Advertising spend collapses as economy grinds to a halt

Ad revenues fall by a tenth in the last quarter of 2008, with more declines expected

An unprecedented plunge in advertising in the UK saw spending fall by almost a tenth in the final three months of last year, new figures revealed yesterday, with the economic crisis set to prompt even steeper falls in 2009.

The total spent on advertising in the UK in 2008 was down by 3.9 per cent on 2007, according to figures compiled by the World Advertising Research Center (WARC) on behalf of the Advertising Association. But the research reveals an astonishing increase in the rate of decline in the final quarter of the year, when spending was 9.6 per cent lower than in the same period of the previous year.

Colin Macleod, research director at WARC, said: "The fourth quarter was the worst of the year, and was tied in with the arrival of the recession. It was a sharp turnaround. The quarter is comparable to the levels seen in the economic downturn of 1991."

He warned that spending would fall further, but offered some hope to the beleaguered industry. "There is a feeling that advertising spending will go down quite sharply again, although it should pick up by the end of the year."

Sir Martin Sorrell, chief executive of the advertising agency WPP, said the numbers were likely to be repeated over the next few months. "The first half of 2009 will be very difficult around the world," he warned. "There will be some recovery in the second half in relation to the first, and it should then get better in 2010." Sir Martin named the US and western Europe as the toughest markets for advertising in the current environment.

WARC said the decline in the UK had accelerated throughout the year. "In the UK, the amount of money spent, especially on display and classified advertising, tends to be driven by changes in consumer expenditure as well as the levels of corporate profitability," Mr Macleod said. "Both of those have been hit and that will bring spending down right across the industry."

The research reveals that spending is falling faster on newspaper advertising than any other category, down 12 per cent in 2008 over the previous year. Over the same period television advertising fell by 4.9 per cent

In the last quarter alone, the newspaper industry's ad revenues fell 18.9 per cent, with only magazines performing worse, down 19.2 per cent.

Mr Macleod added: "The newspapers, especially the regional ones, were particularly affected by the loss of classified advertising, with money moving online." One analyst estimated that advertising makes up 80 per cent of regional newspaper revenues, and of that 80 per cent is through the classifieds.

Classified adverts are dominated by the recruitment, property and motor vehicle sectors, all of which have been smashed by the onset of the credit crunch. Lorna Tilbian, head of media research at Numis, said: "Those industries are right in the eye of the storm." She added: "In a downturn, classified advertising always does worse than display."

Johnston Press, which owns The Scotsman and the Yorkshire Evening Post, announced last week that advertising revenues fell 17 per cent in the UK in 2008 and 23 per cent in Ireland. So far this year its total advertising revenues are down 36 per cent.

Other regional publishers including Northcliffe Media, owned by the Daily Mail & General Trust, and Trinity Mirror, which has a portfolio of local papers, have also suffered. The Local Media Alliance, which includes all three companies, has approached the Government for help.

The entire newspaper industry has been struck by the plunge in advertising, as companies across the UK slash costs and reduce headcount. But newspaper advertising still had the largest share of spending, with a quarter of the total spent last year.

Television advertising makes up 23 per cent and the internet accounts for 20 per cent. Online advertising was the only sector to enjoy positive growth in 2008, with spending estimated to be up 17.3 per cent. But even that was tempered, as it slowed from 39.5 per cent the previous year.

Mr Macleod said: "The growth rates on the internet are slowing. The more it has grown the harder it is to grow further, but it is also being affected by the wider economic issues."

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