The return of the advert

After a disastrous recession, TV advertising is finally poised to recover. Nick Clark reports

A fter a devastating 2009, the television industry has hailed a turnaround in its fortunes with the return of advertising revenues this year. The performance so far has prompted analysts to lift their forecasts, yet they warn there could be a sting in the tail before the year is out.

Screen Digest, the market research group, yesterday released a report called "UK advertising bounces back". It predicts that the UK's major commercial broadcasters – ITV, Channel 4, Five and BSkyB – will see ad revenues grow on average by 7 per cent. Prospects for the full year are more modest, set at 4.6 per cent, given uncertainty in the longer term.

Britain's advertising market surged out of the doldrums in the last three months of 2009, outpacing the rest of the so-called "big five" Western European markets, which comprise Italy, France, Germany and Spain. Daniel Knapp, advertising analyst at Screen Digest, said: "There was a huge advertising rush in the fourth quarter. The prices became so cheap, it just made sense."

The spending frenzy sparked concerns from other companies that they were losing their "share of voice" or market share of the audience, by not advertising and pushed the strong spending into this year.

The World Cup will also drive ad revenues in the first half, experts said. Screen Digest's report pointed out that the comparisons with the first half of 2009 are much easier.

While the second half is less clear, Mr Knapp said: "All the major TV broadcasters will end 2010 with significant increases in TV ad revenue after an admittedly terrible 2009."

The report focused on ITV, which has outperformed its rivals in the downturn, predicting its ad revenues will rise from £1.3bn in 2009 to £1.4bn. The group's new chairman Archie Norman presented a strong set of results last month, as ITV swung back to full-year profit, and predicted ad revenues would be 20 per cent higher in April.

The group's net ad revenues fell 9 per cent in 2009, below the £1bn mark for the first time. While Sky's ad revenues fell less sharply at 8 per cent, C4 was 10.5 per cent down and Five gave up a whopping 23 per cent.

ITV's digital channels rose from £242m to £245m, while sponsorship of programmes on its flagship channel ITV1 was also up slightly to £59m. It was helped by the performance of programmes including Dancing on Ice, I'm a Celebrity and X-Factor, but the final of Britain's Got Talent was the stellar performer. The show pulled in 75 per cent of the entire TV audience, making it the most-watched non-sport show for five years. At the end of 2009, the broadcaster's market share had risen to 44.2 per cent, almost twice its nearest rival.

The report also gives predictions for ITV's rivals. It believes C4 ad revenues will lift to £740m from £706m; Five will rise by 4.2 per cent to £251m and Sky will end up 4.7 per cent to £295m. David Brennan, research and strategy director for Thinkbox, the UK's marketing body for commercial broadcasters, said: "We're applauding the fact that the first half is looking so good. It is tough to predict what will happen after that. Those looking at the market have had to become much more short-termist."

Advertising is currently cheap in the UK as it is closely tied to how advertising is traded in the country, on a "share deal" basis. The media agencies are given discounts by the broadcasters not on the hard cash they spend, but the percentage of their budget they invest. So even though budgets have been cut, the discounts remain in place.

Another factor is that commercial public service broadcasters are obliged to sell all their advertising minutes, rather than limit them to drive up the price. Mr Knapp said: "That system works well when demand is high, but when it is weak, the broadcasters suffer." Ofcom last week opened the door for the TV Airtime Sales Rules to be scrapped.

Mr Knapp cautioned against over-optimism because of the spending lift and expects a "year of two halves". He said: "Advertising budgets haven't gone up, they are just weighting their spending towards the first half of the year as advertising is still at historically low levels." He pointed to several factors that could see the recovery stall.

Budgets have been strongly weighted to the first half and are unlikely to be increased as the wider uncertainty continues. There will also be the knock-on effect of the expected "austerity budget", while some groups are bypassing traditional media and putting more advertising money into direct marketing and online, although Screen Digest believes the TV is more resilient than most traditional rivals.

Ultimately, Screen Digest fears that should the economic recovery stall, so too will ads, which are tied to GDP. "Traditionally, the two correlate strongly," Mr Knapp said. "Advertising spend is amplified by changes in GDP."

Poll dip: The election effect

The past month has seen double-digit growth in TV advertising revenues in Britain, partly boosted by extra spending by the Central Office of Information (COI), the Government's marketing and communications arm, before its enforced "blackout".

Market research group Screen Digest may have said the effect helped revenue growth "only marginally", but the COI's lack of spending could seriously drag on the advertising market's continued recovery in the second half of the year. The COI, the UK's single biggest advertiser, will have to restrict its airtime for 12 weeks, starting six weeks before the general election on May 6. Daniel Knapp of Screen Digest said this would slow growth in the second quarter, and had worse implications after: "Depending on the winner of the election, COI is likely to be spending either less, or considerably less, on advertising," he said.

David Cameron has pledged to slash advertising spending hardest if his party is elected. Not everyone is convinced. "A new government needs visibility, and often it looks to advertising for that," Mr Knapp said. "I'd treat these pronouncements with a pinch of salt."