News Articles

Mending Economy May Miss Local TV Ad Sales

9/07/2003 08:00:00 PM Eastern

The economy may or may not be on the mend, depending on whom you believe. Either way, if you're in the local TV ad-sales business, you have some serious issues to deal with in 2004, including a potentially smaller campaign-spending pie than had been expected and a slipping share of the ad budgets of the nation's car dealers.

That $1 billion pot of political-ad gold everybody keeps talking about for 2004 may be substantially smaller—like, by half—if the Supreme Court upholds the McCain-Feingold campaign-finance–reform bill it is set to hear oral arguments on today.

At the Television Bureau of Advertising (TVB) forecast conference in New York Thursday, Jan Baran, senior partner in Washington law firm Wiley Rein & Fielding, said that some $500 million in so-called "soft money" raised by political parties and banned by the McCain-Feingold bill is at stake. Most of that money usually goes to local television, he said.

If the court upholds the soft-money ban, it would put a huge dent in stations' political-ad coffers for 2004, although, over time, Baran said, political interests and stations may find ways to funnel the funds to TV ads through vehicles other than political parties.

Issue ads could also take a hit, said Baran, to the tune of $100 million. Such ads are banned by McCain-Feingold in the 60 days leading up to Election Day. The bill is being challenged on constitutional grounds.

National Automobile Dealers Association (NADA) Chairman Alan Starling told conference attendees that local TV's share of dealer budgets has declined from 16.6% in 1998 to 14.5% in 2002. Newspapers, meanwhile, have retained roughly 50% of those budgets.

According to Starling, both local cable and the Internet have gained share at the expense of local TV. "Cable advertising is big" among dealers, he said. Asked why, his response was to the point: "It's a cost situation."

Increasingly, dealers have more options for where to spend their ad budgets, he pointed out. And, like most businesses, dealers are under the gun to be more cost-efficient and get more bang for every buck spent on ads.

On the plus side, Starling said, car dealers will be spending more on advertising in the future, not less. It's up to TV sales people to "show us the added value you bring to the table. Your competitors aren't going to go away."

For the fourth consecutive year, car sales in 2003 are expected to drop. The NADA projection for the year is 16.3 million, down from 16.8 million in 2002. However, Morgan Stanley auto-industry analyst Stephen Girsky expects sales to bottom out this year and start to climb again in 2004. Still, he told the conference, the Big Three automakers are struggling to make profits, about $6 billion of which will "come under attack in the next four years" from foreign manufacturers.

Meanwhile, consumers are rejecting efforts by American business to pitch them at every turn, said Association of National Advertisers President Robert Liodice. That's evidenced by the 30 million consumers who have put their names on the new telemarketers "no call" list. It's also evidenced by the 40% of commercials that TV viewers tune out. Anything the TV industry can do to help marketers create more-entertaining ads would help ensure the future flow of ad dollars, he said. He also urged TV to make interactivity "business today instead of a future business" in the effort to help target consumers better.

The TVB is predicting 10%-11% growth in local TV ad sales for 2004, with a 14%-15% increase in national spot and a 7%-8% rise in local advertising.

TVB Forecast 2004
Source: Television Bureau of Advertising
Local spot +7% to 8%
National spot +14% to 15%
Total spot +10 to 11%
Network +7% to 8%
Syndication +5% to 6%
Cable network +8% to 9%