Business Services

The Advertising Industry: ‘Cash for Clunkers’ seems to have come to its aid

The advertising industry in the U.S., as in other key global economies, became one of the first victims of the downturn, but may be among the last few to benefit from a recovery. The total advertising spend in the U.S., according to TNS Media Intelligence, dipped 14% to $30.18 billion in the first quarter of 2009. This was even worse than a 9.2% fall in the previous quarter. The figures from Nielsen Media, another agency providing data about advertising spend, shows a 12% decline in Q1 2009.

The numbers indicate that the downturn in advertising spend is far worse than expected. They also imply that the media business and the so called “attention economy” may still need time to recover from the spell of recession. In fact, the available Q2 2009 data shows that the advertising spends have not increased much, thus, following the trend witnessed in recent months.

One of the major factors affecting the advertising spends in Q1 2009 was the turmoil in the automotive and financial sectors, which are among the top advertising spenders in the U.S.. The major obstacle that the advertising industry is expected to face for the rest of the year is the bankruptcies of General Motors and Chrysler, two major U.S. marketers whose advertising budgets are now in question. In Q1 2009, the TNS data showed, spending in the automotive category declined 28% as compared to the previous year. The bankruptcies and closure of dealerships have made the picture a bit gloomy regarding the short-term trend in advertising spends. According to available data, advertising spend by financial services and retail companies tumbled 18% each in Q1 2009.

Amid such gloom, however, the U.S. government's ‘cash-for-clunkers’ program (that offers people driving old, gas-guzzling vehicles a cash incentive to trade them in for new, more fuel-efficient ones) has helped jumpstart ad buying from auto dealers across the U.S.. This was evident from the fact that CBS Corp. gave an upbeat outlook for sales in the Q3 FY2009, giving signals of the long-awaited recovery in the advertising market.

"Cash for clunkers was a real shot in the arm for national as well as local," said CBS Chief Executive, Leslie Moonves. “You see an initiative like that helping and it gives you great encouragement that they see light at the end of the tunnel.” Outgoing Chief Financial Officer of CBS Corp, Fred Reynolds termed Q1 2009 as the "rock bottom" for auto advertising and stated that he anticipates the automakers to continue to increase spending even after the government's incentive plan ends. "Cash for clunkers got people off the couch and into the market...but they are selling more than that," he said, adding "We think it's sustainable."

According to other top advertising executives, the worst seems to have passed for the U.S. advertising sector. However, the recovery in the ad market would likely be modest rather than explosive.