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Laggards Amid the Ad Rebound

Recent earning reports from top media companies show U.S. advertising spending is returning with a bang. But not every industry is increasing expenditures, a sign that media and ad companies have some ground to make up before they fully recover.

Industries such as travel, motion pictures and pharmaceuticals have cut ad spending during the first five months of 2010 compared with the year-earlier period, according to Kantar Media, a WPP PLC company that tracks ad spending across TV, print, radio, outdoor and some online.

Ad outlays by travel and tourism companies decreased 9.7% to $1.8 billion during the period while spending by motion picture companies fell 7.5% to $14.7 billion, Kantar says.

A full rebound will take time, says Jon Swallen, Kantar's senior vice president of research.

"It's a two step process," Mr. Swallen says. "Step one is a reversal from declines to increases and the second step for advertisers is to figure out how aggressively do they expand."

Overall, the U.S. ad market is expected to grow 1.1% this year to $149.9 billion, predicts ZenithOptimedia, a media buying firm owned by Publicis Groupe SA.

It has been a quicker-than-expected comeback from one of the advertising world's worst droughts in decades. Ad spending plummeted 12.3% last year, according to Kantar. But the estimated spending for 2011 is still well below the level of 2007, when companies shelled out $177.6 billion on U.S. ads, according to ZenithOptimedia.

Car markers such as General Motors Co., financial services companies and consumer product companies such as Procter & Gamble Co., have helped fuel stronger earnings for media and ad companies by significantly raising their ad expenditures.

But some formerly big ad spenders aren't opening their purse strings yet. And those that are spending are making short-term commitments on media such as TV.

Corporate America hasn't been as eager to make longer-term marketing commitments "like striking 10-year deals to sponsor major sports stadiums," says Rob Jayson president of strategy for Zenith Media. "That would be a real sign of confidence and we haven't seen that yet."

The reasons for the reluctance to spend on advertising vary by industry.

Some ad executives say that movie companies are unusually cautious about spending. After record box office sales last year, when ticket sales increased more than 10%, sales this year have begun to slow thanks in part to a rebounding economy. Year to date ticket sales, as of August 15th, grew 4.5%, according to box-office tracker Hollywood.com .

The conservative stance in spending is expected to continue. "There is a greater fiscal responsibility; the movie studios are saying we don't need to spend that type of money anymore," says Rick Eiserman, chief executive officer of Trailer Park, a Hollywood ad firm that specializes in movie marketing. Mr. Eiserman says he doesn't see a quick comeback.

Over the past few years, movie studios have shifted more of their ad dollars to online ads and away from more traditional venues such as newspapers.

Pharmaceuticals advertising, which has been surging since 1997 when the Food and Drug Administration relaxed restrictions on drug advertising to consumers, is also smarting. Ad outlays by the drug industry were down 2.8% to $1.84 billion for the first five months, compared with the year ago period, according to Kantar.

Ad executives who work on pharmaceutical campaigns blame the cuts on the lack of big new-drug introductions and heightened congressional scrutiny of drug marketing.

Although retail ad spending is up overall, several companies have continued to cut back on ads, as that industry grapples with lackluster sales and consumer confidence. Kantar data show that Target Corp.'s outlays fell 22.8% to $197.6 million in the first five months of 2010 while Kohl's Corp.'s dropped 10.8% to $124.3 million.

A Target spokeswoman said the company "cannot share specifics about our ad spend past, present or future."

Kohl's declined to comment.

Wal-Mart Stores Inc., which has been a major driver of ad spending increases in the retail category, said last week it is cutting back on ads.

"We changed our advertising strategy and brought media expenditures back in line with historical trends," said Bill Simon, Wal-Mart's U.S. stores chief, during a call with analysts.

The world's largest retailer had increased its ad spending 30.3% to $428.9 million in the first five months of the year, according to Kantar.

A company spokesman declined to comment on how much Wal-Mart would cut.

The retailer's pullback could have a ripple effect since other chains often follow Wal-Mart's lead.

 

Suzanne Vranica, The Wall Street Journal. August 23, 2010

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