Bullish media sector refuses to act as the harbinger of doom

Christmas is coming, but the shop-keeping geese aren’t getting fat. With the R-word increasingly bandied about, Christmas 1998 is apparently going to be the worst for years. Retail chains such as Storehouse, Allders, John Lewis and Safeway report a decline in underlying sales of five per cent or more, and describe the trading environment as “challenging”.

One analyst ascribes the poor sales in the high street to “pessimism among consumers”; shops themselves, according to The Observer, claim the problem isn’t lack of money. Which all goes to reinforce the accepted wisdom that recessions are caused as much by a lack of confidence as by fundamental economic problems.

But there’s another piece of accepted wisdom about recessions – namely that the ups and downs of advertising expenditure offer advance warning of highs and lows in the economic cycle.

Ahead of a recession, adspend falls. Later, when other indicators are still suggesting profound sluggishness in the economy, advertising expenditure starts to rise – a kind of first swallow of economic spring, hailed as a sign that the financial frost is thawing and things can only get better.

So if we really are on the brink of a recession, advertising expenditure should be falling. But media companies reporting their results in the past month or so have been remarkably bullish. Take radio. At Capital Radio (full-year profits up eight per cent), finance director Peter Harris denies that advertising has softened. “There is no slowdown in demand at the moment,” he says. “Right now, life is very good.”

At GWR finance director Patrick Taylor adds: “People ask, ‘Are you seeing the effects of recession?’ The answer is no. We’ve had a good October and very encouraging results for November.”

Equally Richard Findlay, chief executive of Scottish Radio Holdings (which reported a 30 per cent increase pre-tax), says advertisers are a bit slower deciding what to do with their budgets, but the budgets themselves haven’t actually been cut.

In television they’re less optimistic, but there’s still little hard evidence of a downturn. One of ITV’s tiddlers, Border TV, says recent weeks have seen a growth in ad revenue, though there were, it adds, some signs of a slowdown.

Carlton Communications’ pre-tax profits fell slightly – but the blame has been laid on its investment in ONdigital and on a collapse in profits from its television equipment division. ITV advertising revenue has grown.

Granada reported ITV revenue up by more than five per cent in the quarter to December, and says it sees no sign of any downturn in consumer spending for the current year.

If there are doubts about what the future holds they’re in newspapers – and especially in classified and recruitment advertising. Southnews, the local group which owns the Croydon Advertiser, reported a comfortable increase in half-year profits. But chairman Gareth Clark predicts a downturn in recruitment revenue.

Rival regional press company Newsquest reported third-quarter increases in turnover and profits, but again warns that things might start to get tight in the near future. “Once we ran into mid-October we started to see a slowdown in recruitment advertising,” says chairman Jim Brown. “That doesn’t mean it has fallen off the top shelf – it’s just flattened.”

Yet he also says both local and national display ads are holding up well and, perhaps significantly, blames “advertisers’ expectations of an economic downturn” for weakening revenue, rather than any economic fundamentals.

There are two possible explanations for all of this. The first is that the received wisdom is wrong – whatever may have happened in previous recessions, on this occasion advertising is not, for some reason, fulfilling the role of harbinger of doom.

Alternatively – and this will no doubt come as music to Chancellor Gordon Brown’s ears – we are not in fact on the brink of recession at all, despite the problems in Asia, despite the job losses, despite the poor retail sales. The problem, in other words, is a lack of confidence rather than a genuine slowdown.

Some support for that view comes from Zenith Media, which is confidently predicting a 2.2 per cent increase in real terms in global advertising expenditure next year. “The message from our worldwide network is clear: advertisers feel good about the future,” John Perriss, Zenith’s chairman, told a New York conference this week.

Zenith suggests that many corporate advertisers are determined to maintain spending despite the uncertain outlook, because during the last recession in 1991-2 those which cut back lost market share and don’t want the same thing to happen again.

Clearly, Zenith has a reason for saying this. The last thing it wants is for its clients to cut back. Likewise, when the poster contractor Maiden Outdoor issued a profits warning earlier this year, blaming the recession for its problems, others in advertising reacted angrily, maintaining that they saw no sign of a downturn. There was a subtext: that too much talk about a recession might actually make it happen.

As the retailers lamenting their poor pre-Christmas sales know, recessions are at least as much about a lack of confidence as about a real lack of money. That’s why advertising and media companies are making such bullish noises.

So far, the actual figures seem to bear out the contention of media and advertising companies that there’s nothing really wrong. Let’s hope they stay that way.

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