Advertising in vanguard of slowdown

Marketing executives are still divided on how far downturn will affect UK and Europe

The boom has lasted for seven years. Since the early Nineties, annual growth in advertising spending has soared ahead of the expansion in the British economy. Now even the most bullish of media executives admit the slowdown has started, and the only question is the magnitude of the cut-backs.

The boom has lasted for seven years. Since the early Nineties, annual growth in advertising spending has soared ahead of the expansion in the British economy. Now even the most bullish of media executives admit the slowdown has started, and the only question is the magnitude of the cut-backs.

In the autumn, the ITV companies were the first to warn that advertising revenue growth would decline. Since then the deceleration has swept through the magazine and newspaper sectors. Trinity Mirror, Britain's biggest newspaper group, this week reported a sharp second-half fall-off in ad sales growth.

Within hours it was Yahoo!'s turn to disappoint. This it duly did when it reported that annual revenue growth, which largely depends on banner advertisements and sponsorship fees, is set to tumble from 100 per cent year on year to 10 per cent.

However, a more chilling alarm for media executives was sounded yesterday when AC Nielsen, the survey group, said advertising revenues for the 11 months to November grew at slightly less than the rate of inflation - in other words, a decline in real terms. Moreover, the Nielsen figures show a 5 per cent year-on-year spending decline for Britain's 30 biggest advertisers for the same period.

Jeremy Ridgway, associate director of media measurement services at AC Nielsen, said: "Barring an extraordinary bounce-back in December, it now looks as if total advertising growth for the year will be no more than 4 per cent, which is close to a real-term decline after inflation, a year-end performance well down on the past few years."

More worryingly, some of the largest advertisers made the deepest cuts. The country's biggest advertiser, Procter & Gamble, the consumer goods giant, whose products include Ariel detergent and Pampers nappies, slashed spending by 25 per cent to £114m.

"There is no getting away from the fact that Procter & Gamble spent £40m less," Mr Ridgway said. "It's a big chunk of advertising by any measure."

Other big branded goods advertisers cutting ad spending included Ford, whose ad spending fell by6 per cent to £53m, and Vauxhall, a unit of General Motors, whose spending plunged nearly one-third to £55.6m. Telecoms firms, including Vodafone and British Telecom, as well as the Government, Britain's second-biggest advertiser, went against the trend, spending more. But few would bet, given the rising debt service costs of telecoms firms, that their advertising budgets will escape unscathed this year.

News of the overall spending decline among big advertisers yesterday sapped the share prices of several media and advertising groups. ITV leaders Carlton Communications and Granada Media fell 3.8 per cent to 562p and 2.4 per cent to 415p respectively. United Business Media, a major IT publisher in the US, slid 4.2 per cent to 804p. WPP Group, the leading global advertising and market services group, edged 4.6 per cent lower to 811p, while Aegis, Europe's biggest media buying firm, fell 6.9 per cent to 112p.

Not everyone is equally downbeat. Ad industry professionals, characteristically, are more optimistic. They concede the expansion may be slowing but they continue to forecast moderate growth.

Nick Phillips, director general of the Institute of Practitioners in Advertising (IPA), the ad agency trade body, said: "What we are seeing is an unsustainable level of activity in the first half coming back to slower rates of growth in the second half. Our members are seeing continuing growth, but at a lower rate."

Next week the IPA is to release its quarterly "Bellwether Report", which will document a slower rate of growth but stop short of predicting an outright decline. "The overall mood is positive, although there is a sense that the pace of the dot.com revolution and the levels of spending by the mobile phone companies couldn't go on forever," Mr Phillips said.

A mood of uncertainty probably colours the outlook for the year ahead every January, perhaps more so after years of aggressive expansion funded by vigorous revenue growth and rising profits. During the 1990s, newspapers expanded pagination, while magazine publishers added dozens of new titles, ranging from the creation of the lad mag sector to style bibles such as Wallpaper*.

The broadcast media have expanded even faster. Channel 5 was born in 1997 and now takes £230m in ad revenue a year. The number of radio and multi-channel TV stations exploded. Then there was the dot.com boom - short-lived, yes, but still competing for advertising revenue with traditional media outlets.

Should a real downturn materialise, it would be the first to grip the media industry since the 1990-91 recession. It would also mark a sudden end to the buoyant times the sector may have begun to take for granted.

How rapidly things can change is shown by events in the US. Despite strong revenue gains on the back of the presidential election, CNN, the news channel, yesterday detailed plans to cut up to 1,000 staff, one in four. One reason for the restructuring, the company said, was to make better use of resources, particularly in online operations.

It's not the US being affected. The broad advertising slowdown has hit weekly news magazines such as Time, which according to industry figures saw December ad revenues plunge 24 per cent on a year ago. For the whole of 2000 that meant that ad revenue grew by just 0.4 per cent.

However, for Britain and the wider European media sector, signs of an outright downturn seem to be missing. Trevor Pritchard, an associate director at Standard & Poor's, the credit-rating group, said: "From the European perspective there's little concrete evidence of a major slowdown, though a decline in growth is expected. The UK TV sector is where people expect more of a slowing, but that's after an exceptional year in 2000. It's a bit early to say the UK economy is slowing down and a lot of the negative sentiment is based on what's occurring in the US, where the jury is probably still out."