The mad, maddening world of advertising

The cut throat nature of advertising rings as true today as it did during the era of the fictional Donald Draper and Mad Men

IT WAS widely expected that this new era of governmental austerity ushered in by the new coalition government would reach as far as Whitehall advertising spend. So it was. Last Monday, ministers said the budget for the Central Office of Information, responsible for outward communications, would be frozen for the coming year, and they would then seek a 50% cut in marketing and advertising spend.

The Government remains the largest advertiser in the UK, with the COI’s turnover for the last fiscal year around £540m – over half a billion pounds.  The butt of many a media in-joke in recent times, any such savings made here could significantly contribute to the belt tightening that the new government is seeking to effect.

Square Mile analysts were quick onto it, considering the impact for broadcasters and newspapers. Citi said:

“For ITV, government makes up around 3% of ad spend on ITV1.  The driver of strong ad growth in (the first half of the year) has been food, retail, FMCG and financial sectors with government spend roughly flat. Given the limited contribution this sector has, the impact of cuts should be immaterial in (the second half). The main concern in the (second half) is the general macro outlook and tougher comps.

“Within regional news, Johnston Press recently noted that a third of all its recruitment advertising was public sector (recruitment advertising is around 15% of Johnston’s total ad revenues). We expect that a similar portion of regional recruitment advertising revenues could be at risk for Trinity Mirror and DMGT, while noting that regionals make up a smaller percentage of revenues for both groups, particularly the latter. Trinity and DMGT’s nationals will also face cuts in government communications spend aside from recruitment.”

Unsurprisingly, it didn’t make much headlines in the week that The Times and Sunday Times launched their new websites, complete with paywalls. It is the great revenue saviour experiment that perhaps only Rupert Murdoch has the resources and chutzpah to carry out, and there are many keen industry eyes upon it. Its arrival was heralded by all kinds of portents of woe, and opinions on what News International needs to do to make the concern a goer (including a piece from ft.com which we can’t link to because, err, there’s a paywall in place).

Rory Cellan-Jones called the move “a strike against the prevailing philosophy of online journalism”, and argued that writers who had established a pattern of promoting their work through social media would now find that avenue closed off to them if they take the Murdoch shilling. Even those high up in News International are not so sure. John Witherow, editor of the Sunday Times, admitted that restricting access to online content was “a big gamble”, but added that but necessary to help meet Times Newspapers’ £100m editorial costs.

And perhaps not coincidentally, the launch came just days after the Financial Times withdrew from from the monthly audit of UK newspapers’ web traffic conducted by the Audit Bureau of Circulations Electronic. A spokesperson explained: “The FT no longer participates in ABCes as volume traffic measures have become less relevant to our advertisers and clients. We do not intend to compete on volume, rather the quality of our registered and subscriber readership.”

Elsewhere, another big player was taking a kicking. Carolyn McCall, outgoing chief executive of Guardian Media Group, reported that the company’s losses for the last financial year would exceed the £90m loss made in 2008. This was predominantly down to its purchase of business publisher Emap, which it bought in partnership with investment firm Apax at a cost of £1.1 billion in March 2008. Just a year on, and, Apax has written down the value of its investment to zero because of the recession. It is expected that GMG’s write down will be around £100m.

But Matt Kelly, Trinity Mirror’s outspoken digital content director, in a speech to the Westminster Media Forum’s The Future of News Media event, praised the likes of MediaGuardian and ft.com for shifting away from chasing large audiences and going instead for building distinctive online brands. “Advertisers and commercial partners want engagement from the customer (online). Which is what, I think, makes it something of a crime when a newspaper with rich, long-established values decides to chuck those values overboard in favour of a massive disengaged audience. I think it is editorial prostitution and long-term commercial suicide.”

He said a number of UK newspapers – which were “far from blameless” for the free content situation – boasted an audience of around 30m users a month, yet were “mired in a deep sense of panic about the lack of accompanying revenue to pay for it all. All this content costs a bleedin’ fortune to create. Thirty million customers and no profit. It’s not what I would call a business.”

Those that have got there early have found other business opportunities. The Irish News, for example, has begun selling the technology package behind its website, which features a subscription-only access to a digital edition of the paper, to other news publishers. Nobody, however, believes this is the answer to the newspaper industry’s issues.

But are those issues as serious as we are led to believe? Sir Ray Tindle, whose newspaper group (which includes Welsh titles like The Brecon and Radnor Express, the Cambrian News and the Abergavenny Chronicle) has fared reasonably well in the recession, believes not. In a keynote speech to the Press Gazette Local Heroes Conference a couple of weeks ago, he said: “I’ve been hearing all that nonsense about the dire state we’re in for 63 years. I heard about the impending death of local weeklies in the Sixties when Lord Thomson launched all his local evenings and when Woodrow Wyatt brought out all his full colour offset papers. I heard all about our demise again when local commercial radio arrived in the Seventies and I certainly heard it very strongly when free newspapers swept the country in the Eighties. Each time we were on our way to the knacker’s yard. Is this a collapse of local newspapers? No it is not.”

David Fordham, in his President’s Review for the NS annual report, spoke of “cautious optimism for the future” within the local media industry, noting that advertising revenue declines had “improved markedly in the past six months”, along with a corresponding “new mood of confidence”. He added: “The fact is that local media is reaching bigger audiences than ever before, no other provider can match it for valued and trusted local news and information, and its power and effectiveness as an advertising medium is growing.”

Magazines, too, appear to be making this kind of recovery. Future has just posted a strong recovery for the first half of its financial year, with pre-tax profits rising 13% to £3.6m. Meanwhile, Trinity Mirror has stormed the iPhone apps chart, with 10,000 downloads in the first month. It is another example of media groups thinking sideways and adding value to their online presence. Some of them finally appear to be waking up to where they still have strengths.

But as they transform, so do the challenges they face. The Newspaper Society has issued a warning to the BBC to curb its expansion, following the Corporation’s Strategy Review. And while the industry can heave a sigh of relief that Yahoo! and Nokia are off building services rather than pushing for advertising, and Twitter is closing off advertising tweets to third parties, the elephant in the room remains Google.

A shiver passed through the online world on Thursday when the search giant announced it had finally completed its purchase of AdMob, a platform that – you’ve guessed it – supplies advertising on mobiles. And while there are new ways of funding being put forward, they are not likely to sustain multi-million pound commercial news businesses. As the ground shifts, the search goes on.