We’ve all heard that ad dollars are moving online away from traditional media such as television, radio, and newspapers. The numbers don’t lie. Advertising spending in these media over the past two dozen years has plummeted. Will advertisers ever go back to traditional media, and most importantly how can cable operators and telcos offer advertisers more bang for their shrinking buck?
Television, radio, and newspapers were on a very steady growth rate, generally in the mid to high single digits since 1980 with some years (mainly election years) growing at double digits. Then in 2001, everything hit a wall. According to Universal McCann, television (including both broadcast and cable) declined by 9.4%, newspapers by 9.8%, and radio by 7.4%, mostly due to the dotcom bust. Advertising spending in these media have not gone back to their prior rate of growth.
From 2001 to 2005, newspaper ad spending varied from -0.5% to +3.9%. Then in 2006 it was -1.6% and in 2007 dropped significantly to -9.5%. Morgan Stanley estimates newspaper ad spending to drop by 5.6% and 4.5% in 2008 and 2009, respectively, and continue to decline thereafter.
Radio rose respectably by 5.7% in 2002, but languished in the 0% to 2% range through 2006. Morgan Stanley estimates radio ad spending to be -2.6%, -3.0%, and 0% for 2007, 2008, and 2009, respectively.
Television has fared better.
Unlike the years before 2001, where you saw nice steady growth, broadcast television growth has fluctuated back and forth since 2001 between positive and negative territory every other year with a high of +10.3% in 2004 and a low of -5.0% in 2007. Morgan Stanley estimates broadcast television ad spending will be up for 2008 and then down again for 2009. In the future, we may see these years as an inflection point in broadcast television ad spending.
For the several years prior to 2001, national cable and local cable ad spending grew in the high teens and low twenties in percentage points. But from 2001 to 2006, while national cable saw some double digit growth years, local cable only saw 5-6% growth. Going forward, for the next few years, Morgan Stanley estimates national cable will only grow at about 5-6% per year while local cable growth will fluctuate between 0% and 3% – not the double digit growth rate seen before 2001.
At the same time, internet advertising has risen rapidly. Since 2003 internet ad spending has grown from 20 percent to 30 percent per year and is estimated to grow by 21.4% in 2008 and 19.7% in 2009.
This begs the question: What can video service providers do to combat these changes in advertising spending? I’ll explore that topic in upcoming posts.