once the agency holding companies reported, and then Superstorm Sandy arrived, making us certain that 2012 will prove to be a year without growth for the US advertising economy.”
Specifically, Pivotal is reducing their forecast for total normalized (ex-Political and Olympic) advertising to -0.5% for Q3 and -1.4% for Q4, down from 1.2% and 0.9% growth rates they previously expected.
Full year 2012 growth is now forecast to be flat. Added Weiser: “We initially wrote about the prospects for a downturn in reports we published in June and again in August with respect to the risks of the Fiscal Cliff. It appears that the effects are now playing out, and worse than we previously expected. Several new pieces of evidence affirm our view:
— The most recent releases of the two most important economic variables associated with the advertising economy posted their lowest rates of annual growth since early 2010.
— Advertising agencies’ organic growth rates decelerated significantly in September; Agency trends generally mirror those of media owners on a concurrent basis (not leading and not lagging).
— TV buyers we interact with continue to point to prolonged decision-making on the part of marketers and correspondingly weak scatter market conditions.
— Marketers’ commentary has been mixed in earnings calls so far, but generally corroborates our view.”
Here are the effects from Superstorm Sandy: “If we assume that spending equivalent to one day of Q4 was lost because of interruptions to local TV and radio programming for several days in a significant portion of the country paired with the impact on decision-making among national marketers and media buyers based in the storm’s footprint, the storm will cost the industry almost $500 million of activity. “
For 2013 they now forecast 1.2% growth vs. 1.7% previously. Political advertising is actually proving to be bigger than they previously expected: their forecast for 2012 is now $3 billion for local TV. Political advertising on local TV (including local broadcasting and local cable) is now forecast to add $802 million for Q3 (vs. prior forecast of $695 million) and $1.7 billion for Q4 (vs. prior forecast of $1.5 billion).
For the full year they forecast $3.0 billion in political advertising, up from $2.7 billion previously. Highlighting the scale of this figure, all other local broadcasting (excluding political advertising) should generate $19.9 billion in revenue for the year. Including political and incremental Olympic advertising, their forecast now equates to +2.8% for Q3, +1.8% for Q4 and +1.9% for the full year 2012. At these levels, it seems clear that the Super-PACs have had a substantial effect on this race, far greater than they previously anticipated.
Local seems to be holding up better than it might otherwise have been expected to given the strength of the automotive sector (which continues to lead to incremental spending with local media outlets as long as the auto industry benefits from pent-up demand and low interest rates), although we still forecast a 1.3% decline in local advertising, excluding the benefits of political advertising on local TV. National continues to generally gain share of mass media advertising, in their view.
Among the most significant changes in their model relate to national television, which primarily includes network and cable TV. These media are those which are primarily being impacted both by the decision-making paralysis driven by the Fiscal Cliff and also by delays associated with the storm. Network television is also being further impacted negatively by what appear to be weaker than expected (at least vs. those which were guaranteed) ratings.
Pivotal’s new forecasts call for normalized (excluding incremental revenues from the Olympics) growth in national TV of 0.3% in Q3 and a decline of 1.2% for Q4, driving a full year 2012 growth rate of 1.8%. For 2013 they now forecast 2.1% growth.
They estimate national cable to grow by 1.9% in Q3, by 1.6% in Q4 and by 3.8% for full year 2012. They expect the sector will grow by 5.4% during 2013. Network TV is now forecast to decline by -3.1% during Q3 and by -5.3% during Q4, or -1.8% during 2012. For 2013 they forecast a decline for the medium of -3.3%.
Pivotal has also refined estimates on digital advertising as we incorporate our analysis of recently updated data from the IAB on internet advertising revenues. Total national digital advertising is now forecast to grow by 5.6% in Q3, 5.3% in Q4, 7.3% for all of 2012 and 6.4% for the full year 2013. This compares with prior expectations of growth of 6.5% in Q3, 7.9% in Q4, 5.1% for full year 2012 and 5.1% for 2013.