MEDIA FORUM: Is Maiden right to sound the alarm as profits fall? Should we brace ourselves for a downturn? In issuing a profits warning last week, Maiden Outdoor argued that the crisis in world financial markets is already having a negative impact on the

The standard, easy-to-digest depiction of chaos theory is the one where the trembling of a butterfly’s wings on one side of the world creates, eventually, a hurricane several thousand miles away. Chaos theory is all about a small cause leading to a very large and unpredictable effect.

The standard, easy-to-digest depiction of chaos theory is the one

where the trembling of a butterfly’s wings on one side of the world

creates, eventually, a hurricane several thousand miles away. Chaos

theory is all about a small cause leading to a very large and

unpredictable effect.



The media industry has a very different version. In this scenario we

have huge events on the world stage - instability in Far Eastern

economies caused initially by the ending of over a century of British

imperialism in the region and the consequent destabilisation of Hong

Kong; knock-on effects helping to damage a Russian economy trying to

restructure itself after the fall of communism - leading to a pounds 1

million profits warning from Maiden Outdoor.



Put it another way. Let’s hope this is chaos theory in reverse. Let’s

hope that Maiden is the lone victim of financial Asian flu - and not a

sensitive early warning system for an epidemic about to infect the whole

market.



Maiden indicated that it suffered along with television when advertisers

withheld budgets during the World Cup. But it went further, admitting

that profits for the first half of 1998 were likely to be pounds 4.4

million as opposed to an estimated pounds 5.4 million - and that this

was symptomatic of a more widespread structural trend in the UK

advertising market.



Francis Goodwin, Maiden’s joint managing director, stands by this

analysis, although he certainly doesn’t want to scare anyone. He

comments: ’I think you should note the fact that we haven’t used the

word recession. We’re not talking about a full-blown early 90s

situation; we’re talking about a softening in the market. It is a

cyclical downturn - and you have to be prepared for these things. The

downturn will, in all probability, be relatively short, and the good

news is that we are not in an inflationary period.’



Isn’t it odd, though, that recessionary (let’s not beat about the bush)

alarm bells should ring first at a relatively small media owner - with

little international exposure?



’Asia and Russia does sound a long way from the UK poster market but it

does impact on confidence in the UK and people are naturally showing a

degree of caution when it comes to ad budgets,’ Goodwin counters.



Some rivals in the outdoor business remain sceptical. They have even

gone as far as to hint that Maiden might be using rather vague notions

of recession as a smokescreen, a lame excuse for uninspired

performance.



Or that they are confusing a little local difficulty - related to World

Cup advertising squabbles - with the bigger picture.



The fortunes of television and outdoor are inexorably linked, with

posters often being used to complement and reinforce TV campaigns. So

when ITV hyped the World Cup and advertisers boycotted the coverage as a

result, outdoor was bound to feel the pinch. Surely, in the final

analysis, isn’t that what this profits warning comes down to?



The financial press is full of scare stories but, tellingly, analysts

and commentators are by no means certain that the economy is in for a

hard landing. Why should we believe Maiden when it says it’s already

here?



Perhaps, as the outdoor medium’s fortunes are so closely tied to TV’s,

we should look for the answers there. Is it preparing for the worst?

Apparently not. Jerry Hill, the chief executive of TSMS, maintains there

is little evidence that the current economic climate is affecting TV

advertising plans. In fact, volumes are broadly ahead of

expectations.



He says: ’The key issue is whether the negative signals in the City are

isolated in the manufacturing sector and whether that ultimately impacts

on the domestic consumer markets that are critical to mainstream

advertising.



Employment levels remain strong, as does consumer expenditure - and

while this remains stable, there is every reason to hope for a

reasonable level of market confidence.’



Interestingly though, Hill also counsels against the lack of nerve shown

by some advertisers during the last recession. All the available

evidence is clear: advertisers who maintain their commitment to TV

throughout a downturn ultimately improve their competitive

performance.



But what of print? No newspaper publisher was prepared to comment but

Mike Matthew, the chief executive of IPC, offers a rather sobering

analysis.



He states: ’If you look at the broad world, there’s not too much

optimism about these days and I think the assumption must be that there

are tougher times on the way. If you look at this from the perspective

of consumer magazines and, in particular, from the point of view of this

company, the reassuring fact is that we derive the majority of our

income from cover price.’



For magazine publishers, this cloud has a doubly silver lining -

circulations often go up during a recession. But Matthew says the

industry should not delude itself. ’If we were being honest we’d admit a

cooler wind is already blowing - and with such a concentration of events

on a world stage, we would be unlikely to escape entirely.’



Do media specialists agree? After all, they’re in the best position to

take a broad view across the market. And they get an earlier indication

of changes of mood within their clients’ marketing departments. Mark

Craze, the managing director of Carat, says it’s too early to say. The

real litmus test - the annual television airtime negotiating season,

when advertisers will have to make unequivocal commitments on spend -

won’t really be down to serious business for another few weeks.



Craze states: ’Traditionally, the advertising sector is one of the first

to register a downturn because, in the past, advertising budgets have

been seen as the easiest to cut. It’s true that, except for some buoyant

sectors such as computers and telecoms, the common language among

clients for two years has been about how tough things are.



’I think it would be fair to say that recent events in the Far East and

in Russia have created a general atmosphere of wariness. But there’s

also a danger in these things that they become a self-fulfilling

prophesy.



There are no signs of a downturn from the evidence of our client base.’



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