Ad spend for 2003 outlook cloudy
Investors hopeful new year will spark rebound
The bearer of the bad news, the Conference Board, reported that the consumer confidence index fell to 80.3 from 84.0 in November, reflecting U.S. consumers' gloom over continued unemployment (figure rose to 6% in December from 5.7% in November) and saber-rattling in world politics.
The mood swing came just as retailers reported a disappointing holiday sales season, which is likely to go down as one of the weakest in three decades.
Sears as well as discounters like Wal-Mart and Target have all warned on sales and dampened earnings while specialty retailers like Best Buy, Office Depot and Tower Records also say they're feeling the pinch with weak December sales.
The question for broadcasters is whether the tough economic times for retailers will result in reduced ad spending in 2003. Retail, department and discount stores account for 15% of TV ad spending, the second-largest single category after automobiles.
Researchers at SunTrust Robinson Humphrey Capital Markets said economic indicators may be of little direct use in predicting first-quarter 2003 ad spending. But the investment group nonetheless believes the disconnection between the underlying economy and the ad market cannot continue indefinitely.
Ad 'air pocket'
"Unless an economic recovery develops by the second half of '03, we believe the ad market might hit an 'air pocket' in the back half of the year," the bank said in a note Monday.
Most forecasters have been expecting only tepid ad growth of 4% to 5% but SunTrust said an informal survey of leading media buyers in the last week of 2002 showed greater uncertainty beyond Q1 '03.
Most of first-quarter airtime is committed at the national level, with a bit more uncertainty at the local level.
"Most of the buyers' clients are holding steady on plan for 1Q, though we have heard many are electing not to commit incremental funds because of the shaky holiday sales," according to SunTrust.
Atlanta -based SunTrust said it may take until the spring ad campaigns to detect further evidence of a deeper trend, since the first quarter is typically an "off-quarter" for retail.
And while the firm believes the TV ad market will continue to chug along, bolstered by a strong upfront, tight scatter market and healthier breadth of demand, it is slightly concerned that automotive ads, at nearly 18% of total spending, will be unable to expand as rapidly as it did in 2002.
Fortunately, automakers, with their strict union contracts, can't easily close manufacturing plants and thus need to keep selling off inventory.
Showbiz immunity
For the most part, entertainment companies have been more immune to the economic slump than most sectors and consumers have not cut back their spending on recreation during the tough times.
"Entertainment and recreational spending continues to grow as a share of personal consumption, and we believe this will persist," SalomonSmithBarney noted in its new 168-page entertainment industry 2003 outlook opus.
While the media sector didn't exactly set the Dow on fire in 2002, down 29.9%, the large cap entertainment stocks did outpace the S&P 500 by 1.9% in 2002, thanks in large part to strong fourth-quarter advertising.
Analyst Jill Krutick of SalomonSmithBarney is bullish about economic prospects, and believes the resilient broadcast ad market should continue to improve into 2003 "especially in light of easy first half comparisons."
Krutick believes the ad market can expand by 3%-4% in 2003, largely in line with the general economy. The bank believes last summer's hot network TV upfront sales market and improving media ratings across the board will help fuel that growth.
That is, of course, provided a war doesn't wreck the party.
