Jocelyn Newmarch
30 October 2008
Johannesburg — WITH the South African consumer under increasing financial pressure, advertising spend has declined significantly in the first six months of the year and could be signalling what one analyst calls a "media recession" .
According to Chris Botha, a director at the Media Shop, adspend this year is at 8%, well below media inflation at 11,3%.
Media inflation refers to the rising cost of reaching 1000 people in newspapers, magazines and other media. Last year, advertising revenue grew 17% while consumer inflation was only 7%.
Internet advertising has bucked the trend, growing at 52% this year and 55% last year, says Botha. But this is from a low base and SA is still struggling to catch up with more developed markets where online accounts for a much bigger portion of spend.
"Next year will be incredibly tough. People are setting budgets (for 2009) in 2008, in a deflated economy. Even if the economy does change next year, budgets will have been set already," says Botha.
Mike Leahy of IBIS Media, a compiler of media inflation figures, sees the situation as a recession for the sector. He says it is likely that rate increases by media owners will be less than consumer inflation, projected by Nedcor to be 11,8% for the year.
Leahy's latest media inflation report covers the first half of 2008, but it gives an indication of the situation for the whole year, as rates stay constant for 12 months. However, circulation in the second half can change.
"The technical term would be stagflation, as the asking rate (for advertising) has risen less than the CPI (consumer price inflation), but media owners' inputs are based on CPI, like staff and paper. With TV, international programming is based on dollars," says Leahy.
"The cost inputs for media owners have not stayed still, so the asking rates are a problem. If volumes are coming down, that's also a problem."
He says there has already been pressure on circulation. If circulation were to drop further, this could help input costs because printing bills would be smaller.
Over time, advertising budgets are forced upwards as the relative cost of reaching consumers increases. This is because the media industry has expanded significantly, with new magazines and newspapers, the introduction of new TV stations, and the growth of the internet. Consumers now have far more choice in the media they use.
This has also meant that individual titles have become more expensive for advertisers, relative to the number of consumers they reach.
In seven out of the last 10 years, media rate increases have been significantly higher than the consumer price index. In most years, adspend has increased by more than the rate increases for the year, which indicates greater advertising volumes.
"However, in 1999 the two were virtually equal and in 2001 rate increases were somewhat higher than adspend. At this time, the media industry was in a slump," the media inflation report says.
The print sector has seen circulation dropping 20%-30% since 1998. Some titles such as the Sunday Times have maintained readership, but the larger magazines especially have seen circulation drop. Although radio stations boast the same number of listeners as measured by the number who tuned in to the station in the previous seven days and the number who listened to the station the previous day, these audiences are listening for shorter periods.
"What you get with a spot is the number of people listening in those 30 seconds. The same number of people are listening for fewer minutes," says Leahy.
Historically, African-language radio stations have offered cheaper advertising rates than coloured, Indian and white stations, something the SABC is trying to rectify.
But the very size of their audiences means that few advertisers will be willing to pay eight or ten times the cost of advertising on a traditionally white station as they would if the cost per listener is the same, Leahy says.
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