No end in sight as ad income spirals down

No end in sight as ad income spirals down

Gerry Murphy, the chief executive of Carlton Communications, admitted last week he was at a loss to explain the advertising slump that has devastated revenues at the ITV companies.

Announcing the company's half-year results, he produced a neat little chart comparing conditions with the last significant slump in advertising at the start of the last decade. In the early 1990s, advertising was in a downward spiral as unemployment and interest rates soared. This time round the economic signals simply aren't there.

In the wake of Capital Radio's second profits warning last week, executives could be heard muttering that it was unfair Carlton and Granada had got away without being forced to make similar statements. It was a fair enough point. Advertising fell away by 18 to 20% in April and May on ITV, similar levels to the slump being suffered by the likes of Capital and others in commercial radio.

Carlton blamed Media Week. The regular updates on how much air-time is being booked by media buyers means the TV advertising market is more transparent than radio. The slump has not been a shock.

But, the point is, just because Capital has been pretty much alone in the profit  warnings, the company is far from alone in suffering the current conditions. It is now affecting newspapers as well, which had, so far, proven a little more robust. Display appears to be about 20% down, although, in keeping with the idea that advertising has become decoupled from the economy, recruitment appears  to be bearing up.

There are, of course, mitigating circumstances. The dotcom boom that was just about coming to an end at this time last year has made the comparison with the start of 2000 difficult. Then, of course, there are the sporting events, particularly Euro 2000 which helped to inflate demand and, consequently, revenues.

The inflation on ITV especially is one reason that the marketing men have turned their backs on channel three this year. When it came to deciding on budgets, many, like Nestlé, decided to put more cash below-the-line. This year ITV is far better value. The network has improved its ratings after a dismal autumn and the slower demand has caused the price to fall.

The question is, when will the recovery begin? The experts certainly don't seem to know. Media analysts have been routinely revising their forecasts down and are currently at a likely fall of eight per cent at the end of the year on ITV. We would get a better idea after Easter, we were told. That estimate is now back to autumn.

The best thought that Murphy could proffer was that the mismatch between economic conditions and the advertising slump was a direct result of the nervousness in the US. Somewhere in Detroit, New York or LA, someone is cutting back on discretionary spend and it is
hitting the UK. The irony is that not even the US is actually in recession. Growth in the US economy has slowed, but will still likely end the year in positive territory at just under two per cent.

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