Media Feels the Pinch of Tighter Ad Budgets

For years the television networks steadfastly refused to run 15-second commercials, arguing that they would add tothe clutter of 30- and 60-second spots shoehorned between episodes of “Dallas,” “Miami Vice” and other programs.

Then this fall, with advertising demand softer than it has been in years, ABC, NBC and CBS had a change of heart. To boost demand for commercial time, which since 1979 has nearly doubled in price to about $100,000 a half-minute, the networks began accepting individual 15-second spots, charging about $65,000.

“It behooves us to try to add some more inventory . . . to attract small advertisers” as well as help larger companies keep advertising budgets within constraints, explained CBS Broadcast Group President Gene Jankowski to a group of about 100 financial analysts who met at CBS headquarters in New York last month.

Not since 1971, when the networks lost $150 million in revenue after Congress banned cigarette advertising from the airwaves, has the advertising climate been so downbeat. After years of double-digit growth, the networks, magazines and, to a lesser extent, cable television and newspapers suddenly find advertising revenue slowing this year as big national advertisers such as Proctor & Gamble, Sears, Roebuck and International Business Machines put the lid on their budgets.

“The slowdown is hitting all the media,” said Newsweek magazine President Mark M. Edmiston. “Corporate profits are down, so ad spending has become very, very tight.”

For consumers who routinely zap TV commercials, trash unsolicited sales brochures and otherwise display their ire at Madison Avenue, the spending slowdown may be a welcome relief. But for the communications industry, which has just undergone a round of mega-mergers that has left many new owners of media properties knee-deep in debt, the slowdown is worrisome.

“Many observers regard advertising as a highly sensitive barometer of business conditions,” said Don Johnston, chairman and chief executive officer of J. Walter Thompson Group, the nation’s oldest and largest advertising agency. With the sluggish economy growing at less than half the 6.8% rate of 1984, Johnston said, “advertisers have become a lot more cautious about spending, particularly with network television buys.”

The development comes as a shock to both the media and the advertising industry, which together have grown rapidly through two recent recessions with the help of heavily promoted new products such as light beer, designer blue jeans and computers.

Some experts say that the networks, which were largely insulated from the impact of the 1981 and 1982 recessions because of huge increases in TV advertising rates, grew too fat. As a result, experts say, the networks are having to cut expenses more heavily than publishing concerns, which have been running lean since the last two recessions.

Reduced Work Force

CBS, for example, has offered early retirement to about 2,000 employees; ABC fired 350 employees last month and eliminated 265 positions in an effort to save $20 million.

But that may not be enough, say some analysts who see more ominous signs in the current climate of the advertising husbandry.

They say the slowdown may presage a fundamental marketing shift away from splashy mass-media advertising to the use of more direct in-store promotions and specialty media in order to reach an increasingly fragmented consumer market.

“When you consider that monolithic mass of housewives that did all the shopping in the ‘50s is no more--advertisers are really having to scramble,” said Charles Crane, an advertising analyst at Oppenheimer & Co. “We have become a nation of (distinctive audiences) that are difficult to reach through traditional media.”

To be sure, advertising expenditures are still climbing. Overall spending is expected to increase 9.1% this year to $95.8 billion, according to Robert Coen, director of forecasting for the McCann-Erickson advertising agency. What’s more, networks executives and publishers argue that their respective media are still the most efficient way to reach large numbers of consumers.

Yet the 1985 increase doesn’t measure up to the 15.8% jump in spending in 1984. And more of this year’s spending will go--not to traditional media--but to alternative outlets such as cable television, direct mail and point-of-sale promotion.

Attracting More Interest

Alternative media’s share of the advertising revenue pie pales beside that of television, magazines and newspapers, but they are attracting more interest as companies search for effective ways to reach consumers.

For example, Screenvision Cinema Network, a New York-based company that sells advertising time in about 4,000, or 25%, of the nation’s movie theaters, said it expects strong sales this year despite a slight decline in movie audiences this summer.

Company President Terry Laughren cites the impact of the big screen and its ability to reach the elusive 18- to 34-year-old audience for making Screenvision into a burgeoning $5-million-a-year enterprise. It has become de rigueur , he said, for big-name advertisers such as Apple Computer, Pepsi USA and Eastman Kodak to pay as much as $500,000 for a one-month run of a 60-second spot on Screenvision.

Another highly sought audience is airline passengers.

They are bombarded by advertising on airport billboards, airline ticket envelopes and airline magazines. Next year some passengers will get actual product samples as Los Angeles-based Product Research Network begins offering advertisers the opportunity to test-market products “up in the skies . . . free of distraction” from other media.

Such efforts reflect the increased interest in promotion as opposed to just advertising.

“What advertising does is change attitude; what promotion does is change buying behavior,” said William Meyers, a journalist and former advertising executive who last year published a book on the advertising industry.

Spending on Promotion

“A lot of companies are putting more of their dollars into consumer promotion--issuing more coupons and trying to secure more shelf space” where their dollars seem to have more of an impact on consumer buying decisions, Meyers said.

The apparent change comes after national advertising buyers--who spend one-third of all advertising dollars--went on a binge last year to secure advertising space amid the buying frenzy created by the 1984 Summer Olympic Games and the national elections.

The buying spree boosted magazines’ advertising pages 15.6%, and revenue rose $1 billion in 1984 to $4.7 billion, says the New York-based Magazine Publishers Assn. The networks saw their advertising revenue jump 21% to $8.5 billion last year, according to the Television Advertising Bureau in New York.

But this year, with advertisers worried about the economic outlook, television advertising revenue is forecast to creep ahead only 2% to $8.7 billion. Magazine ad pages have declined 2.6% in the first nine months of 1985 as revenue rose just 5% to $3.4 billion. Newspaper advertising revenues increased 14% to $23.5 billion in 1984, but are projected to rise only 8% to $25.4 billion this year, according to the Newspaper Advertising Bureau in New York.

At ABC, Chairman Leonard H. Goldenson said “weak advertising demand at our television and publishing operations (and) . . . severance costs associated with a work force reduction program” caused third-quarter revenue to decline 35% to $706.8 million and net income to fall 38% to $28.9 million. Goldenson vowed to “take cost-saving measures designed to lessen the impact of the current economic conditions on our operations.”

At Newsweek, where advertising pages are down 6%, compared to last year, Edmiston said the magazine has implemented budget cuts and is offering advertisers a moratorium on rate increases “for two years if they increase their spending with us now.”

Warned to Economize

Time Inc., which expects to report third-quarter net income lower than the $46 million that the company had during the same quarter in 1984, warned its 20,000 employees on Oct. 11 to economize because advertising revenue and interest income were not keeping pace with projections.

Besides the effects of the sluggish economy, some experts blame high television advertising rates for the media’s plight; other analysts speculate that a dearth of new products is contributing to the slowdown.

One advertising executive even had this surprising admission: In sluggish economic times such as these “I think an advertiser can afford a little bit of cutback (in advertising) without impunity, especially if the product category is strong,” said Leonard Pearlstein, president of Los Angeles-based Keye/Donna/Pearlstein.

Whatever the reasons, the advertising climate has cooled considerable, especially for two of the decade’s hottest industries--computers and communications.

Efrem Sigel, president of Communications Trends newsletter in Larchmont, N.Y., estimates that worldwide computer advertising will increase only 8% in 1985, compared to 35% last year. And communications advertising, which doubled between 1983 and 1984 to $1.6 billion, is expected to grow only 10% to $1.7 billion in 1985 and just 5% in 1986.

“The market of new computer buyers has really slowed,” said Sigel. “My theory is that a higher percentage of sales are now going to experienced users who can be (more efficiently) reached through specialized media rather than” general interest magazines or network television.

Auto Advertising Strong

One exception to the slowdown is automobile advertising, television’s second-largest category behind food and food products, which remains strong in part because of the relaxation of import restrictions on Japanese passenger cars in April.

General Motors increased its advertising spending 13.2% last year to $763.8 million and saw its U.S. sales rise 16.2% to $69.4 billion. This year, GM is expected to further increase its advertising expenditures in response to stiffer competition from the Japanese as well as expected increases in its cooperative advertising program with local car dealers.

Unfortunately, few other industries are as bullish.

At Kraft Inc., the Glenview, Ill.-based subsidiary of the food and dairy products conglomerate Dart & Kraft Inc., spokesman David Roycroft said 1985 advertising expenditures will increase at less than half of last year’s 27% rate. Roycroft said Kraft achieved savings by paring its network TV budget this year and spending more heavily for print and in-store marketing. He refused to disclose any dollar figures, but Advertising Age reported that parent company Dart & Kraft spent $269.2 million on advertising in 1984.

Spread Dollars Widely

Stroh Brewery, which launched a $50-million advertising campaign during last month’s World Series, said it is spreading its dollars more widely than in its 1984 campaign. Those ads featured a dog named Alex who retrieved beer from his owner’s refrigerator.

Hunter Hasting, vice president of brand management at Stroh, declined to disclose figures but said his company is utilizing radio more heavily and is focusing more on in-store promotions. “Now that there is competition from other media . . . advertisers aren’t simply putting up a hue and cry when rates go up--they’re taking their money” elsewhere, he said.

Some ad executives say the networks and some publishers have only themselves to blame for the current soft market.

“The networks were the OPEC of media,” said John O’Toole, chairman of Foote, Cone & Belding, referring to the Arab oil cartel that drove up the price of oil by controlling its supply. “Every year they’d have price increases for their 30- and 60-second slots that had nothing to do with value received. They were raising prices . . . while delivering a diminished audience share.

“It’s beginning to catch up with them now,” continued O’Toole. “Several of our clients are cutting back” because of the high prices. “And I don’t blame them.”