Where is the advertising market heading?

How quickly things change. The predictions made late last year that the $12 billion advertising market would enjoy another strong year in 2008, with a 10% increase on 2007, already seem far too optimistic.

Yet it still seems too early to tell what the effect of a tottering US economy (more than a third of advertising comes from local divisions of US companies) and faltering consumer demand in Australia is having on advertising.

A downturn in radio revenue may be one of the first signs that the advertising market is tightening.

The Australian newspaper reports this morning that radio executives at AM and FM stations say ad revenues for March will be well behind those for the same period last year and that prices might be discounted as a result.

The reasons included March being a short month, with Easter slotted at the end, and the reduction in Federal Government advertising. Traditionally radio is one of the first forms of media to feel the impact of a decline in advertising spending.

None of the media companies that have released their December 2007 half or calendar 2007 results have been prepared to make firm predictions.

The Australian Financial Review reports that media companies, usually happy to make predictions, are now tight lipped. Austereo Group head Peter Harvie says the capital city radio advertising market will grow between 2% to 4% this year. Harold Mitchell from Mitchell Communications Group predicts ad spending will rise by 7.4%, but qualifies this with a need for regular reviews because of the uncertainty of the US economy. Ad agency Universal McCann is tipping 4.5% increase and OMD is betting on 5%.

Free-to-air TV networks appear to have had a positive February, with 6% to 7% ad revenue growth. And predictions of growth for online advertising are still very strong.

Pundits are hoping that a downturn in consumer spending will inspire businesses to advertise more. Unfortunately for the ad industry, history tells us the opposite happens.