Almost everyone connected with advertising is in a funk. AD BIZ MAY NEVER BE THE SAME, says a headline in Advertising Age. “Some veteran publishers are not shy about calling it [the ad decline] a depression,” reports the industry newsletter min.
Here’s why. In the first six months of 1991, ad revenues were down 14.4 percent at Newsweek, 18.5 percent at Business Week and 11 percent at TV Guide, reports the Publishers Information Bureau. Last week poor advertising caused Family Media Inc. to shut down its seven magazines, including Discover and Health.
Elsewhere in medialand, things aren’t much better. Local and network-TV ad revenues are off about 7 percent in 1991. Newspaper advertising was down in 1990 and also slipped 7 percent in the first quarter of 1991. Media company profits are being blitzed. The last quarterly results are down 28 percent at Dow Jones & Co. compared with 1989, 87 percent at The New York Times Co. and 42 percent at The Washington Post Company (owner of Newsweek).
Richard Harwood, ombudsman at The Washington Post, speculates that a little adversity won’t do the news business any harm. Maybe he’s right. But how about a lot of adversity? Anyway, Harwood is near retirement, and he might feel differently if he worked at Family Media or for Psychology Today, New England Monthly, The National or California. They’ve all folded. In 1990, at least 20 magazines went belly up; the unofficial total so far in 1991 is 16, according to the Magazines Publishers of America. Some magazines are so desperate they’re willing to slant stories to please advertisers, reports The Wall Street Journal. One health magazine reportedly offered to do a favorable story on two diet products for $25,000.
Theories to explain the ad slump abound: (1) It’s just the recession:when sales and profits drop, companies cut costs–and advertising gets hammered. Of course this is true. But the recession was fairly mild by historic standards; the peak of unemployment rate has been 7 percent. Meanwhile, the advertising falloff may exceed those of the 1974-75 and 1981-82 recessions, when unemployment hit 9 and 10.8 percent. How come?
(2) Advertising has been hurt by other forms of marketing, such as consumer coupons, prizes and promotions. This is also true. In 1990, marketing promotion spending totaled $69 billion, reports Wilkofsky Gruen Associates, a consulting company. Since 1985, it’s been growing at nearly twice the rate of total advertising ($129 billion in 1990). But this trend dates back at least a decade and can’t easily explain the current ad slump. Likewise, direct mail–which has been rising rapidly–still represents only 19 percent of all ad spending.
(3) Some big advertisers–tobacco and liquor companies–are pulling out. True but poor explanation for the same reason. Magazines may have suffered most. In 1979, tobacco and liquor companies were their two largest advertisers, with spending of $517 million. In 1990, they ranked 8th and 11th with almost the same spending (inflation was 80 percent over the period).
(4) It’s the bust after the boom. Pay dirt. The slump is so harsh precisely because the previous boom was so strong. Advertising flourished in the 1980s. In 1987, it reached 2.43 percent of gross national product, the highest (as a share of GNP) since World War II, reports Robert Coen of the ad agency McCann-Erickson, Inc. This was up 30 percent from the level of the 1970s (1.87 percent of GNP).
The advertising-media complex overexpanded, and now it’s paying the price. The past decade’s boom was driven by abnormally high consumer spending. As that has abated, so has advertising. The adversity has been compounded by cutbacks at debt-laden retail-store chains, which are the pillars of local advertising. “Newspapers and local TV stations were sitting ducks,” says consultant Arthur Gruen. “They just got killed.”
The mayhem promises to continue. Adjusted for inflation, ad spending is declining. Meanwhile, the number of advertising outlets–cable TV channels and specialized magazines–has burgeoned. Oversupply meets reduced demand, and the result is ferocious price cutting. Glance back at the huge magazine ad losses reported in the second paragraph. Actually, they’re understated because they don’t reflect the discounts most magazines are forced to give their published rates. Discounting is now “a way of life,” one advertising buyer told Advertising Age, adding that “we don’t want to put anyone put of business.”
But for all the turmoil, the end of advertising is not at hand. Ad budgets are being trimmed, not terminated. American life won’t become noticeably less commercialized, even if some enterprises that subsist on advertising don’t survive the slump. There’s no evidence that U.S. corporations are deserting advertising en masse for other forms of low-or high-tech marketing.
Just why advertising works is an enduring mystery. A lot of it is ignored and (rightfully) deplored. In regular public surveys, about 30 percent of respondents label TV ads misleading and about 20 percent say the ads are offensive, reports Video Storyboard Tests, a polling service in New York. But somehow, advertising triumphs over its limitations. It helps create and preserve markets. “If greater advertising over time doesn’t generate greater profits, there’s something seriously wrong with the fellows who make up the budgets,” as Martin Mayer observes in his new book, “Whatever Happened to Madison Avenue?”
And so the beat goes on–spasmodically. The media’s wailing will continue. So will cost pressures and cutbacks. There may be some more bankruptcies. People in the press have been reminded that the normal laws of economics apply to them, too. This may build character," as The Washington Post’s Harwood suggests. Right.
I just hope it isn’t mine.
