What Ad Spending Green Shoots Will Look Like

Advertising-dependent media could have to wait another year before seeing signs of an economic turnaround. CBS CEO Les Moonves' recent elation about a recovering TV advertising market -- "[T]he money is going to start coming in..." -- could be premature. Here are some of the green shoots that could signal an end to the advertising recession and the start of a recovery:

• More advertisers will join Coca-Cola and Procter & Gamble in making pay-for-performance the new default standard -- not just an option -- as they expand to more measurable, accountable interactive platforms. P&G recently moved GreyGlobal Group from billable hours to a value-based compensation involving an upfront fee and add-on payments for sales and market share gains. This is an easier proposition for consumer packaged goods marketers who enjoy lower price points, more controlled selling environments (like supermarkets) and regular, direct consumer purchases, according to a report by Credit Suisse analyst Peter Stabler.
• Advertisers will begin spending more without artificial catalysts like the cash for clunkers program. If advertiser spending climbs to four percent in 2010, restoring its historical correlation to GDP growth that could grow three percent in 2010, "the bull case for media could be compelling," says Morgan Stanley analyst Benjamin Swinburne in a recent report.
• Companies will begin seeing real revenue growth again as consumer spending picks up. That will drive more advertising and marketing dollars across the media spectrum. The first half of this year, growth in operating income and profits largely have been fueled by rigorous cost cuts and layoffs and lower company guidance in the absence of real revenue growth.
• The glut of advertising inventory will begin to shrink. The broadcast networks have shifted as much as 30 percent of their national ad inventory into the short-term scatter market which will hold down prices and pressure local TV ad sales. Add to that a glut of ad inventory online, where Madison Avenue has become more comfortable, and it is easy to anticipate a scramble for deals. Still, Bernstein Research analyst Michael Nathanson predicts a slow recovery. He has nearly halved his 2010 advertising growth estimates to 1.9 percent based on existing weakness in Internet, broadcast and cable networks, radio and outdoors. That's still more optimistic than other analysts, who expect mid-single digit declines in 2010 ad spending.
• A rebound in auto, finance and retail business will signal an advertising recovery. The three industries have accounted for more than 60 percent of this year's total advertising decline in both national and local broadcast TV, newspapers, radio and cable TV, Nathanson said in a recent report. While fourth quarter trends will improve in comparison to the economic collapse in late 2008, the jury is still out about 2010.
• Local media will begin making structural changes to their business and shift more of their advertising dependence from television and print to online and mobile. That will completely reset the economics and value of TV stations and newspapers which can build hyperlocal content, service and advertising businesses by becoming more virtual. With TV station revenues expected to fall 20 percent in 2009 and slide an additional seven percent in 2010, at least according to consultant Jack Myers, local media must reinvent itself to increase its share of ad dollars in a better economy. Leading TV station owners including NBC and Fisher Communications are aggressively moving operations online, integrating neighborhood news (through partners such as OutsideIn.com), social networking and local marketing.