After more than a year of misery, Madison Avenue is beginning to glimpse hopeful signs that a rebound in advertising spending is near.
The indications of an emerging recovery are palpable in growing demand for commercial time during various programs on broadcast and cable television networks. Several advertisers in competitive categories like automobiles and movies have increased their ad budgets. And there have been reports of higher revenue for some large national radio networks.
The return of optimism at ad agencies and media companies is also being fed by a rising tide of positive economic news involving consumers, like gains in personal income and the biggest surge in buying big-ticket merchandise since 1987. How willing shoppers are to spend helps determine how willing marketers are to open their wallets.
"The outlook is improving, but whether it holds is the question," said Gordon Hodge, an analyst who follows media companies for Thomas Weisel Partners in San Francisco.
To be sure, the improvements are patchy so far. Conditions continue to be difficult for many agencies and media owners because most advertisers are reluctant to increase ad spending, which they scaled back in response to the softening economy and the Sept. 11 terrorist attacks.
For every network, magazine or newspaper that reports gains in ad revenue, there is another that reports no relief in sight. And agencies in cities hit harder by the downturn, like Boston, New York and San Francisco, are still laying off employees. That is why most forecasters are sticking with estimates made last fall that a sustained recovery will not begin until the second half of 2002.
Even so, some analysts, agency executives and leaders of ad and media trade associations say they are discovering reasons to be guardedly optimistic after ad spending fell last year by 6 to 7 percent, the worst decline since 1938.
"There are signs of a bottom in the first quarter, signs of hope in the second quarter and signs of light in the third quarter," said Michael J. Russell Jr., an analyst at Morgan Stanley Dean Witter in New York who follows advertising and broadcasting stocks.
"To date, radio seems to be leading the way," he added. "Print is still tough. TV is the hardest to describe. The tie-breaking vote, however, is cast by the economic data, which so far is encouraging." How much consumers spend is crucial because they account for two-thirds of economic activity.
"I take heart that we're starting to see light at the end of the tunnel," said Joe Mandese, editor of Media Buyer's Daily in New York, a newsletter published by Primedia, "even if it's in different sectors at different times.
"We've hit some of the bottoms in some of the media sectors," Mr. Mandese said, like commercial time on children's programs on broadcast television, where there is surprisingly robust demand. "For other sectors, like newspapers, the trend is still downward, but the margin of erosion is narrowing."
At some point, increases will appear that are broader and more sustained, "once corporate profits stabilize and marketers can afford to spend," he said. That should become clearer as companies begin to report first quarter earnings - or the lack thereof - in April and after.
Mr. Hodge said that while "television and radio seem to be faring well, and media budgets for Hispanic-targeted advertising are up," there is "no sense of recovery for interactive spending, though it appears to be getting less worse.
"Outdoor advertising has stabilized, but is not better yet," he added, "and the publishing business is still fairly challenged."
Executives at the associations representing the print media agree with that assessment.
"We are seeing some signs of bouncing along the bottom, with upturns in sectors like real estate and automotive," said John Kimball, senior vice president and chief marketing officer at the Newspaper Association of America. "Consumer confidence remains really strong, and that's what gives us confidence."
But because problems persist in big categories like recruitment, he said, papers will see "slow, gradual improvement, with modest growth in the less than 1 percent range."
His counterpart at the Magazine Publishers of America in New York, Ellen Oppenheim, executive vice president and chief marketing officer, said: "The first quarter is tricky and the second quarter is shaky, but for the second half there's cautious optimism. Advertisers appear as if they want to try and stay the course on ad spending, yet there is more conservative budgeting as they make decisions more month-to- month than long-term."
"A lot also depends on the category you're in," Ms. Oppenheim said. "Our travel magazines are operating in a different environment than magazines in the food and home categories." Publications in categories like business and high technology are also still suffering steep declines in ad pages because of cutbacks by their largest advertisers.
"Tourism and telecommunications spending is lagging badly," said O. Burtch Drake, president and chief executive at the American Association of Advertising Agencies in New York, "though other categories are coming along very nicely."
"We're not seeing big amounts of new money from increased budgets coming into the market, but in this climate you don't have to spend more to get more," he added. "You can get more for less because of lower media prices."
As a result, Mr. Drake said, "I think we've hit bottom in the first quarter, and I'm reasonably optimistic about a pickup."
Jack Myers, chief economist at Jack Myers L.L.C. in New York, which publishes media and research newsletters, said that those lower ad rates may lead "some marketers to move spending plans forward from later in the year, to take advantage of the soft market."
One important indication of where ad spending is headed, Mr. Myers said, will be the negotiations between agencies and networks to buy commercial time ahead of the 2002-2003 TV season, which will begin in late spring. Those talks, known as the upfront market, "look to be among the most uncertain ever," he added.
Alan J. Gottesman, an analyst at West End Communications/Consulting in New York, put it this way: "The ad business got so big so fast that it overheated. It could come back as quickly as it ebbed. As soon as the clients reckon they can sell more if they advertise more, they will."
Stuart Elliott, The New York Times. March 4, 2002
Copyright © 2002 The New York Times Company. All rights reserved.