Reverse gear for ad spends

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The slump in auto advertising might take awhile to turn around, and that's bad news for media companies, most notably those owning TV stations.

The auto sector has reduced media spending for 12 consecutive quarters, and once third-quarter figures are out in early December, it will be 13, according to Jon Swallen, senior vp research at TNS Media Intelligence.

Annual auto ad declines have accelerated from 2.9% in 2005 to 6.4% in 2006 to 6.9% in 2007, according to TNS data. For the first half of 2008, auto spending was off 11.2% to $6.48 billion. October was particularly weak because of the financial crisis, meaning the typical year-end spurt could turn into a year-end crawl.

The auto category provides about 12.5% of overall U.S. ad spending, making it one of the biggest categories of all, according to a recent Sanford C. Bernstein report based on TNS data.

Local TV stations are particularly exposed because they get, on average, more than 25% of their revenue from auto ads, according to the report. They and newspapers have seen bigger reductions than such newer media forms as cable networks or online.

Drastic cutbacks by local dealers also are hurting local auto ad revenue. According to Nielsen, GM's local dealer associations cut spending on measured media to $190 million in the first half of 2008, down 42% from the same period a year ago. In 2007, spending amounted to nearly $600 million, down 22% year-over-year.

National ad spending by auto firms also has been trending lower, though with less of a vengeance.

"One of our benefits on the national front is most of our auto advertising has enormous sort of promotional integration," News Corp. president and COO Peter Chernin said recently when asked about how national auto spend is holding up at Fox. The company's biggest auto advertiser in the first half of 2009 is Ford, which is heavily integrated into "American Idol."

No wonder that much focus has been on local TV revenue from the auto category. Pali Research analyst Richard Greenfield estimates it is down more than 50% year-to-date. News Corp. chairman and CEO Rupert Murdoch recently spoke of a decline in the 40% range.

According to TNS data in the recent Bernstein report, Walt Disney's TV station group gets about 30% of its ad revenue from the auto industry, the News Corp. group gets 31% and the CBS Corp. group gets nearly 32%.

Overall dependence on auto ad revenue is highest at CBS, which got 10.1% of its 2007 revenue from the category, according to UBS analyst Michael Morris. News Corp. received 3.8% of its total revenue from auto ads, Disney 2.5%, Time Warner 1.5% and Viacom 1.1%.

Some in the industry are hoping foreign carmakers can make up the difference. CBS Corp. CFO Fred Reynolds said late last month that CBS' biggest advertiser is probably Toyota, and other foreign players like Honda, BMW and Mercedes-Benz shouldn't be forgotten either. "They are actually picking up spending because they are gaining market share," he said.

However, Greenfield points out that Toyota sales were down 23% in October, and that's a better predictor of ad spending. "While Toyota's decline is far better than GM's 45% decline, we believe the entire auto industry is suffering," he said. (partialdiff)
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