US president: The great $2bn vote race

Before a new US president is sworn in, the candidates will have made the advertising industry rich. By Stephen Foley in New York

The Independent on Sunday is delighted to be the first media outlet in the world to announce the victors in the race to become Democrat and Republican presidential nominees. And the winners are ... the advertising industry.

The 2008 presidential race was long ago shaping up to be the most lucrative on record for the ad agencies and marketing firms advising the candidates, and for the media companies – from television networks and cable broadcasters, to radio, newspaper and internet publishers – where their ad dollars are being spent like water.

But now that the early results from Iowa and New Hampshire have failed to push a candidate into a commanding lead, and with passions inflamed on both sides of the political divide after the drama of the past fortnight, spending on advertising is being jacked up ahead of many forecasters' expectations. The primaries season, normally just an amuse bouche for the ad industry, looks set to be quite a feast.

The two states that have so far voted are small enough, and campaigning there started early enough, that candidates could concentrate on personal appearances. In the tightly bunched and bigger states to come, they cannot spread themselves that thin, so the marketing men and women must be paid to go in on their behalf. Advertising and marketing spending by this field of wannabe presidents, which could have come in at $150m (£77m) at the low end of original forecasts, is now certain to top $200m before a coronation, and could reach $250m if the free-for-all is not settled on 5 February – the so-called "tsunami Tuesday" when more than 20 states are polled.

Leo Kivijarv, vice-president of PQ Media, which tracks political advertising and whose forecasts these are, said the tight, unpredictable race was throwing up particular challenges for the campaign teams and the media-buying companies that advise them. "Luckily for the campaigns, the early primaries and caucuses are occurring in what is a slow period when big-brand advertisers are largely absent," said Mr Kivijarv. "January and March are dead months for broadcast TV. However, in February, jewellers buy up slots around Valentine's Day, and then again in April, car and furniture dealers are trying to persuade consumers to spend their tax rebates. If the races remain unsettled, the candidates may be facing not so much a price problem as a lack of inventory, and they may be forced into spending more on cable TV, on radio and on direct marketing."

Network television advertising accounts for about 50 per cent of all presidential campaign spending, but beyond that, the types of media being used to get candidates' messages across are as diverse this year as the field of candidates itself. Matching trends in corporate marketing, candidates are cutting spending on radio and newspaper advertising and experimenting with the internet. This particularly appeals to those with limited funds and those below the news media radar. Early campaign filings from Mike Huckabee, a virtual unknown a few months ago, show that the former Arkansas governor was paying $500 a time to have his name pop up alongside Google search results. Most other candidates have concentrated their internet spending on designing and hosting websites through which support is signed up and funds raised.

This is especially important for those courting younger voters – most of the Democrats and the libertarian anti-war Republican Ron Paul. As Mr Paul has shown, a handful of staff can energise hundreds of volunteers to go forth and multiply the number of times he pops up on sites such as YouTube or in political blogs. His internet fund-raising has been so successful, and his outgoings so low, that Mr Paul has at times had more cash on hand than veteran Senator John McCain and other frontrunners.

Meanwhile, direct mail, which came into its own in swing states in the 2004 election, is seeing a particularly dramatic increase. Spending on mailshots is forecast to top $1bn in this electoral cycle for the first time, up from $707m last time on PQ Media's numbers. Campaign managers say direct mail has proved its ability to zero in on particular constituencies that can tip tight races. "It was a phenomenon that came into its own in Ohio in 2004," said Mr Kivijarv. "The demographics of that swing state were so important that you could walk down a street and the homes on one side were getting four times as much direct mail as those on the other. Zip code-based mail has become more important."

Now, with the Hispanic community in the California crucial to the Democrat race on 5 February, the Hillary Clinton campaign machine was this weekend scrambling to organise direct marketing in Spanish, spending thousands of dollars to bolster support she thought she had tied up thanks to endorsements from community leaders.

It was a utopian hope that the parties would coalesce around one nominee in time to avoid having to splurge millions in giant states such as Florida, California and New York. These states moved up their primary dates precisely to get a say in the process. Now, the candidates must make tough choices about which ones they can best compete in. The private equity millionaire Mitt Romney, who has the richest campaign with declared funds of $63m (much of it his own), has taken the decision to pull adverts in South Carolina and elsewhere to spend more in Michigan, where his campaign could die if he does not win. Rudy Giuliani has been betting almost exclusively on a big win in Florida, where he has spent more on events and personal appearances than he has on advertising, leaving him a warchest estimated at $17m for the subsequent laps.

PQ Media predicted last month that the total marketing spend on the 2008 presidential campaign would be $1.67bn, a thumping $630m more than last time, and the media industry is salivating over a Giuliani win in the Republican campaign which might send that figure higher. The abrasive former New York mayor would have to spend heavily in the real presidential race to bolster his standing in the south. A match-up with Hillary Clinton would turn Texas, Florida, Virginia and North Carolina into battleground states, Dr Kivijarv predicted, where broadcast advertising is among the most costly in the country. Such a polarising contest might even tempt in Michael Bloomberg as a consensus candidate, adding another $500m to $1bn to the total. An all-southern race, John Edwards versus Mike Huckabee, might be the cheapest; the current lowest-odds race, between John McCain and Barack Obama, would be somewhere in the middle.

Either way, all this cash being funnelled through ad consultants, PR advisers and media buyers is a vital balm to an industry more worried about the future than it has been since the start of the decade. On figures from marketing firm ZenithOptimedia, the US election accounts for about a third of the meagre growth in ad spending in the US this year. Without the Olympics and the election, 2008 might have seen an industry recession in the US. Thank heavens it is a leap year.

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