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Going Negative

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With no improvement in sight for the rapidly deteriorating U.S. economy, media-agency executives and their clients are now bracing for possibly two consecutive years of curtailed ad spending -- this year and next.

Forecasters at media shops including Zenith Optimedia and Magna made initial predictions late last year for advertising expenditures in 2008, but quickly began scaling back their estimates. The projections weren't that rosy to begin with -- predicting percentage gains in the mid single digits, not great for a year with the Summer Olympics and a presidential election. By July of this year, both shops had downgraded their expectations to the low single digits.

But privately, some industry executives now believe this year's ad spend might actually end up in negative territory, and might not improve at all in 2009. They point to figures just released by Nielsen Monitor-Plus that show a first-half U.S. ad spend decline of 1.4 percent, compared with the same period in 2007, to $67.6 billion, with significant drops in spending in major ad categories including automotive (down 8 percent to $5.3 billion), pharmaceutical (down 5 percent to $2.6 billion) and movie studios (down 5 percent to $1.7 billion).

And there are signs that the fourth quarter will be very tough for the nation's retailers, which already trimmed ad budgets in the first half of the year by almost 10 percent. Two weeks ago, TNS's retail tracking unit issued a forecast predicting that holiday sales this year will be the weakest in 17 years.

Last month, the Association of National Advertisers reported that among members it polled, a little over half said they expected to cut their media budgets in the next six months. And 87 percent said they had been asked to identify cost savings or reductions in current marketing and advertising efforts.

Meanwhile, marketers are more focused than ever on achieving maximum return on investment from their ad spending. In a recessionary climate, that could mean a double hit to budgets, as companies cut spending overall but also buy cheaper media, such as cable or digital, which are seen as more efficient and accountable.

General Motors' strategy illustrates the point. The company cut its budget by 11 percent to $2.03 billion last year, according to Nielsen Monitor-Plus, shifting more dollars online as it dealt with poor sales. And while new data from TNS indicates GM raised spending by 13 percent in the first half of this year, compared to the same period in 2007, to $1.04 billion, a rep there said spending would be down slightly overall this year, and in 2009 it will dip again, following a directive from the automaker's CEO, Rick Wagoner.

Speaking at a marketing conference in May, Mark LaNeve, vp of vehicle sales, service and marketing at GM, said the pursuit of greater return on investment from its media spending would increasingly steer the company away from traditional media, with more dollars being allocated to online and emerging digital forms such as interactive and addressable TV advertising.

LaNeve said consumers interviewed in recent focus groups showed little awareness of ads that had blanketed the airwaves for the new Chevrolet Malibu -- or any car ads for that matter. "That was a wake-up call," he said. "There are so many media choices today that it's almost impossible to gain critical mass."

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