General Motors' June 1 bankruptcy filing just sent television executives into a stall. The automaker, the TV world's fourth-largest spender on network TV, is likely to slash its spending as it restructures, sending an already reeling TV advertising business further into reverse. Even before GM announced that it will seek bankruptcy protection, the $3.4 billion Detroit's Big Three automakers spent on national TV spots last year had tumbled by 18% from 2007, according to figures supplied to BusinessWeek by Nielsen Media Research.
GM's announcement couldn't have come at a worse time for TV executives, who are huddling in New York for the annual "upfronts"—a tug-of-war with advertisers that place orders for the season that begins in September. Traditionally the upfronts have been key to automakers, who were reliably eager to get the best deal for spots to promote new models that come out each October.
But this year no one knows how much the Big Three will be able to pay. While Chrysler is in bankruptcy, the federal government's auto task force has slashed in half the $134 million the company wanted to spend over nine weeks, according to data filed in U.S. Bankruptcy Court. GM is likely to cut back, too; for all of last year, GM spent nearly $1.5 billion on national TV spots.
Even Cable and Hispanic Media Feeling Pain
TV executives and ad buyers involved in the upfronts wouldn't comment as both sides wait for the automakers to decide how much to commit to the coming TV season. But most believe, at least in the short term, that when major advertisers like the Big Three cut back on ad spending, it ripples through the TV landscape. Already, cable TV and Hispanic media, which were largely unscathed when automakers pulled back last year, are starting to feel the pinch. Auto spending on cable TV fell 9% in the first quarter of this year, according to advertising monitor TNS Media Intelligence, after increasing last year while broadcast declined.
Credit Suisse analyst Spencer Wang esimates that the upfront sales, which traditionally account for roughly 70% of all ads sold by the TV networks, will decline by 14.5% from last season's $9.2 billion.
With large buyers scaling back, it will exacerbate a market already clenching from the recession, TV executives say privately. That probably means that some networks will be forced to cut their standard prices, which are based on the "cost per thousand" they project they will deliver. That's usually the last thing a network executive wants to do. The softer market will also allow ad buyers for all sponsors to flex their muscles as never before, arguing for placement on higher-rated shows and elbowing their products into scripts and other product placements, says Andrew Donchin, director of national broadcast for ad-buying agency Carat North America. "I don't think anyone disputes that this is a buyers' marketplace, and getting better terms comes with that," says Donchin, whose agency does not currently represent any auto dealers.
There are some givens. Although Ford Motor (F) last year slashed its TV spending by 18.9%, to $1.2 billion, no one expects the carmaker to give up its sponsorship of Fox's (NWS) American Idol juggernaut. American Idol allows Ford to create musical videos with the contestants, featuring its newer cars. Sports is also likely to continue to draw carmakers, which have traditionally been large sponsors for NFL games. One thing that seems off-limits, at least for now, is for large media companies to give free or discounted online spots to lure advertisers to the more lucrative TV spots. "We're all trying to figure out a way to make money with online video," says one network ad executive. "That would be one area where we're looking to hold our own."
local stations losing car dealership ads
The same can't be said for the legions of local TV stations. The impact of the car industry's collapse is being felt as auto dealers go out of business in droves, thanks to bankruptcy-mandated cutbacks at both Chrysler and General Motors. Last year car dealers spend nearly $4.2 billion, or roughly 10% of local ad stations' budgets, according to numbers from Nielsen and TNS. This year, spending by car dealers has already sunk 46%, according to TNS.
TV executives draw some comfort from the still-fairly-robust ad activity of foreign automakers, including Korea's Kia Motors, which last year hiked its spending by 29%, to $258 million, and Honda (HMC), whose spending rose 9%, to $813 million. And they all figure that General Motors, when it exits bankruptcy, will need to hike advertising to win back market share.
Waiting for the Recovery
"This is an industry that was selling 16 million units a year and is now selling about 12 million," says one network executive. "Increased sales have always followed increased ad spending, and that means that if they want to rebuild the auto industry, they'll have to spend more again on TV." Then again, this executive allows, "we're not exactly sure how long that will take."
Grover is Los Angeles bureau chief for BusinessWeek.