For Madison Avenue, the last 12 months brought the perfect storm - a rare alignment of perfectly awful events from the dot- com meltdown to the economic slowdown to the weeklong shutdown of most advertising after Sept. 11. The result is what may be the largest reversal of fortune for the American advertising and media industries as a big gain in ad spending in one year swings to a big decline the next.
Ad spending will probably decline again next year, but not so much as in 2001.
"There are agencies in trouble, no question about it," said O. Burtch Drake, president and chief executive at the American Association of Advertising Agencies in New York, the industry trade organization, but "the indications are that perhaps the worst is behind us."
"By the third quarter of 2002, we should start to see a pickup," he added, that would generate "fairly modest growth."
After a record year in 2000, when ad spending rose a robust 9.6 percent, to $243.7 billion, ad spending this year is expected to fall by 6 percent to 7 percent, according to an average of estimates from a dozen analysts. That would represent the first downturn since 1991, a recession year, when ad spending fell 1.2 percent from 1990. It would also be the biggest decline since a Depression year, 1938, when ad spending fell 8.1 percent from 1937.
If ad spending declines in 2002 after falling this year, it would mean the first two consecutive down years since the Depression, when ad spending fell for four years, 1930-33, according to a leading industry forecaster, Robert J. Coen of Universal McCann in New York, part of the McCann-Erickson World Group division of the Interpublic Group of Companies.
Mr. Coen, senior vice president and forecasting director at Universal McCann, predicts that Madison Avenue will avert that fate, albeit barely; after ad spending falls 4.1 percent this year from 2000, he estimated, it will start "the gradual crawl back" and rise 2.4 percent in 2002 over 2001.
Certainly neither Mr. Coen nor his counterparts' forecasts amount to a depression for 2002. But now that economists have officially declared that a recession began in March, the significant toll on the advertising and media realms is becoming apparent.
People say it's not possible for ad spending to fall in both 2001 and 2002 "because it's hardly ever happened," said Michael J. Beebe, an analyst who follows advertising and media for Goldman, Sachs in New York. "I don't care about history; the world is different."
"I think you'll see a return to normalcy in 2003," Mr. Beebe said. He estimates ad spending will fall 4 percent in 2002 after dropping 9 percent this year. "I'm more willing to believe there will be a healthier economy in '03 than in '02," he added.
So far, the cutbacks in ad spending have meant layoffs at many agencies; closings of shops like Dweck, Favara & Raffle Advertising, Pagano Schenck & Kay and Warwick Baker O'Neill; shrinking budgets at broadcast and cable television networks for news coverage and for developing new series; and reductions in editorial budgets at magazines and newspapers. There have also been forced closings of publications as disparate as Expedia Travels, Lingua Franca and Mademoiselle.
"The number of media outlets has expanded exponentially" during the recent boom years, said Lauren Rich Fine, an analyst for Merrill Lynch in New York who follows industries including advertising and newspapers, "and the excesses masked all the supply being added."
Now that the glut is becoming apparent, "there's a herd mentality" among marketers, she added, who are proclaiming, " `I know media is cheap, but there's a ton of it out there, so I don't have to act.' "
"At what point does corporate America decide it needs to stimulate the consumer?" Ms. Fine asked. "Everyone wants to believe things will improve, but people are trying to hold onto their ad budgets and won't spend until they see it."
That delayed decision-making is described by analysts like Joe Mandese, editor of Media Buyer's Daily, a newsletter published by the Media Central division of Primedia, as "just-in-time media buying," invoking the process by which automakers and other manufacturers wait until the last moment to have parts delivered.
"This very, very short-term, close-to-the- vest planning," Mr. Mandese said, "means you can't predict" advertisers' spending intentions. "It's bizarre."
Most of the predictions that are being made do not call for ad spending to revive until the third or fourth quarter of 2002.
"No one can tell you the first half looks good," said Michael J. Russell Jr., an analyst who follows advertising and broadcasting for Morgan Stanley Dean Witter in New York. "But the worse things get in 2001, the better it looks for the second half of 2002." That is because there would be easier comparisons with this year's results. Mr. Russell forecasts a 9 percent decline in ad spending for 2001 and no growth in 2002.
"That puts us on the more positive side of the coin," he said, laughing ruefully, "which is a sign of the times."
The main reason 2002 is expected to be another disappointing year for advertising and media is the continued softness in important categories in which marketers once spent freely, like travel, retail, telecommunications and consumer electronics.
"I'm not seeing any real, positive indications for an upturn next year," said Jack Myers, chief economist at Myers in New York, which publishes media and research newsletters. His forecast for 2002 is for a decline in ad spending of 5.7 percent from 2001, which he estimates will record a fall of 6.8 percent from 2000.
"If we get through the rest of this year and the first half of 2002 without another significant domestic terrorist attack, travel would come back, which would be helpful for radio and newspapers," Mr. Myers said. "But television and magazines would continue to struggle."
Indeed, the Television Bureau of Advertising in New York, the trade association for local TV stations, has reduced its own forecasts. Revenue for commercials bought on local stations in 2001 will fall 15 percent to 17 percent from 2000, the bureau now estimates, compared with a previously forecast decline of 9 percent to 11 percent. Next year, local stations' revenue will increase only 2.5 percent to 5.5 percent, according to the revised forecast, down from a previous estimate of 5 to 7 percent.
"I'm an optimist by nature," said Chris Rohrs, president at the bureau, "but we've widened the range and lowered it a little bit, just to be prudent."
"The two big uncertainties that steer us that way are: How will the war go? And what about terrorism?" he added. "If the war and antiterror efforts go well, the downturn could become an upturn sooner rather than later."
Though the trade organization for the magazine industry, the Magazine Publishers of America, does not make predictions, its leaders say they are cautious. Magazines are grappling with the uncertainties generated by the anthrax scare, the war and the fight against terrorism.
"There may be more magazines that close this year than in a normal year because it's really tough times," said Nina B. Link, president and chief executive at the organization in New York.
"But there are also new launches as well as existing magazines reaching more readers," she added. "We will ride this out."
Ellen Oppenheim, executive vice president and chief marketing officer at the organization, is touring the country to explain a research study conducted on its behalf by Media Marketing Assessment.
The study concludes that brands spending a higher percentage of their marketing budget on advertising - in various media outlets, not just in magazines - can get a higher return on overall marketing investment than brands that shift ad dollars to other ways to woo consumers like promotions in stores or coupons.
"The forces at play this year are different from the forces at play in previous downturns," Ms. Oppenheim said. "Media and media associations must act on those challenges and be better positioned to come out of the downturn."
As fast as the downturn took place, so, too, could an upturn.
Advertisers that "get spooked to get out for fear of getting burned will get spooked to get back in for fear of getting left behind," said Alan J. Gottesman, an analyst at West End Communications/Consulting in New York. "As soon as they think they can sell more stuff again by stepping up spending, they will."
Stuart Elliott, The New York Times. December 17, 2001
Copyright © 2001 The New York Times Company. All rights reserved.