Skip to main content

The Advertising Outlook for 2005

While 2005 is expected to be a good year for advertising in general, it may be a tough one for TV.

Media buyers, planners and ad insiders predict renewed regulatory attacks on at least two top commercial categories: prescription drugs and food aimed at kids.

In addition, they see a potential disruption to the TV ad marketplace by Nielsen ratings for digital video recorders and the rollout of portable people meters. Most telling, TV’s historic status is under fire. Once the undisputed king of media buys, television may surrender to a new, broader communications mandate, say industry sources.

The most prevalent prediction among our Madison Avenue media pros is that 2005 will represent a fundamental shift in the way advertisers and agencies view the role of media, not just traditional outlets.

“If last year was about branded entertainment, this year will be about total communications planning,” predicts Steve Moynihan, executive vice president/managing director of MPG, Boston, the media-buying agency of Havas.

Communication planning targets all communication channels, such as PR, the Internet and place-based media, not just TV, radio, magazines and newspapers. What does that mean financially? TV spending will rise only slightly in the new year.

In 2004, advertisers spent $46 billion on broadcast TV and $15.6 billion on cable. They are projected to spend $46.7 billion on broadcast and $16.7 billion on cable in 2005, per Universal McCann.

Move Toward Communications Planning

Unlike branded entertainment or product placement, which found new ways to funnel ad dollars to television, buyers predict alternative media will grow faster than the old guard.

The implications of that could be significant, especially for the major broadcast networks, says advertising consultant Erwin Ephron.

“For the first time in memory, serious money will begin shifting out of TV,” says Ephron, a principle of Ephron, Papazian & Ephron, New York.

Others believe it may have already happened; the process will simply accelerate as the year unfolds.

“Just look at the scatter marketplace. It’s still really soft, and it doesn’t look like it’s getting better,” says Mike Lotito, president of Media IQ, a New York-based company that audits and monitors the media buys agencies make for their advertisers.

“Companies like American Express are taking 10% or 15% of their money out of TV and putting it into other media,” says Lotito. That move is chipping away at television and beginning to soften the marketplace between buyer and seller. “This is only the beginning of a migration away from television.”

A Delicate Balance

Of course, experts have been making these dire predictions for years—and they’ve failed to happen. TV ad prices continue to rise and demand outstripped supply in the most recent network upfront. But buyers claim that is due to new brands and advertisers entering the TV ad marketplace. These rookies are absorbing the TV advertising inventory being abandoned by traditional advertisers. And that delicate balance keeps the TV marketplace stable and growing.

“2005 is going to be the telling year in terms of what happens with the network upfront: the dollars that flow in and the clients that come in,” says Moynihan. If there is a change in media allotments, he expects a much broader media mix. “The first sign of that will be the strength of the upfront.”

Another big factor determing the TV ad marketplace’s strength will be the emergence of new ad categories. Lotito says with “the exception of the wireless telecommunications category, nothing is taking off.”

(Wireless services spent nearly $2 billion on advertising during the first nine months of 2004, a 17% increase over the same period in 2003, per Nielsen Monitor-Plus.) However, there are a pair of especially vulnerable categories: drugs and fast-food.

Two of TV’s biggest prescription drug brands, Vioxx and Celebrex, have slashed their ad plans following disclosures of dangerous side effects, while Aleve, a major over-the-counter pain reliever, was recently linked to similar problems. Madison Avenue is also bracing for a new round of regulatory action.

Fight Over Kid’s Spots

“Ad issues will continue to be spotlighted in the next Congress, including food and [direct to consumer] prescription drug advertising,” says Dan Jaffe, senior vice president of government affairs for the Association of National Advertisers’ Washington, D.C., office. Jaffe, one of Madison Avenue’s chief lobbyists, predicts legislators will also step up their efforts to regulate media and ad content.

“We are gearing up for a major fight on children’s advertising in 2005,” echoes Wally Snyder, president of the American Advertising Federation. As lawmakers constrain or eliminate food commercials that promote excess consumption or unhealthy eating habits, the fast-food category is open to attack.

Beyond the regulatory threats, Snyder says the proliferation of digital video recorders continues to loom as a major threat to TV advertising. In fact, a recent AAF survey of U.S. advertisers found DVRs cited as a chief concern. While it is unclear how DVRs impact commercials, they do affect how buyers and sellers use Nielsen ratings to negotiate and post ad buys.

Beginning early next year, Nielsen will include ratings for DVR households in its local and national ratings samples. As part of that process, it will delay the time-shifted portion of viewing done on DVRs for a week, essentially eliminating TV ad conventions such as the overnight rating and audience share estimates.

“It has the potential to wreak havoc,” says Brad Adgate, senior vice president for corporate research at Horizon Media, New York. “People are used to instant gratification in this business. Now they’ll have to wait a week to get their final ratings estimates.” He also worries that the DVR ratings will eradicate dayparts.

Even more alarming to the industry than DVRs is the expansion of broadband and the prospect of delivering more video content over the Internet and to wireless devices.

“This year was a tipping point, with broadband getting over 50% of Internet-connected homes. That makes broadband video a real thing. The next leg will be the adoption of 3G technology to the cellphone industry,” says Mark Stewart, executive vice president and chief strategy officer at Universal McCann, New York.

Stewart says these wireless wonders add to the number of distribution outlets for TV programming and advertising, which includes videogame platforms and cinema advertising. All the gadgetry forces Madison Avenue to rethink how it advertises on each platform.

“Broadband video, 3G cellphones and videogames are very different, opt-in television experiences,” he says.

Stewart, however, believes an even bigger ad shift is a cultural one.

Gen X and Gen Y consumers are replacing baby boomers as the major consumer demo. They already comprise the majority of the 18-49s, and have grown up with a “very different mindset about media,” he warns.

But TV can rest easy on one count: ratings.

“The accountability gods will rain down even stronger,” says Steve Farella, CEO of Targetcast, which may ultimately benefit television. Nielsen ratings register a higher credibility with most marketers than the research that measures other media.

Because television remains the most accountable medium in terms of media reach, it gives advertisers a bottom-line assurance: the best returns often give the best value for dollar.