AD CATEGORY PREDICTIONS RUN THE GAMUT

Advertising analyst Jon Swallen, speaking at the TVB Forecast Conference today, reviewed the state of six key advertising categories—automotive, financial, telecommunications, restaurants, motion pictures and department stores. His statistics offered both grief and hope, and he began with the worst case—automotive.

"Since auto advertising peaked in 2004, it’s been a three-year slump," said the senior VP of research at TNS Media at the annual New York event. "Auto dollars are leaving the marketplace at about $1 billion a year and all of that is coming out of your checkbooks."

Indeed, auto ad spending is down 8% in 2007. His conclusion: "It's a bloody mess. We've taken a $3 billion hit, with newspapers and TV having the most to lose ... and did."

On the plus side, Swallen did find that spot TV is gaining local auto dealer share (up from 16.4% in 2005 to 20% in 2007) but it's a larger slice of an ever smaller pie (with dealers spending a total of $5.6 billion in 2005 and an estimated $4.7 billion in 2007).

"A happier story actually is in money," he said, smiling, moving on to financial spending. Here, advertising dollars in 2006—$11.93 billion—are up 43% from 2003. Most important, auto insurance spending nearly tripled.

Geico, Progressive and Allstate led the pack, but auto insurance, with over 280 companies competing, is both highly fragmented and highly concentrated, with the top 10 companies spending about 40% of all media dollars. Most of that (75%-80%) is going to TV advertising, split evenly between national and spot TV. While Allstate puts most of its money in national (up 20 share points) Geico has a more diversified mix and is actually shifting national TV dollars to local spot and radio.

Telecommunications companies, especially wireless and Internet providers, on the other hand, are growing more consolidated, with ATT, Verizon and Sprint accounting for 55% of total ad spending.

That money is "disproportionately allocated towards national TV, leading to share gains," Swallen says, while newspaper dollars have been flat and spot TV spending more robust among the mid-size advertisers.

National chain restaurants remains a slow-growth, highly competitive industry with more than 350 advertised brands fighting for sales growth in the low-single digits. In 2007, Swallen estimates national restaurants will be relatively flat, eking out a mere 1.5% growth increase.

Fast food chains with ad spending trending flat or down last year include Burger King, KFC, Pizza Hut, Dominos and Chili's. Only McDonalds, Subway and Taco Bell increased their ad budgets. Applebees and Wendy's, currently up for sale, remain "in limbo" in Swallen's growth charts.

Television remains the medium of choice for all of the above, representing between 75% and 80% of total ad spending. According to Swallen, however, "national TV is extending its share-of-market lead over spot TV. Radio’s share is holding steady at around 9%-10% and other media are minor players in this category."

Looking just at share of budget, national vs. spot TV for January-May 2007, Swallen cited McDonald's with a 52%/20% split between national and local TV spending; Burger King a lopsided 70%/3% split, and Wendy's with a 67%/14% differential. The missing pieces go to other media.

Meanwhile, the digital revolution is bringing great change to the film industry. Traditional revenue streams are being challenged but advertising "habits" remain largely unchanged, with some studios still releasing Thursday night launches of films that won't debut until 10 to 20 days later. The big loser in that kind of scheduling, he says, are newspapers, losing nearly a quarter of a billion dollars ($240 million) since 2004.

While studio spending on spot TV remains flat, national TV spending is increasing at 3%-6% per year. Fully half of those spot dollars continue to go to the top 5 DMAs.

Concluding with department store trends, consolidation, again, continues to play a major role in the industry's declining sales and stagnant spending. "The category is in a malaise," Swallen added, noting ad spending will be down 3.5% in 2007, with Macy's, Sears and Wal-Mart down and Target, Kohls and JC Penny up. What is sharply on the rise—some good news for local advertising—are the spending-per-store increases.

Target’s per store spending is up 22% in 2007 (over 2003) while Kohl's is estimated to be spending 52% more per store this year.