Advertising: Stepchild of the Marketing Business

Advertising grew from a $12 billion business in 1963 to $95 billion in 1989, to $130 billion in 1992, and peaked in 2007 at $244 billion -- an average annual growth rate of 5.3 percent. Total marketing communications investments grew during this same period from an estimated $17 billion in 1963 to $766 billion in 2007 -- an average annual increase of 17 percent. The share of total U.S. domestic marketing communications dollars invested in advertising declined from 70% to 32% over a 44 year period. And that share continues to decline. In 2011, according to Myers projections, total advertising investments in the U.S. will decline to an estimated $194 billion while marketing communications budgets will decline to $660 billion, reducing advertising's share to 28 percent. The fact is that advertising is on the decline as a relevant weapon in the marketer's arsenal. It appears that most marketers consider advertising as little more than a distribution system for carrying advertising messages in multiple formats from point A to point B. Even as digital technologies have empowered an increasingly sophisticated set of communications enhancements, advertising remains the step child of the marketing business.

From 1963 to 2009 the number of media options competing for a share of advertising dollars has also grown exponentially. But as fast as media has expanded, the appetite of marketers to launch new products and introduce them to the American public grew even faster. Until now. The supply of advertising inventory has inverted and is exceeding demand for the first time since the 1950s, causing the American advertising economy to enter a period of recalibration that will continue for at least another decade.

Newspapers:

In 1963 there were 2,300 daily and Sunday newspapers and by 2006 that number had remained constant at 2,345. During that period, advertising spending on newspaper advertising increased from $7 billion to $48 billion (an increase from $3 million per paper to an average $20.5 million per paper). By 2011, newspaper advertising revenues are projected to decline to less than $25 billion. Even if the number of total newspapers declines by 25% to 1,750 daily and Sunday publications, the average advertising revenues for each will be only $14.3 million.

Magazines:

In 1988, there were 12,797 consumer magazine titles. By 2008, there were more than 20,000. In 1988, magazine ad revenues were approximately $16 billion. In 2007, consumer magazine ad spending peaked at $21.5 billion. Per magazine average ad revenue of $1,250,000 was virtually unchanged over a two decade period -- before adjusting for inflation. Compounding this reality, the magazine ad market is projected to decline to less than $14 billion in 2011, assuring an accelerated decline in per publication average ad revenues.

Local Television:

On the television front, there were 501 commercial VHF plus 175 UHF broadcast TV stations in 1970, with only the VHF stations generating meaningful revenues. By 2007 there were 1,364 revenue-generating TV stations. In 1970, the 501 TV stations shared $1.94 billion in advertising revenues, or an average per station revenue base of approximately $3.9 million (estimated $14.0 million in 2007 adjusted dollars). In 2007, the stations distributed $24.5 billion, for a per station share of $17.9 million, only $4 million more than the adjusted 1970 ad revenue. Myers projects that in 2011, 1,200 stations, many with added commercial inventory from their multiplexed digital platform, will share only $18 billion in ad revenues, or $15 million per station – a virtual wash with adjusted 1970 revenues.

Network Television:

In 1970, three commercial television networks distributed $1.658 billion in combined ad revenues ($5.5 billion in adjusted 2007 dollars, the equivalent of $1.8 billion each). In 2007, roughly 60 viable national TV networks shared $36.7 billion, approximately $612 million each. Even as the number of cable networks continues to expand and as interactive features enhance the basic TV offering, total network TV ad revenues are declining to a projected $34 billion in 2011. Based on 75 competing national networks in 2011, the per network ad revenue share will be $450 million each. Competition is becoming increasingly intense as more networks vie for their share of a shrinking pie.

So while ad spending increased significantly between the 1960s and 2007, the expansion of inventory available for advertising message distribution grew at an equal or faster rate. Now, as marketers' investments in advertising decline due to both the economy and systemic issues within their own business categories, the supply/demand curve has inverted and will continue to cause progressively greater detachment between marketers and media sellers.

© Copyright Jack Myers 2009

Jack Myers advises media companies, agencies and marketers on transformative business models and writes a weekly blog at www.jackmyersthinktank.com.