Financial meltdown may affect ad buys

Marketing budgets likely to see further cutbacks

Wall Street's growing crisis over time could further dent advertising spending from financial services companies, which have already cut back marketing budgets this year, along with auto firms and retailers.

It's a major ad spending sector, and growing fast. For 2007, Nielsen Monitor-Plus reported that financial and investment services advertising amounted to $1.77 billion, up 14% from 2006.

But industry observers don't expect a big immediate impact across the board. They argue that some of the investment banks that have gotten into trouble, like Lehman Bros., weren't huge ad spenders and that the ultimate hit will depend on possible further bank failures and how the financial crisis will affect the U.S. and other economies.

Observers also predict that there could be some positive developments as new owners of weakened banks could spend more on rebranding acquired assets.

"Financial ad spending might be soft over the next quarter or so," said Hal Vogel, president of Vogel Capital Management. "However, once Bank of America gets hold of Merrill (Lynch), there will be a massive national ad campaign, so this will help newspapers (and others) starting late in the first quarter."

The same could be true for U.K. banking firm Barclays, which agreed Tuesday to acquire parts of Lehman Bros.

Financial companies are a sizable provider of ads in various media sectors, averaging a 10% share of major media ad spending, compared with 12% for retail and 13% for auto spending, Bernstein analyst Michael Nathanson listed in a recent report based partly on data from TNS Media Intelligence.

A chart in the report, for example, shows financial services ads as making up 10% of all cable network ad spending, compared with 7% for auto and 6% for retail. For broadcast networks, the share figures are 8%, 11% and 9%, respectively. Internet display advertising is most reliant on financial services at 20%.

However, industry watchers argue that online spending by financial firms may hold up fairly well given its targeting and measurability advantage.

"Digital is still plowing ahead," said Jordan Bitterman, senior vp media, marketing and communications at digital agency Digitas. "It may not grow at the rate originally predicted (at the start of the year), but it is still exceeding other media vehicles."

Meanwhile, Citi Investment Research analyst Tony Wible suggested in a report Tuesday that radio advertising would feel further pain amid Wall Street's struggles.

"We expect the ongoing uncertainty surrounding the health of the financial services sector to translate into lower ad spending that would only serve to further compound weakness in top-line ad revenues," he said. "A broader pullback in ad spending from financial services companies would result in additional earnings downside."

Wible said insurance and other financial firms could cut their radio ad spending by 5% but added that it was too early to fully gauge the longer-term trends and effects.

For local TV stations, financials ranked as the ninth-largest marketer during the first half of 2008, according to the Television Bureau of Advertising. Their spending on TV station ads was down 4.4% over the prior year to $245.9 million, roughly in line with the 3.8% overall decline in local broadcast ad revenue. In comparison, the auto category was the largest local TV ad contributor over the same period but was down 15% to $1.37 billion.