New year's sales may top, double 2003's 3%-4% gains
A new year always brings renewed optimism among ad sellers, and with the prospect of price-pumping events like the upcoming presidential election campaign and Olympic Games, broadcasters in particular have reason to be cheerful.
The annual barrage of ad prognostications out this week offers a sanguine view of 2004, with growth for total TV ad sales expected to easily top, if not double, last year’s modest 3%-4% gains.
Certainly such seminal events, combined with a long-awaited economic rebound, are enough to banish thoughts of primetime viewing declines and digital encroachment by such nefarious gadgets as the ad-skipping digital video recorder.
In a report out Wednesday, investment bank Smith Barney forecasts the U.S. advertising market overall will outpace gross domestic product growth, gaining some 6.7% in 2004 to reach $256 billion. That gain is broadly in line with projections by ad group Universal McCann and compares with total 2003 ad growth of around 5%. The bank anticipates broadcast ad revenues will be up 7%-8% and radio ad sales to show growth in the low single-digit range.
Smith Barney believes improved corporate profitability should lead to higher ad budgets, while an improving economic outlook typically fuels new product activity that requires commercial campaigns and higher ad spending. TV is the natural beneficiary of this economic pop, despite a recent weak TV scatter market, where pricing starts the new year flat compared to last June’s upfront prices.
Investment bank A.G. Edwards on Wednesday predicted local TV will be a major beneficiary of robust political advertising and the Olympics. The firm’s broadcast ad forecast is slightly more bullish than Smith Barney’s, with an anticipated 10.7% gain for total TV ad spending thanks to healthy gains for cable and local TV, which suffered disproportionately in 2003. Bank predicts total spot TV spending will rise a comfortable 9.8% in 2004, driven by a significant improvement in local advertising growth of 11.1% over 2003.
Neither bank was ready to predict whether the Big Four nets can outsell 2003’s $9.6 billion upfront commitments, which may have contributed to flat scatter pricing later in the year. Most pundits believe the 2004 upfront will be a bit softer than in the two previous years of record-breaking gains.
Cable also will continue its torrid pace. A.G. Edwards predicts an 11.9% jump in total cable spending in 2004 while Smith Barney forecasts a more conservative 7.5% in year-over-year growth. Cable finished 2003 with 6% of the total ad pie, compared with just 3% a decade ago.
According to Kagan World Media estimates, ESPN was the top cable ad destination, wracking up just over $1 billion in gross ad receipts last year. Also among the top earners were Lifetime ($751 million) and MTV ($736 million). Cable upfront generated $5.3 billion last year, still half the level of broadcast but growing faster.
The challenge for cable advertising, notes Smith Barney analyst Jill Krutick, is fragmentation. The top 10 cable webs by viewership account for some 60% of total cable ad spend (out of 95 major ad-supported nets), and those market leaders may actually be seeing their viewing levels decline.