How sustainable is the ad recovery?

Oct 21, 2002  •  Post A Comment

The debate is raging about how real and sustainable the current advertising recovery is, and some of the biggest media players are taking sides.
Mel Karmazin, Viacom’s chief operating officer, recently declared that “extraordinarily strong advertising demand” has pushed CBS’s fourth-quarter scatter sales to double-digit price increases and sell-out levels.
News Corp. Chairman Rupert Murdoch said his Fox Entertainment’s television pacings are up more than 20 percent for October and November. “The accelerating momentum shows no signs of abating,” Mr. Murdoch said at the recent Goldman Sachs Communacopia XI media conference in New York. CBS, Fox, NBC, ABC and many leading cable networks have secured an average 10 percent-and sometimes as much as 40 percent-pricing gain from last spring’s upfront levels.
But Barry Diller, who doubles as chairman and CEO of USA Interactive and Vivendi Universal Entertainment, said he simply “cannot rationalize” a sustainable ad recovery in light of all the other negative economic news.
“While advertising is certainly firming up somewhat, I think there’s not much, so to speak, underneath it,” Mr. Diller told the Goldman conference attendees. “I don’t think you can predict it [the ad recovery] holding.”
Mr. Diller is not a lone skeptic. There is prevailing sentiment among some economists, industry analysts and media executives that robust ad spending (that began with a 17 percent leap in the broadcast networks’ $8 billion upfront market) cannot be sustained in an environment where the most telling economic indicators are either negative or erratic.
The mixed and bad news comes in daily doses, in the form of wildly fluctuating consumer spending and confidence numbers, rising mortgage foreclosures and lower housing starts, rising jobless claims and ambivalent retail sales reports, tepid corporate profits and capital spending, and a modest 3 percent growth in the all-important gross domestic product to which ad spending forecasts are so closely tied.
Even now, most media companies hesitate to provide firm guidance for their 2003 financial performance because of these volatile variables. The most optimistic forecast calls for broadcast and cable advertising gains in 2003 of between 4 percent and 6 percent.
“The big question is whether the advertising comeback is an early indicator of a very solid year to come, or just out of sync with the country’s economy,” said Sanford Bernstein analyst Tom Wolzien.