PROFIT warnings, plummeting share prices, economic uncertainty in the aftermath of the terrorist attacks and military retaliation have hit the media sector hard. A downturn in display advertising is usually the first sign that things are going from bad to worse and we were already experiencing a considerable drop in expenditure when the terrorists struck at the heart of the business world. Ad expenditure is also often among the first items to be slashed when times are tough. These are highly visible areas of expense and to drop them off the agenda gives an outward sign of companies' belt-tightening plans. Analysts have predicted that the media sector will face substantial losses in revenue, followed by job cuts. Our view though, is that although the situation is tough, it's turning out to be not quite so grim as expected. Andersen believes that supporting the brand with a strong ad campaign is fundamental to its business strategy. To take its name out of the media for any length of time can severely impact awareness and competitive strength.
One of the reasons the big advertisers continue to push their brands is the fact that most products and services today can be regarded as commodities and, often, it's the intangibles, such as brand strength and brand values, that can really influence the consumer.
Sometimes, advertising when times are hard is even more important than when the economy is flying, as building on brand awareness and share of voice in the market is imperative for those competing on the global stage.
While advertisers are returning, we have a UK Government committed to public sector spending and a US Senate that has released millions to drive the economy. We also have many global companies who have made money in recent deals and are keen to get back to the advertising table.
The net effect of all this is that the downturn looks like being more manageable, and there are, after all, many other things that organisations can do to reduce costs, such as tackling discretionary spending. Over the past couple of years, there have been a number of mergers and acquisitions, but few companies have yet to realize the cost savings and synergies they talked about during merger negotiations.
For companies who depend on advertising revenue, every pound not coming in means a pound off their bottom line, so they need to look at some of these ways to keep their operational costs down.
Newspapers, of course, face a double dilemma: readers are keen to follow the activities in Afghanistan and there is the temptation to put on extra pages to give in-depth coverage. But, without ad revenue to bolster the extra costs of newsprint, it would be commercial folly. TV news companies face the same dilemma and will need to weigh up the extra costs of having more reporters in the field.
They may be faced with these options for some time to come, but at least the news - on the advertising front - is starting to look a little more positive.
Comment by Ed Shedd, partner in the technology, media and communications practice at Arthur Andersen
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