INITIAL REPORT Rachel Dangermond, [email protected], 504.309.2116
Traditional Ad Market Benefits from Adjusting to a New Normal Companies: AAPL, ARB, CBS, CMCSA, CMLS, DIS, DISCA, GCI, GOOG, NLSN, NWS, NYT, RENT, SBGI, SNI, TWC, TWX, VCI, VIA, WPO March 22, 2012
Research Questions:
What is the current state of the traditional advertising industry, and what trends are emerging for network TV and local media in 2012?
Silo Summaries Summary of Findings 1) MEDIA BUYERS Suppliers and buyers in the local markets were markedly optimistic These 11 sources—five in network TV/cable, four in the for the first time in four years. However, most agree they have local spot market, and two in out-of-home—are optimistic and reported greater ad spending in most adjusted to a new “normal” in traditional advertising. categories except telecom. National advertisers are Broadcast networks such as CBS Corp. (CBS) and News Corp.’s spending more on network and less in local markets, (NWS) Fox should benefit from another strong upfront season. Top while local advertisers have proven to be stable. Most advertisers are planning product launches, expansion cable companies like Time Warner Inc. (TWX) and Comcast Corp.’s and growth this year and beyond. Although the digital (CMCSA) NBCUniversal could see a higher percentage of growth front is imminent, sources expect little to no share than in the last few years. shifts in the media pie for 2012. Silos on the agency and client side continue to be impediments to planning The soft scatter market should lower CPM rate hikes year to year. and buying across all screens. TV and its advertising dollars are not going anywhere as the future belongs to interactive TV. 2) MEDIA SELLERS The digital transformation is affecting all media but at a glacial These 10 sources—four in local TV, three in newspapers, and three in out-of-home—said the trend pace. Traditional advertising still commands the bulk of ad for spot TV is to have ownership of the three screens: spending. TV’s next game changer will come in the form of mobile console, computer and mobile devices. However, digital and interactive TV. Meanwhile, network online video spending media is taking incremental share from the overall TV allocations remain paltry but are expected to grow. budgets. The local markets are adjusting to a new normal. Still, sources are more optimistic than they have been in four years. The local market saw new business, and national advertisers such as auto and retail have come back into the local markets. Political 2012 vs. Ad Budgets Rates ad spending has not delivered on expectations yet. 2011 Daily newspapers are seeing better year-to-year growth, and are rising off their secular and cyclical bottom. Media Buyers Classified spending is up, and package pricing is
keeping advertiser dollars from migrating to other media. Efficiency and low cost have made out-of-home Media Sellers attractive again and a must-buy for many local advertisers. Measurement in the out-of-home industry is expected to be a boon for the medium. Suppliers are Industry Specialists expanding their digital offerings to meet demand.
Advertisers 3) INDUSTRY SPECIALISTS
The three screens—console, computer and mobile—are being addressed at every level in every medium. Although organic growth for most mediums will go to digital advertising, these five sources reported a strong adherence to traditional advertising. Daily newspapers are averaging single to double-digit margins, while low single-digit growth will be the norm for core spot TV, radio and out-of-home.
4) ADVERTISERS These three sources were mixed as to what local mediums were most effective for advertisers. Some industries are following their consumers and migrating online. Others have retained a brick-and-mortar presence and use traditional media.
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Background Eighty percent of network advertising is bought in the upfront market, which takes place around Memorial Day. Twenty percent of network spending is done throughout the year in the scatter market. Scatter spending has been weak since the 2011–2012 upfront market, while local markets are in recovery mode from the downturn with no discernible geographic pattern of strength or weakness. The local spot market is in the height of its two-year cycle that bounces back and forth between political and nonpolitical years. Newspaper advertising has been looking for its bottom, and out-of-home is trying to move occupancy up in order to increase prices.
CURRENT RESEARCH Blueshift set out to assess whether upfront advertisers have diverted spending back to scatter for the upcoming season, whether digital upfront will alter the May marketplace, and whether local advertising has recovered and is normalizing. We employed our pattern mining approach to establish and interview sources in five independent silos: 1) Media buyers (11) 2) Media sellers (10) 3) Industry specialists (5) 4) Advertisers (3) 5) Secondary sources (4)
We spoke with 29 primary sources and included four of the most relevant secondary sources focused on advertising trends.
Silos 1) MEDIA BUYERS These 11 sources—five in network TV/cable, four in the local spot market, and two in out-of-home—are optimistic and reported greater ad spending in most categories except telecom. National advertisers are spending more on network and less in local markets, while local advertisers have proven to be stable. Most advertisers are planning product launches, expansion and growth this year and beyond. Although the digital front is imminent, sources expect little to no share shifts in the media pie for 2012. Silos on the agency and client side continue to be impediments to planning and buying across all screens.
Network TV/cable media negotiator for a top-five agency The network TV market remains strong after outperforming most media during the downturn. The weak scatter market is a reflection of advertisers rolling up Viacom is more aggressively their scatter dollars into their upfront budgets in 2011–2012. The source said seeking business because its rate hikes will not be as high as they were last year. Advertising spending for the audience ratings are up and it entire 2012–2013 TV season should be up in the low single digits year to year, has more GRPs to sell. with most gains going to cable. . “Scatter is slow because a lot of the money was rolled up into the Network TV/cable Media Negotiator upfront last year.” Top-five Agency . “This upfront will be slower; it’s not quite as strong as last year. Prime- time, cable and some bigger dayparts could be up 20%.” . “This year will look at a lot like last year, but don’t expect rates to be up as high as last year.” . “Viacom [Inc./VIA] is more aggressively seeking business because its audience ratings are up and it has more GRPs to sell.” . “Discovery [Communications Inc./DISCA]’s more-jubilant-than-expected quarter sounds a lot like pre-upfront positioning.” . “The automotive category is still spending nationally.” . “Soft drinks are starting to spend more nationally, and fast food is as well. Both categories need efficiency.” . “There is not much happening in syndication right now. Very few people target syndication after the upfront is over. Most of the inventory is used for ADUs [audience deficiency units] because most of the time they
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overestimate their delivery. But syndication rides with broadcast and cable, and it jumps to the higher tide if there is one.” Discovery’s more-jubilant-than- . “Inclusion of digital properties in the upfront buy is sometimes planned, and sometimes it is up to the individual negotiator. About 5% to 10% of expected quarter sounds a lot the budget goes toward digital properties. A lot of clients used it as ADU like pre-upfront positioning. at the same CPM for multiple screens.” . Network TV/Cable Media Negotiator “We do very minimal buying of TV Everywhere.” Top-five Agency . “Hulu [a joint venture between NBCUniversal, News Corp. and The Walt Disney Co./DIS] and [Disney’s] ABC full screen can come up impressions of what is a commercial load, and we are told after the fact.” . “Hulu is one of the fair-headed children right now. … On Hulu a CPM costs $45, but with total impressions it winds up being $90 per CPM. Is it worth it? Yes, when the commercial load was minimal, but now they’ve increased the load. I don’t have a problem as long as the CPM reflects it and it doesn’t.” . “There are more set-top boxes that we can get ratings from than just depending on Nielsen [Holding N.V./NLSN]. But until someone big says no to Nielsen, we’re stuck with them as the index.”
Network TV/cable buyer for a top-five media agency This year’s upfront spending will be up but conservatively. The source cited significant turf battles between TV buying and digital teams. Spending will need to expand to include all screens, but TV will continue to claim most ad dollars. Ninety percent of syndication inventory is sold in the upfront. General syndication follows the trends of prime-time, getting pricing slightly under the average sold in broadcast. . “Our projections are far more conservative. We brought down our totals for cable to 5% to 6% when we had projected high single digits last year.” . “This year’s total upfront dollars [broadcast and cable] will be up in the low single digits, with cable up in the high single digits.” . “There is resounding feedback that all broadcast inventory in scatter is being sold at flat to upfront; maybe some inventory is up a few points.” . “Cable is similar. Some cable companies are being very aggressive, like Viacom which is desperate for dollars.” . “Daypart ratings have fallen off, with soaps losing audiences over the I was curious as to why year and new programs being not so great. This time period has gotten Discovery was so positive in so cheap; advertisers will throw as much money at it for $5 per CPM and may pay 10% to 20% higher to get the GRPs and demo.” their earnings call and asked . “Packaged goods and beverage companies are spending, with further them about it. Discovery has money coming from auto. Pharma is down, and studio entertainment is been telling me that the reason flat. There might be growth in the telecom [wireless] area.” things are so good for them is . “Financial, with insurance and new players that didn’t exist before, is that they took in more in the showing lots of growth in spending.” . “There are pockets of cable networks that are able to charge more: upfront, which has them pacing [Comcast/NBCUniversal’s] USA, [Time Warner’s] TBS and TNT.” ahead of last year. . “I was curious as to why Discovery was so positive in their earnings call Network TV/Cable Media Buyer and asked them about it. Discovery has been telling me that the reason Top-five Agency things are so good for them is that they took in more in the upfront, which has them pacing ahead of last year.” . “Syndication is not doing much, it’s virtually impossible to launch a good original show. It’s super hard to keep the show on the air. There is some prime-time product that should feed it—[ABC’s] Modern Family, [CBS’] Two Broke Girls, [CBS’] Big Bang Theory. But to lose Oprah [CBS] reduces the medium by a lot of dollars.” . “Syndication pricing follows prime-time. If prime-time is flat, syndication doesn’t do much better. Daytime comes in a with a little premium, not a lot, especially without Oprah, but courtroom shows are super cheap.” . “There is nothing unique in syndication; they hardly have any negotiation leverage.” . “They get more money when prime-time is tight. In the selling world, CBS with … Rachael Ray, Entertainment Tonight and Dr. Phil has the strongest properties, better than anything that’s around.”
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Network TV/cable negotiator for a top-five media agency Network TV spending continues to grow, and upfront spending is expected to be higher than last year. However, rate hikes should be muted given scatter’s For the Hulu-type model to pricing weakness during the last few quarters. Online video and digital offerings work, they need more long-form are taking only a very small slice of the overall pie. Cable continues to push for TV shows, but that carries a parity with broadcast in terms of pricing, but very few cable networks are able to great premium. replace broadcast. . “This year’s upfront market looks like it will be a lot like last year except Network TV/Cable Media Negotiator smaller increases for the networks, low single-digit CPM hikes.” Top-five Agency . “I don’t think the digital upfront will have any effect on television spending. It will create interest for the medium, but I suspect this upfront will be pretty strong—perhaps not as strong as last year but still strong.” . “Digital medium is still not as mature a medium as it needs to be.” . “For a decade, cable has tried to get its pricing up on par with broadcast, but they still don’t have anything that people can’t walk from.” . “For the Hulu-type model to work, they need more long-form TV shows, but that carries a great premium.”
Network TV/cable negotiator for a top-10 media agency The upfront market will be strong, and pricing should increase only in the single digits year to year because of scatter’s slow pace during the last few quarters. However, The Procter & Gamble Co. (PG) and General Motors Co. (GM) bear watching. P&G may take its advertising money to the digital market, leaving share to be taken in TV. Meanwhile, GM may reinstate its advertising budget. . “We’re seeing a positive upward trend.” . “Only one of our clients has pulled back, and that one client had a Only one of our clients has particular reason that has nothing to do with the economy.” pulled back, and that one client . “I see our clients in fairly good position financially. They are introducing products, some have made acquisitions, and a good portion of them had a particular reason that are expanding.” has nothing to do with the . “P&G is threatening to take dollars out of TV, but we’ll see if that is not economy. positioning.” . “The big three in syndication are Warner Brothers, 20th Century Fox Network TV/Cable Media Negotiator Top-10 Agency and CBS, but 90% of the inventory is sold in the upfront and there are not a lot of changes during the year.”
Managing director for a midsize advertising agency The source was somewhat optimistic about the new “normal,” but said clients are not releasing annual budgets until a month or a quarter beforehand. This complicates inventory management for sellers. Also, advertisers are seeking opt-out clauses in every deal. . “I’m optimistic that spending will go up, but don’t expect it until the back half of the year.” . “We have a new product launch in the fourth quarter and will be buying digital, a lot of newspaper, traditional radio, spot TV, and cable provider.” . “We still do plenty of traditional media buying magazine, street furniture, transit OOH [out-of-home]. Most of the pricing in this media is flat and has been for a few years for some of our clients.” . “We use [Fomento de Construcciones y Contrato’s] Cemusa a lot. … There is not a lot of inventory that is locked up and sold.” . “There is no blockbuster show. You can buy five to 10 shows deep and still do nothing but a 4 in a rating.” . “The reason [Project] Canoe failed was it became a political quagmire with the wrong people leading the effort. The idea was out before its time. Now we’re talking to cable operators about set-top box ratings instead of Nielsen small samples. This is happening now with Rentrak [Corp./RENT] that started as a third-party entity that monitored VOD to report to studios that someone had watched a movie on TV but the two-way data stream also helped report on TV shows.” . “Rentrak has good talent there. [Chief Research Officer] Bruce Goerlich is a great media research guy.”
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Local broadcast buying supervisor for a midsize advertising agency The source was optimistic about the advertising market in general because none of the firm’s clients expects to be trim ad spending in 2012. Spending in local broadcast was flat year to year in the first quarter and is expected to rise 1% to 2% for fiscal year 2012 because some campaigns get under way in the second half of the year. Although the firm is spending on digital, the lion’s share of spending still goes to traditional advertising and mostly broadcast. . “Stations are oversold in the next two weeks of March but are offering to push us out to April and will give bonus one-for-one spots, which means they have inventory in April.” Out-of-home is thriving right . “Auto is spending more, but it did not come back to the extent we had now because of its low CPM on anticipated.” . “There is still uncertainty in some markets. Right now the strength the main arteries. Digital seems to be in the bottom markets. When 2008 hit, vendors went boards have changed the looking for new business directly with advertisers, and that has not scope of how we look at OOH, gone away as the economy has improved. We might see rates up 5% in and we buy mostly digital now. some smaller markets [top 50 and under] and down 3% to 4% in larger markets.” Local Broadcast Buying Supervisor . “We just did a campaign for a client that is about to start, and the rate Midsize Advertising Agency we paid was higher for the last two weeks of March than in the second quarter. Typically the rates go up in the last two weeks of March, but those higher rates last into the second quarter.” . “Many times if we get preempted we will shift our dollars first to local cable or to radio, where we can get the same GRPs.” . “Healthcare is up, as are grocery, retail, education, and media on radio and TV.” . “Out-of-home is thriving right now because of its low CPM on the main arteries. Digital boards have changed the scope of how we look at OOH, and we buy mostly digital now.” . “National and network buyers … are making offers at 20% to 30% below rates, and the vendors are accepting it. I keep hearing, ‘I just got off the phone and got 30% less. If I had stayed on it, I could have gotten lower.’”
Director of a top-10 media agency Newspaper remains a foundation for this agency’s clients, who are increasing their advertising spending. The agency tests digital for certain needs. . “Newspaper budgets are flat but are consistent, and I don’t see that changing anytime soon.” . “The clients we have that spend on print have not changed their budget allocation on newspapers for years.”
Local media buyer for a large, full-service advertising agency The ad industry is optimistic again. Although digital is growing, traditional advertising continues to take the lion’s share of media budgets. Spot TV spending was flat the first half of 2012 and will be up slightly in the second half. Rates are flat. The source reported getting more value with added opportunities from more stations. . “I’ve been wondering myself when the market will normalize, particularly in local broadcast, but don’t know. There is a big lean toward digital, but it is other media feeding off other media. We are doing less radio and more out-of-home.” . “We’re on the road to recovery, and the market is stronger than before.” We’re on the road to recovery, . “We have more clients feeling better about the economy, so they are and the market is stronger than starting to spend more freely.” . “Unless the local market has a primary, we are not worried about before. political pickup.” Local Media Buyer . “We have told certain clients they could try to avoid the political window Large, Full-service Advertising Agency by buying early and being flexible.” . “Financial and the tune-in category have been strong.”
Local media director for a top-10 media firm Local markets are positive, and spot TV content is headed toward mobile devices. How advertising gets created, bought and sold still is being worked out in this landscape. Every firm has its own strategy for not getting preempted by
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candidate or issue ads during this election year. Political spending has gotten off to a slow start in most markets and is expected to kick in only during the back half of 2012. Meanwhile, most of this firm’s spending is going to traditional advertising. Full-year spot TV spending will be up 6% to 8%, but that is back-half loaded during which rates will move from barely up to up 9% to 12% and possibly even 15% to 20% in some markets. . “It is too early to understand this political year. It hasn’t cranked up yet.” . “We’ve gone into the first and second quarters with pretty aggressive rate requests. The spot buyers have been on the phone screaming, but we haven’t had any problem achieving what we want.” . “When we are buying news content delivered digitally, the agency considers it a local ad medium. We are aggregating the ratings and creating a common currency.” . “Whether or not we consider it a local or digital buy sometimes is driven by the client who might have paid another creative agency to develop a digital product. The clients are siloed as much as the agencies are thinking in terms of digital creative versus mainline.” . “As content moves to the three screens, it depends on who is buying, who is creating, for the clients and agencies to have a common currency to talk about it.”
Director of one of the largest out-of-home buying firms The out-of-home industry is moving closer to broadcast media in the local market as long-term contracts are replaced by short-term, measurement comes I’m positive about the industry in line with TV and radio metrics, and production can be done instantly with because the acid test is four digital inventory. This source is cautiously optimistic about spending in the top consecutive quarters of growth. 20 out-of-home markets and the growth of digital in general. However, plans are taking longer to execute, and decisions are being made last-minute. Digital is So if the second quarter the next frontier for out-of-home. doesn’t blow up and the fourth . “I am ratcheting down my full-year expectations by a point because quarter hopefully comes there has been too much inconsistency in the market.” through, we should be up this . “I’m positive about the industry because the acid test is four year versus last year. consecutive quarters of growth. So if the second quarter doesn’t blow up and the fourth quarter hopefully comes through, we should be up Director this year versus last year.” Large Out-of-Home Buying Firm . “Studio spending has been strong even though Sony [Corp./TYO:6758/SNE] had a so-so year with no strong releases. Universal is going gangbusters across its cable and studio spending.” . “Auto is mixed, with one Japanese automaker having retrenched a bit and two foreign car makers seeing spending up about 5%.” . “Retail, fast food and Verizon [Communications Inc./VZ] for telecom have been spending and leading the pack.” . “Digital is growing along two paths. There is the digital billboard that all three big companies are converting inventory slowly but surely. And we’re seeing more studio, media and net/cable spending on digital, while the place-based digital is starting to take off.”
President of a national buying firm The out-of-home market continues to be popular for categories like entertainment and media. The trend to make out-of-home buying similar to broadcast is a positive for the industry. This source’s business has ebbed and We had a great year last year, flowed, with 2007 being the high water mark, but last year and the beginning of and that is carrying through this this year have posted very good growth. year. . “We had a great year last year, and that is carrying through this year.” . “Rates are a constant battle because we can’t just expect to get 50% President, National Buying Firm off. We have to go in and ask and negotiate as much as possible.” . “The entertainment category has been spending strongly.”
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2) MEDIA SELLERS These 10 sources—four in local TV, three in newspapers, and three in out-of-home—said the trend for spot TV is to have ownership of the three screens: console, computer and mobile devices. However, digital media is taking incremental share from the overall TV budgets. The local markets are adjusting to a new normal. Still, sources are more optimistic than they have been in four years. The local market saw new business, and national advertisers such as auto and retail have come back into the local markets. Political ad spending has not delivered on expectations yet. Daily newspapers are seeing better year-to-year growth, and are rising off their secular and cyclical bottom. Classified spending is up, and package pricing is keeping advertiser dollars from migrating to other media. Efficiency and low cost have made out-of-home attractive again and a must-buy for many local advertisers. Measurement in the out-of-home industry is expected to be a boon for the medium. Suppliers are expanding their digital offerings to meet demand.
General sales manager for a local station group in the Southeast The market is improving from a very tough second half of 2011, but the market only has so much money, which is being carved up into smaller pieces. New technology is splitting the pot further. Mobile is the next frontier for local stations that want to be on any screen available with news, sports and event coverage. . “As far as normalizing, we are not back to those levels of 2006–2007, and we don’t expect to get back there. The barometer is automotive, We’re pacing way ahead of last which used to sell 17 to 18 million units and is hoping to sell 16 million this year. If automotive is moving cars, they are buying advertising, and year, up 13% in the first quarter our revenue is up.” and 50% in the second quarter. . “We’re pacing way ahead of last year, up 13% in the first quarter and But we’re not making budget 50% in the second quarter. But we’re not making budget because we because we had unrealistic had unrealistic political [ad spending] goals.” political [ad spending] goals. . “We’re pacing up 13% and still have time to do in this last month.” . “Local advertisers have been hotter than national. Categories like General Sales Manager window replacement, hardware stores and local retailers are Local Station Group, Southeast spending.” . “Automotive is back and very strong, with Chrysler [Group LLC] up a phenomenal 41% year to year. GM has come back as well. Ford [Motor Co./F] is spending like crazy.” . “The Japanese have lost ground and need to make it up. Kia [Motors America Inc.] and Hyundai are doing very well. Hyundai has a heck of a car out with its Equus. … It costs $15,000 less than a Lexus.” . “I don’t know of any market not getting high single-digit to low double-digit rate hikes for early morning, which is the sweet spot for most stations right now.” . “2013 we will probably cut our rates by 40% because there will be no Olympics and we’ll be on our knees in the gutter.” . “We had a client ask us to go back to 2011 rates. … I thought they’re putting me on.”
General sales manager for a local station group in the South Fiscal year 2012 is expected to get stronger in the second half because of an improvement among core advertisers rather than political ads. Digital is part of the mix because of mobile apps for news and sports. Mobile TV protocols are running in test markets this year and should be ready for installation in 2013. . “We’re more positive about 2012 than we were last year. We’re going to see higher growth rates than we’ve seen in the past several years.” . “The first quarter is pacing up low single digits, but March is still waiting to get firm, even this late.” . “Auto is still not as robust as we’d like to see, but the worst is definitely over. They’ve pulled out of the inertia, and different groups are moving faster than others. Domestics definitely are spending better than imports.” . “Retail is up overall.” . “Fast food has improved.” . “[Telecom] is down, and I don’t understand it. AT&T [Inc./T] is particularly off.” . “We’re on tablets and phones with mobile apps.” . “We’ve been working with a group that is working on mobile digital TV protocols and is starting test markets this year. In 2013, we should start moving quickly towards installation.”
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. “Project Canoe failed because it required a coalition of people with spectrum, and they didn’t have the deep pockets or funding to access this digital spectrum.”
General sales manager of a local station group in the Midwest Rates are expected to be up this year because of elections, but will fall next year. Political ad spending has been slow to come in, but core spending has been solid in many local markets. This source said core advertising serves as a better metric to follow than total revenue. . “Our fiscal-year 2012 projections without political are expected to be up 5% even though last year core was up significantly.” . “Political is not as good as had been expected or at least not as early.” . “We’re just starting to get the PAC money and are projecting the back half to be strong because of political spending.” . “First-quarter pacings are up 5% to 10%, and the second quarter is hard to tell because it is breaking late.” . “We are seeing a lot of competition from the hospitals, which are spending right now.”
General sales manager of a local TV station in the Midwest This top market still is recovering from the recession. Spending in the second half of 2011 rose in the double digits but stopped during the last few months of the year. Goals are not being met because corporate overestimated political ad spending. . “This market is dead.” Our corporation expected . “The first quarter is pacing down. January was down 20% and February political to be heavier than it off by 14% to 15%, and March is coming in late.” . “The second quarter is pacing up double digits right now, but that has been, so we’re not hitting doesn’t mean anything.” our numbers. . “Auto has been fine, but political has been weaker.” General Sales Manager . “Our corporation expected political to be heavier than it has been, so Local TV Station, Midwest we’re not hitting our numbers.”
General sales manager of a midmarket daily in the Southeast This source predicted spending in fiscal-year 2012 to increase 4% compared with 2011, which is at least double the year-to-year growth seen in previous years. Still, tourism continues to be pressured by the economy. Newspapers are diversifying their revenue stream into niche magazines and relying on preprint and pricing packages. . “I’m optimistic, but we still have one foot dragging. Banks are looking at some good stuff, and loaning is being worked out with regulations. Gas is almost $4 a gallon though.” . “This is the fourth year of a four-year recession, and some categories are faring better than others. Even the boutique stores are getting better with daytrip visitors increasing their shopping.” . “Newspaper has ridden the coattails for auto and retail and we’re in the marriage trough together. But as prices have gone down and margins have grown tighter, we’re following our two biggest categories through their cycles.” . “We’ve normalized to the new normal, or at least we could call this a new bottom. Will it go down from here? I don’t know, but we were down 10% in 2008. What we are doing now is half of where we were five years ago.” . “January was slow. Auto didn’t show up. In February we saw a pickup from department stores.” . “Hospitals spent a lot last year and didn’t do it again this year.” . “Real estate agents are coming back in March and April, and they haven’t been around in a year.” . “The local spot TV stations are expecting a good year because of the election. We have big races in the state, but there will be less money on direct mail and more on social media and online.” . “Preprint is still great news for newspapers. We are still getting more couponing for newspapers, and digital is actually helping the coupon phenomenon grow.” . “[News Corp.’s] News America coupon manufacturer lowered the hammer on the couponing black market for security purposes. … Valassis [Communications Inc./VCI] is doing pretty well; there has been no drop-off in quality from them and definitely better quality than News America.” . “We’re starting to load stuff on our website, and it’s an awful lot of work for most of our systems to have to figure out how to make money doing this.”
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. “[The] Kroger [Co./KR] is a good example of an advertiser that would love to get out of the preprint business, but the Web isn’t there yet.”
Advertising director for a small market daily in the Midwest This market was struggling to come back from the recession when oil and gas money flooded in and refueled advertising. That money has dried up, but classifieds have picked up little by little and local advertisers are spending. . “First-quarter revenue is up 10% year to year against a weak 2011.” . “Cellular advertising has decreased a lot because everyone has a least one cell phone. Unless you are switching contracts, there is very little Our help-wanted and classified to talk about.” business is what really is doing . “Auto has been picking up a little or at least is more consistent than it had been. Much of this is dealer incentives and co-op money.” better. . “Aftermarket auto has picked up a lot.” Advertising Director . “Our help-wanted and classified business is what really is doing Small Market Daily, Midwest better.”
Sales director of a large metro newspaper in the top-20 market Newspapers continue to diversify and retain or grow customers through digital media offerings. Local advertisers have weathered the downturn and continue to spend. Certain categories still are struggling, such as real estate. . “First quarter is looking good and is a good breath of fresh air—up 8% to 12%, with a lot of sales focus driving those numbers.” . “At the local level, advertising spending has been sustainable and even growing.” . “Near the end of 2011 we picked up considerably, and November and December were really good months.” . “We’re diversifying and growing our audience base in the tablet and mobile space.” . “Our digital portfolio is diverse versus our traditional offering. We’re partnering with portals and in the social space, developing digital ad networks.” . “Recovery has been different in every market. This market has been hit harder than most with real estate the biggest issue. But now unemployment is really hitting hard.”
General manager for a out-of-home billboard company with a national footprint Digital offerings and a new metric are helping to grow out-of-home. Occupancy has improved by double in this market. Still, a return to mid- to high single-digit prices is not expected anytime soon. . “We are pacing up 22% for the first quarter, and the second quarter looks like it will stay strong. We saw a pick up at the end of last year.” . “Rates are flat to slightly down, and digital is driving the organic growth with rates up 15%.” . “The out-of-home industry has not normalized; this does not feel like it did pre-2008. I think we are still adjusting to the new normal. We are not going to return to long-term contracts and rates that are up 5% to 10%. The new normal is the new rating currency. We are being bought by the quarter like other media. We are offering a quarterly rate that if you try to change you get knocked down. We have to change more on the fly than ever before.” The out-of-home industry has . “The out-of-home industry grew by 4% in 2011.” not normalized; this does not . “We are seeing healthcare up as a major spender with some hospitals feel like it did pre-2008. I think saying ‘Obamacare’ has caused the need to make up on tighter we are still adjusting to the new margins.” normal. We are not going to . “Education is spending, such as tech colleges.” . “Fast food is still a strong category although light-casual is down.” return to long-term contracts . “Tourism is slowing as consumers are not feeling good about gas and rates that are up 5% to prices.” 10%. The new normal is the . “If telecom would come back in, it would be a game changer, but it’s new rating currency. been dark with AT&T and Verizon for a while.” . “As for the out-of-home industry, accuracy in predicting what your goals General Manager are and hitting them are the next metric.” Natl. Out-of-Home Billboard Company . “I’m not sure about [TAB] Eyes On, not the methodology or accuracy,
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but more the execution and marketing. … TAB’s got seven or eight people on the ground while Arbitron [Inc./ARB] has 100 salespeople.” . “Radio is struggling. Cumulus [Media Inc./CMLS] sells the way they want to while [Cumulus’] Citadel used to be client-focused. Now I’m hearing frustration with Cumulus and the way things have changed. This all started three months ago.” . “Spot TV is not getting the political dollars because a lot of advertising is going to Twitter [Inc.], Facebook [Inc.] and others online.”
Owner of a private out-of-home billboard company in the Midwest Digital is helping to grow revenue, and local distributors for major food and beverage manufacturers are seeing value in electronic messaging. Pricing for digital boards also is up year to year because of higher demand. Digital will continue to be a darling for the out-of-home industry. . “The out-of-home advertising business is pretty darn good, with digital attracting spenders with deep pockets.” The out-of-home advertising . “Occupancy is running in the 90s for traditional inventory and 100% on our digital boards.” business is pretty darn good, . “Other media in this area is struggling a bit compared to us.” with digital attracting spenders . “We are getting local distributors … using our digital boards more. Also, with deep pockets. we’re seeing a consortium of small retailers pooling together to use the digital boards.” Owner . “There was an attempt in our area to ban digital boards, but it Private Out-of-Home Billboard Company Midwest backfired and actually served to create more attention for our inventory.” . “Rates are up 2% to 4%.”
Sales director for an out-of-home billboard company and consultant in the Southeast This market was hard hit by the recession, and recovery has been spotty. Most revenue is coming from local businesses. . “We’re being flexible on pricing because something is better than nothing right now.” . “We’ve had a little trouble with cancellations and replacement for national advertisers.” . “The motel business is nil and has migrated mainly to the Web.” . “We are working with the auto dealers in the area, but they are very demanding and want paper, not vinyl, which doesn’t hold up as well.” . “Florida and Georgia are overbuilt with billboards.”
3) INDUSTRY SPECIALISTS The three screens—console, computer and mobile—are being addressed at every level in every medium. Although organic growth for most mediums will go to digital advertising, these five sources reported a strong adherence to traditional advertising. Daily newspapers are averaging single to double-digit margins, while low single-digit growth will be the norm for core spot TV, radio and out-of-home.
Newspaper consultant and political industry expert Some dailies are talking about reinvesting in print because they believe it will drive digital growth. Even though the days of 35% profit margins are gone, most newspapers remain profitable. Political ad spending has not been as strong as anticipated, but is expected to pick up during the second half of the year. . “There is a danger in equating the newspaper industry in total by looking at [News Corp.’s] The Wall Street Journal, [The New York Times Co.’s/NYT] New York Times, [Gannett Co. Inc.’s/GCI] USA Today and [The Washington Post Co.’s/WPO] The Washington Post, which are large national papers. Local newspaper publishers have about six to eight brands in their stable and are doing very well.” . “I spoke with a guy at the conference who has seven newspapers, and his margins are 22% with strong local brands.” . “I don’t think the industry can sustain an increase in newsprint, so costs there are likely to remain flat.”
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. “I recently came from a conference with 500 newspaper people there, and I saw almost a renewed focus on trying to revive print as a medium as the platform from which all others would spring.” . “Research done last year shows 75% of adults still looked at a printed newspaper at least once a week. It used to be once a day, but that is still powerful.” . “Midsized to small newspapers feel that they have their arms around the costs by putting innovative platforms in the field. Growth will come from the digital side, but most have goals that focus on what percentage is coming from digital and nonlegacy. One group I’ve spoken with says they expect 25% growth to come from digital, which is pretty aggressive.” . “Newspaper is always a complement to TV but also print and online.” . “Direct mail has been the most vulnerable because of the confusion Direct mail has been the most with the postal services. With Saturday delivery gone, the industry is redefining on time delivery.” vulnerable because of the . “As an industry so many capital expenditures in printing, paper and confusion with the postal distribution are trying to make the legacy business pay for growth in services. With Saturday delivery digital.” gone, the industry is redefining . “There is recent research that newspapers still have very strong voices on time delivery. in the digital field, especially if they can combine online video with the delivery.” Newspaper Consultant & . “There has been an infatuation with social media that overstates its Political Industry Expert importance.” . “Data doesn’t support that social media drives decision making by voters.” . “I spoke with one paper that has set up a three times a week delivery system with 28 managed pages on the undelivered days. Pricing is similar to broadcast—supply and demand—able to maintain 85% of the ad revenues and lopped off tremendous cost and drove more web traffic.” . “I don’t know of a newspaper today that would take a full-page ad that would cause them to add more pages. They would find a way to fit it into the product.” . “Over the last two years [Sun-Times Media Group Inc.’s] The Chicago Sun-Times has strategically eliminated owning trucks or a printing plant. Instead, they outsource to [Tribune Co.’s] The Chicago Tribune. … Without the legacy and capital costs, the margins are improving.” . “There is a lack of enthusiasm and a sense of confusion as if political has made a strategic decision to wait on spot TV.” . “Local candidates don’t have a war chest and need the national front to settle.”
Local broadcast industry expert with a national viewpoint The local advertising market is not seeing consistent growth, but bright spots exist and have led to advertising spending in certain markets being up in the low single digits. Retail ad spending has picked up even though same-store sales numbers have not been as upbeat. . “The market is averaging up 2%, but it is a market-by-market phenomenon with the highest up in the double digits and the lows down in the single digits.” . “March Madness has seen strong sales with lots of auto, auto parts, auto insurance and retail, which is surprising because it has been so soft.” . “Political has been up in the low single digits after a very slow start. That is low single digits over 2010; it is behind 2008.” . “Florida so far has had the most money spent, with South Carolina making a strong showing too.” . “Chrysler has been strong and picking up the slack.” . “Toyota [Motor Corp./TYO:7203/TM] dealer associations have held up well in most markets.” . “GM has big problems, but Ford continues to spend strongly.” . “There is a battle brewing in the auto parts category, with AutoZone [Inc./AZO] and competitors erupting in spending suddenly.”
Director of emerging media for a top agency The new normal is aggregating relative reach; not every marketer can be a Pepsi or McDonald’s. Traditional media continues to affect consumer choices, but mobile and interactive TV are the next frontiers. More than one-half of consumers will own interactive TVs in the next five years. Some companies have started to address this technology.
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. “Mobile is happening in the same way the Internet did when in the late ’90s. It was a line item on the plan with 30 different ad units.” Smartphones are snacking . “Smartphones are snacking devices [in terms of viewing content].” . “Interstitial moments will continue on video such as trailers, pre-roll devices [in terms of viewing interstitials, and other video moments.” content]. . “The tablet world is the device of choice. There is an interesting Director of Emerging Media dynamic between TV and the second screen, where you walk into a Top Agency room and go to the best screen available there.” . “The challenge of OTT is that third-party boxes like Roku [Inc.] or Boxee [Inc.] are not going to catch on with the people because they don’t want a bunch of boxes sitting around. Gaming consoles such as [Microsoft Corp.’s/MSFT] Xbox, [Nintendo Co. Ltd.’s/TYO:7974] Wii, and [Sony’s] PlayStation are at the twilight because consoles will be built into the set.” . “Sony as a company has issues; they forgot about the consumer experience. Others are mimicking Apple [Inc./AAPL] by establishing style with substance.” . “The TV space is in big trouble. Apple may or may not come into the picture. The only way to make money is annuity, a monthly fee or a cut of the apps like iTunes. They’re betting on an app store as a centralized hub on TV. … Apple TV did well in the fourth quarter and sold 1 million units. … I don’t think Apple will dominate TV like it has the tablet. Apple has the ecosystem of iTunes but can’t get into the broadcast and cable world even if they come out with a see-through glass. No OTT box will have mass.” . “[Google Inc.’s/GOOG] Google TV—meh. Version one flopped; version two is better and integrated into more sets.” . “In five to seven years, 50% to 60% of us will have connected TVs; this does not bode well for carriage agreements.” . “TV is never going away; let’s get that discussion out of here.” . “IP-delivered video will be across all screens. If cable cannot deliver a Sony as a company has issues; cross-platform experience, it will be a challenge in the next one to two they forgot about the consumer years.” . “The big issue is broadcast. You have 20th century technology trying to experience. Others are act like it’s 21st.” mimicking Apple by . “As far as cord-cutting, Time Warner and Comcast have a good handle. establishing style with It’s a reflection of affordability. A lot of people are hurting, so … you will substance. see cutting. But the quality of content in the current model is not replicable online. You cannot create amazing programs that drive an Director of Emerging Media audience like broadcast is doing.” (For more information on cord Top Agency cutting and OTT content, please see Blueshift’s March 15 report.) . “TV is still the biggest aggregator and biggest reach and that’s even using the metric that takes into account DVR usage.” . “At the rate of current disruption, it is hard to predict who would be the top media companies standing, but I’d say CBS will still dominate. The main reason is the demographics continue to age and they do that demo well. It’s hard to think this trend will be disrupted in five years. Next is Google, but they’re not going anywhere now. They need to use UGC [user-generated content]. … I’m on the fence about Apple. [I] don’t know how active they want to be in the advertising space. Time Warner and Comcast need to redefine themselves from media standpoint, or else fragmentation will chip away at them. For a player like Netflix [Inc./NFLX] to survive, they need to look at advertising.”
President/CEO of a global media consultancy firm Traditional media still achieves its goals. The next major transition or paradigm shift will happen in three to five years during which interactive TVs will redefine the viewer’s experience. . “Every marketer wants to get close to their customer in a one-to-one experience. TV delivers that expressed emotional connection.” . “TV stations are starting to sell the three-screen environment: TV, Internet and the intimacy of mobile. We are beginning to see good experiments with smart TV.” . “TV dollars have not gone away, but distribution has changed to a lot of providers.” . “The big player today is still TV, even in local.”
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. “Some small business have built their business solely on email. I work with a customer that sends out 95,000 emails a week. He could use TV TV stations are starting to sell or the Internet, but he has been very successful with email alone.” the three-screen environment: . “Spot TV is up mid-single digits.” . “Because of Obamacare, the medical industry has to market like never TV, Internet and the intimacy of before. Reimbursements have gone down 20%, so we are going to see mobile. We are beginning to more advertising from this category.” see good experiments with . “In one market there are 19 attorneys spending on television and smart TV. make up the third largest category there.” . “It is better to focus on two or three glasses and fill them full, such as a President/CEO mix of TV, radio and the Sunday newspaper instead of trying to hit Global Media Consultancy Firm every medium.” . “Car dealers are experimenting with direct communications such as texting when your next oil change is due.” . “Media buyers are going to have to work harder to reach critical mass, they will have to find riches in niches instead.”
TV industry specialist Although the advertising world is morphing, this source cited few real differences in the market from years past. Online claims 8% to 10% of most advertisers’ spending. TV remains the dominant medium because of sight, sound and motion. . “There are two dynamics driving the resilient cost of TV. Sight, sound and motion are more impactful than any other medium. And, albeit fractured, people continue to watch TV at record levels on multiple screens.” . “Legacy systems tend to hang on longer than people think they will. Networks still control TV, and even with multiple control of content that is not changing anytime soon.”
4) LOCAL MARKET ADVERTISERS These three sources were mixed as to what local mediums were most effective for advertisers. Some industries are following their consumers and migrating online. Others have retained a brick-and-mortar presence and use traditional media.
Owner of an independent florist in Southern California This source has discontinued traditional advertising in favor of the Internet and manages his own keywords. His competitors also are online and are undercutting him by offering products at almost half the price. . “We have focused entirely on the Internet this year in terms of marketing.” We have focused entirely on . “Most of my time is spent rearranging keywords. It changes daily.” the Internet this year in terms . “I’m not doing paid search because I could entertain Yahoo [Inc./YHOO] of marketing. for $100 a keyword but then the next day I might have to $150 for that same word to get in front of the next guy.” Owner, Independent Florist . “The flower business is getting tough because of grocery and big-box Southern California stores competing for our business.” . “ProFlowers.com is a direct-to-consumer grower group that is undercutting our prices by 40%.” . “I have lost faithful clients to ProFlowers, but they can’t do a two-hour turnaround and they don’t add any greens or fillers to bouquets.”
Director of advertising for a jewelry designer and retail/online stores in the South Advertisers with brick-and-mortar presence continue to use traditional media with success. A strong newspaper readership equates with ads having a direct effect on sales, a few key out-of-home billboards and transit boards keep branding messages constant, and email and catalogs drive the sales channel further. Digital is used occasionally, but the ROI weakens after the initial release. . “We are old-school when it comes to marketing, but we see a direct hit to our sales when we run a newspaper ad.” . “We have a large email list and are big on catalogs and direct mail. We do about five to seven mailings a year.”
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. “Our current media mix is mainly newspaper, email, direct mail, a handful of billboards and some transit. We have done spot TV in the We are old-school when it past and may again in the future.” comes to marketing, but we . “The newspaper in this market is very strong and is rated among the top readership in the country so we see traffic coming from our ads in see a direct hit to our sales there. We have used online and saw a huge spike, but then it died off.” when we run a newspaper ad. . “Our costs are affected by postage for the mailings, which is a huge Director of Advertising expense.” Jewelry Designer . “We base our marketing budget on our annual sales goals.”
Advertising director for casino properties This company had used only traditional advertising but then added in some online ads to keep up with consumers’ migration to this platform. . “We’re not doing as much billboard as we used to.” . “We’re spending more on banners and online searches.” . “Our media pie is carved up as online, out-of-home, radio and some spot TV.”
Secondary Sources Our review of secondary sources uncovered discussion of Procter & Gamble, the world’s largest advertiser, cutting back on traditional TV ads and focusing on cheaper and more efficient online advertising. Other secondary sources discussed the current state of political ad spending, a coalition devising standards for mobile TV, and Viacom’s 3% loss in fourth-quarter ad revenue.
March 14 Broadcasting & Cable article Cincinnati-based P&G invested two-thirds of measured spending abroad in 2009; it generated 62% of revenue outside the United States in the fiscal year ending June 2010. Now the company is trying to save $10 billion over the next four years. P&G’s advertising head plans to move TV dollars to digital. . “Marc Pritchard, head of advertising for Proctor & Gamble, is looking to slash money from his company's marketing budget by leaning heavily on digital marketing, reports The Wall Street Journal.” . “Those cuts will come by thinning the ranks of marketing executives and spending more efficiently, for example by focusing more on lower-cost digital marketing and easing up somewhat on pricey broadcast ads.” . “Pritchard also said he wants P&G to craft campaigns for multiple brands around the same event, such as the upcoming 2012 Olympics this summer.”
March 8 AdWeek article Political ad spending has yet to meet expectations. Spending to date has stemmed mostly from candidates’ PACs. . “If it weren’t for the candidates’ PACs, Super Tuesday spending would have been a trickle. A whopping 87 percent of the $6.1 million spent on spot TV during the last week (Feb. 27 to March 4) leading up to the 10 primaries, was PAC money, according to a TVB analysis of Campaign Media Analysis Group data.” . “About $10.5 million was spent year-to-date on TV in the 10 Super Tuesday states with 60 percent of … funding spots in the days leading up to the election day.” . “‘Spot TV advertising was lackluster,’ said Jack Poor, vp of strategic planning for TVB. ‘It didn’t break the way we thought it would. It's still going to be a tremendous year, but it won't start until after the conventions.”
Open Mobile video A coalition is devising standards for mobile TV and will be in test markets this year. Local stations already have apps for phones and tablets, but these standards will create a uniform buying experience for advertisers and should be available by 2013.
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Feb. 2 AdWeek article Viacom management pinned a 3% loss in fourth-quarter advertising dollars on the low ratings for Nickelodeon. However, the company’s audience ratings are up for certain networks, prompting it to aggressively go after ad business in the first quarter. . “The soft scatter market has taken a bite out of Viacom’s wallet, as the entertainment conglomerate reported a 3 percent drop in advertising dollars in the last quarter of 2011.” . “In the final three months of the year, Viacom’s cable networks group took in $1.35 billion in ad sales revenue— the same amount it reported in the recession-wracked fourth quarter of 2009. Analysts had anticipated a 3 percent improvement.” . “In a Q&A with investors, Viacom CEO Philippe Dauman on Thursday said the cable unit was pulled down by the ongoing ratings debacle at Nickelodeon. ‘If we hadn’t had the Nick ratings issue, our advertising sales would [grown in] the quarter, would have been up rather than down,’ Dauman said.”
Next Steps The upfront network TV/cable marketplace is underway, and networks are beginning their discussions and presentations on the 2012–2013 season’s schedule. Blueshift will be monitoring developments in the upfront market and in the local advertising market, especially as the anticipated political spending starts to flow. We will follow the advertising migration from spot TV to mobile and will assess the out-of-home industry and its relationship to digital networks. Finally, we will monitor newspapers’ reinvestments into the core print platform as a springboard into the digital arena.
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