Q2 weather report marks brink of recovery... for now

The World Cup and the delayed VAT rise announced in last week's Emergency Budget have created a period of relative prosperity for the media industry. But how long will the calm before the storm last? Adam Woods reports

Q2 weather report marks brink of recovery... for now

If the media industry is at all nervous, post-Budget, about its prospects for the rest of this year, it didn’t waste much time sitting and thinking about it last week.

Despite the Chancellor’s grave announcements in last Tuesday’s Emergency Budget, media executives made time for Cannes, Wimbledon and Glastonbury, while others set off on overseas golf jollies or watched the football in the pub.

Evidently, the industry that has become accustomed to keeping the wolf from the door is no longer on red alert. It seems that wolf has wandered back into the woods for the time being, thanks to the World Cup and the VAT increase from 17.5% to 20% delayed until 4 January 2011, which have created a period of relative prosperity until the next financial storm erupts.

The World Cup has boosted TV and outdoor in particular, but the firm - yet deferred - Government action may prove a more lasting source of confidence. Media owners in all sectors (see Q2 market reports on all media sectors below) report that advertisers in a broad swathe of categories are spending more and pledging money much further ahead than last year.

Promised cuts in COI spending will still hurt, but an expected boom in big-ticket shopping before Christmas, as consumers snap up expensive goods before the VAT rise comes into effect, will heal some of that pain in the medium term.

Dr Alice Enders, head of research at Enders Analysis, says: "Our forecasts for this year assumed the VAT increase of 20% would occur imminently, but the fact it won’t happen until January next year is certainly a positive."

Spectre of inflation

However, Enders notes that consumer confidence is not everything. "The big problem will be inflation," she adds. "UK media businesses are experiencing inflation in their input costs, and that will be very hard to pass on to the consumer."

Bobby Lane, partner at Shelley Stock Hutter LLP, also sounds a note of caution, despite positive forecasts from firms such as GroupM, which this month revised its projection for 2010 from flat to growth of 4.2% year on year.

He says: "I still believe the media sector is in for a rough ride over the next six months, because while people continue to talk about a double-dip recession, there is a lot of uncertainty. If interest rates and inflation rise, pushing up the cost of mortgages and consumer goods, disposable income will drop."

The good news for media businesses in last week’s Budget was the planned reduction in corporation Tax. From April 2011, the tax rate will drop from 21% to 20% for companies making profits of less than £300,000, and from 28% to 24% over the next four years for businesses making profits of more than £1.5m.

The Budget will also help media’s entrepreneurs, with a £5,000 National Insurance holiday per employee for anyone who starts a new business outside London, the Southeast and the East of England (capped at the firm’s first 10 employees).

The Government has also raised the entrepreneurs' relief limit for people selling their businesses from £2m to £5m, and has committed an extra £200m to the Enterprise Finance Guarantee scheme, which helps SMEs secure credit, until 31 March 2011.

Lane says: "This is the first time we have seen the Government really targeting the entrepreneurial flair of our smaller businesses. There will be a continued trend for some of the mid-tier and smaller agencies being able to pick up work they might not have previously have been on the pitch list for, as big clients look for a more personal, better-value service that delivers more creativity."

Lane believes the advertising market will come back "in a different way" in 2011 and beyond. He adds: "Clients will look far more closely at what they are getting from their fees and will make sure they maximise their return on investment.

"But those companies that have cut their costs, built strong teams and learnt their lessons from the downturn will be in a good place to take advantage of the opportunities as they come back."


(*Source for all figures: Nielsen Media Research)

April 2010 spend: £334,684,846
April 2009 spend:
Percentage change:

This year has been a long-awaited good year for television - ITV in particular - and the sector’s fortunes took another upswing with the start of the World Cup.

Whether that boost will last now England is out of the tournament is another question, but even before the football, ITV reported strong growth off an - admittedly weak - 2009 comparison. Gavin Johnson, account group leader at IDS, says: "ITV has had an unbelievable January to June because it has had an unbelievable amount of World Cup money."

Heavy advertising from car brands, which are marketing hard to counter the scrapping of the scrappage scheme, and TV hardware companies, which are pushing new technologies such as 3D TV ahead of the football, has been welcome and is expected to last until the new year.

All the same, a slowdown seems inevitable. ITV’s share of viewing and advertising will surely drop once the World Cup boom is over, although the challenges faced by commercial rivals Channel 4 and Five put its problems in perspective.

The loss of an as-yet-unspecified amount of COI money was an expected outcome of the Budget, according to an ITV spokesperson. Although the revised budgets are generally expected to be about half the 2009/10 levels, the Government will have to sustain investment in key areas such as NHS and Armed Forces recruitment.


April 2010 spend: £260,541,391
April 2009 spend: £249,536,501
Percentage change: +4.41

Press, particularly newspapers, are perhaps the most ailing media sector, although newspapers’ fortunes improved in April year-on-year and they stand to gain as much as anyone from the suspension on Chancellor George Osborne’s VAT increase.

Telegraph Media Group sales director Nick Hewat believes rising interest rates are one factor that could sink the Q4 shopping bonanza, but he sees plenty of room for optimism while consumers have money in their pockets.

He says: "We are encouraged by the first half of the year and the forecasts we see from the major agency groups, but we will need to remain prudent because we still don’t know the impact - if any - of the new measures contained in the Budget. National press has held up well and has demonstrated real value to clients in the recession."

IPC Media group trading director Ian Tournes doesn’t believe the election result has done any harm to the magazine sector. In fact, he sees real value in the outcome. "The Government will spend less through the COI, but all political parties said they would cut back," Tournes says.

"The coalition is continuing with the Conservatives’ ‘big society’ policy and magazines will be key to that strategy because of their reach and ability to communicate with core communities, from mass-market women through to young men."


April 2010 spend: £58,424,756
April 2009 spend: £57,292,190
Percentage change: +1.97

New electronic formats and trusty billboards - particularly around the football and the election, when the Tories were particularly heavy advertisers - have kept outdoor strong so far in 2010.

Mike Moran, managing director of CBS Outdoor, says: "We have seen a fantastic turnaround, having suffered pretty bitterly last year, and we are about 15% up on the year to date."

Moran has detected no great surprise among advertisers at the measures detailed in the Budget, but he believes the "muscular start" made by the coalition could be a key factor in keeping the market strong.

He comments: "The Government is taking a very strong approach to the economy and driving down the public debt as quickly as possible, and that will be welcomed by international advertisers, who have teams of economists working out where they should be spending money."

The return of automotive and finance, as well as cutting-edge campaigns from advertisers such as Nike have been a cause for celebration across the sector, according to Clear Channel UK’s managing director Rob Atkinson, who says July and September are already looking exciting.

 "I think everyone in outdoor has got that cautious optimism," he says. "It’s like a fragile confidence, where all the metrics are saying the market could be quite good to the end of the year, but there could still be nervousness about 2011 when we approach the final quarter of this year."


April 2010 spend: £41,085,488
April 2009 spend: £42,594,558
Percentage change: -3.54

Commercial radio has ongoing issues with the BBC and the faltering shift to digital, but Absolute Radio commercial director Chris Goldson speaks for many across the media industry when he says: "Although there are going to be some tough challenges, I don’t get the feeling there is negativity right now."

The radio sector has had difficulty forecasting far ahead over the trying times of the last two years, partly because its booking deadlines tend to be later than those of other media. Anecdotal evidence suggests this has changed this year, with more sponsorship deals being struck and more cross-media campaigns.

"Our sponsorship partners took a fair hit last year, and actually they have returned," says Goldson. "That, for me, is a sign of confidence: clients are committing budgets for six to eight months ahead - and on interesting briefs too."


April 2010 spend: £38,076,660
April 2009 spend: £40,162,606
Percentage change: -5.19

Internet adspend was down year-on-year in April, according to Nielsen, although the above figures exclude search.

No-one believes digital media as a whole will not continue to draw spend at the expense of other sectors, but April’s blip and the demise in May of i-Level, encumbered by debt and undermined by the loss of its COI account, illustrate that such growth always has its limits.

Stewart Easterbrook, chief executive of Starcom MediaVest Group, believes digital display will rise by a point or two over the course of this year, with search spend increasing by about 10% - although he believes display has the greatest challenges to overcome.

He says: "There is currently a lot of acquisition spend in there, where there is a lot of pressure on cost, which means digital will struggle to grow spend [in that area]. The internet as a whole is still struggling with how to really articulate the value return of some of its engagement activity, although obviously search ploughs on."