‘Weak’ advertising market here to stay: experts

Canada’s largest media companies take it as a given that the current market for advertising on traditional broadcast media is weak, but experts say broadcasting is shifting to a new normal as online advertising becomes the dominant platform for advertising. In a Nov. 6 conference call following its most recent quarterly report, BCE Inc. CEO George Cope said his company continues to see “softness” for advertising at its media properties. Siim Vanaselja, Bell’s chief financial officer, said in the previous quarter’s conference call that “the advertising market remains soft across the industry” for media companies. At Rogers Communications Inc., the view is hardly different. In an Oct. 23 conference call following his company’s third-quarter results, Rogers CEO Guy Laurence said results from its media group were steady despite “continued weakness in the advertising market, particularly in broadcast, TV and print.” "When they say weak advertising market, it's because advertising dollars are shifting to digital," Sandra Singer, who heads research at the Canadian Marketing Association, said in a phone interview. She pointed to a survey earlier this year from U.S. media buying company Strata, which regularly polls the opinions of more than 1,000 of its advertising agency clients, that showed confidence in the future performance of the advertising market was at its highest point in the five years since the survey began. According to Strata, more than half of the agencies surveyed predicted growth in the first half of 2014 would outpace growth in the latter half of 2013. Nearly one-third, or 32 per cent, of the agencies said they planned to hire staff this year, while only three per cent said they would cut back. Singer said Strata’s American data reflects the broad trends she has seen in similar research in Canada, where advertisers have actually fared better in the years since the 2008-09 economic downturn. CRTC data shows the advertising market for private English-language television stations fell by 2.1 per cent from 2008 to 2012. Yet according to Statistics Canada, operating revenue for the advertising industry, including advertising, media buying and public relations, increased every year from 2009 to 2012. Operating profit margin for the industry overall was more than 10 per cent for every year between 2008 and 2012 except in 2009, when it was 8.8 per cent, according to the same dataset. Bell Media spokesman Scott Henderson said in an email that the market has been changing as advertisers have grown more careful with their ad spending in the years since the slowdown. “Despite a weak ad market, television remains the No. 1 advertising medium for mass audiences,” he said. “We will continue to adapt, innovate and evolve our multi-platform advertising solutions to complement TV's enormous reach.” Troy Crandall, an analyst with 3Macs, said companies have "rationalized" their advertising spending in the years since the recession. "The economy is improving, but it's not gangbusters yet," he said. "Maybe more so in Canada than the U.S., companies are still cautious about how much to spend going forward. Companies are hesitant to invest in the future. They're hesitant to spend more than they need to get by." Eventually companies will ramp up spending on advertising, Crandall said, but they may not choose the traditional broadcast outlets as the best venue to reach the customer. "There is a little bit to what Rogers and Bell are saying," Crandall said. "But on the other side — and the telecoms aren't talking about it — is this shift from traditional media to digital media." According to a Sept. 17 report from the Interactive Advertising Bureau (IAB), 2013 was the first year in which spending on Internet advertising in Canada, at $3.5 billion, overtook spending on television ads, at nearly $3.4 billion. Singer said that, while the IAB numbers show television advertising revenue has shrunk and radio advertising has been flat since 2011, it doesn’t mean that advertising spending has gone down. She said the statements about a “weak” market from executives at conglomerated media companies that own both production and distribution, such as Rogers and Bell, reflect the fact that such companies get far less of a cut from online ads. They’re worried about missing out “unless they're shifting to streaming and getting their advertising dollars elsewhere,” she said. “They're in the middle of reinventing their models now. They've got big issues and they're all chasing the same thing: how to stream, how to present their content online and get hold of those dollars.” Rob Young, senior vice-president of large media and advertising agency PHD Canada, pointed out that IAB counts digital advertising revenues for television content, such as shows streamed from broadcaster websites, as Internet ad revenue, without which television advertising would still outpace overall Internet ad spending by a slim margin. "It doesn't really matter where you put that little piece of revenue," he said. "The point is, the two media have roughly the same share of ad revenue. And TV is flat and declining, and Internet is growing quickly. If it’s not ahead of television this year, it will be next year.” The biggest growth area for online advertising, Young said, is in video. He said Google Inc.'s YouTube, which includes ads before many of its videos, is one part of a potentially huge market where advertisers could use their pre-existing campaigns. "Even stripping out inappropriate content and non-commercial content, you've still got an awful lot of time that consumers are spending with video that doesn't have a lot of commercials running in it," he said. "But that tends not to be time that's owned by the traditional broadcasters." Broadcasting consultant Kelly Lynne Ashton said that when company executives use words such as "weak" or "soft," there's an assumption that the current performance is temporary and will eventually rebound. "The whole system's in a shift," she said. "It's hard to say that TV ads are going to be the same when TV's not going to be the same.” Digital advertising gives advertisers a better idea of who they’re reaching and how each ad is performing, she said, adding that the double-digit growth in digital advertising as measured by the IAB and others show the future for television advertisements will never be the same as it was pre-Internet. “Broadcasters are making money,” she said. “They’re still strong on specialty services. There’s a wide variety of formats that are being tested for digital. They can find revenue there.” — Reporting by Peter Henderson at phenderson@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

‘Weak’ advertising market here to stay: experts

Broadcast | November 18, 2014

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