Ad revenue recovery: Different strokes for different folks

The recovery is starting to remind me of the Tour De France. High on a mountain ridge, the peloton is stretched out along a vast stretch of road. But two groups are visible. The leaders represent consumer-facing mass media — the broadcasters and national press. The laggards come from B2B publishing and local newspapers. Worryingly, at this stage during a recovery, the latter should be doing far better than they are now. At local newspapers, advertising revenues are still declining.

And the mountain ridge? This represents the risk of a double-dip recession, which now seems to concern many analysts, despite contrary indications.

Consumer media: Q2 advertising revenues

Consumer confidence reached a nadir in early 2009, began to climb and reached a peak in April of this year. Since the election, it’s been falling. Few analysts now expect interest rates to increase soon. The notion of a double dip is no longer a dark, if marginal, fantasy. It’s closer to the mainstream of economic forecasting than at any time during the past two years.

As yet, ad revenues at major media organizations aren’t showing any side effects. Q2 wasn’t wobbly: it was strong. Marketers haven’t yet drawn in their horns, although that could change very rapidly.

Recent weeks have seen a flurry of half-year results and trading updates. DMGT released a trading statement in late July. Here, the trick was to look for the underlying numbers, which strip out the effect of disposals (like the Evening Standard).

At Associated, these advertising numbers confirmed the general pattern we’ve come to expect. The Mail had turned in 15% ad revenue increases during January and March — but less for February. The 15% rise in Q2 looked like continuing solid progress.

Digital revenues were up by 46% at Associated. This isn’t quite the 100% YOY increase that Alan Rusbridger of The Guardian claims to have seen during April. Yet fairly clearly, it’s getting to the point where last year’s online revenue declines are starting to look like a distant memory.

ITV’s half-yearly report suggested ad revenues had risen by 18% during 1H, compared with 15% for the broadcast market generally. These numbers closely resemble those from Associated Newspapers. Although ITV was early to recover and is still growing faster than the market, agencies move in lockstep.

Robust growth like this isn’t universal. At Trinity Mirror, ad revenues in the tabloids increased by a mere 2.2% during 1H. The company predicted flat ad revenues for July. At Trinity’s nationals, digital advertising was similarly subdued, rising by just 4% YOY. You’d have to suspect that chief executive Sly Bailey is examining both the reasons for these oddly muted numbers as well as ways to spur more growth.

Local & business media: advertising revenues

This bit of the peloton contains all sorts. Toward the head of the group are B2B publishers like Centaur Media. It’ll be September before we get Centaur’s full-year results (to 30 June). But the company recently suggested that ad revenues rose by 10% during 1H. For the record, that’s better than Trinity Mirror’s tabloids, where ad revenues only rose by 2%. On this basis, Centaur is up there with the leaders.

Yet a big distance separates Centaur Media from the likes of Reed Business Information. Stripping out the effect of closures and disposals, RBI’s like-for-like ad revenues during 1H declined by 4%. Here, management was content to suggest that the rate of decline in ad revenues has ‘moderated”.

This puts RBI on a par with what’s happening in local newspapers. Here, too, revenues are still declining, not quite bumping along the bottom. At Northcliffe, for example, underlying revenues were down by 4% during Q2 — the same as Q1’s decline.

If retail has powered ad recovery at the nationals, its relative weakness in local newspapers is worrying. Retail advertising declined by 6% at Northcliffe during 1H. Digital only rose by 10%. The fact that property ads — up by 9% — were one of the few bright spots isn’t exactly comforting.

Trinity Mirror’s local newspapers mirrored Northcliffe’s. During 1H, after stripping out revenue from titles recently acquired from Guardian Media Group, they saw revenues fall by 5%.

The bullish case runs like this: local newspapers are taking longer than expected to recover, but improvement is visible. Last year, after all, Trinity’s local newspapers saw revenues decline by 12.4%. The bearish case is pretty obvious. If a double-dip recession is coming, it seems likely that local newspapers won’t return to YOY growth before it arrives.

Ad revenues, for most media owners, wax and wane far more dramatically than circulation revenues. As a result, it’s ad revenues that tend to define the industry’s mood — as well as the ease with which it can make profits. Typically, too, the distance between the fortunate and the unfortunate always widens at economic turning points.

As a result, life at ITV and Associated Newspapers currently feels very different from existence at Johnston Press and Reed Business Information. The distance between winners and losers will probably contract if a double-dip recession takes hold. But it could expand further, too.