The news about the advertising industry seems to get worse every day; just last week I reported that "Upfront" ad sales hadn't started and the overall ad industry is expected to drop 15 percent this year. But one of the nation's biggest advertisers, GM (GMGMQ.PK) has some good news for the national ad market, which should end up helping local ad spending as well.
Just like a lot of news today, the eye-grabbing headline is the fact that General Motors ad spending won't get any worse. And "less worse" could mean a turnaround for the battered ad industry is coming early next year.
General Motors plans to continue spending $40 million to $50 million a month on advertising through its restructuring period. This is a huge relief to the TV stations in particular who were concerned it would follow in Chrysler's footsteps and dramatically slash its ads through its restructuring. The fact that GM is holding steady now also inspires hope that the company will ramp up spending later this year once it's through bankruptcy and doing a big push to attract new buyers. Then there's the fact that foreign automakers are likely to buy a lot more ads to steal marketshare from Detroit in this period of weakness.
All in, it adds up to good news for domestic auto ads, which make up about 10 percent of the total ad market, and a bigger piece of sports advertising. Morgan Stanley analyst Ben Swinburne says this should give a boost to Disney's (DIS) ESPN, News Corp's (NWS) Fox Sports, and CBS's national ad business.
The part of the ad business that's really been suffering is local advertising, dragged down by the downturn in ads from local auto dealers. Even though steady spending from GM doesn't directly affect this market, Swinburne is optimistic continued national auto spending will drive even local ads over time. It's simple: national ads should drive auto sales, and with higher auto sales come healthier local auto dealers, who in turn, should spend more on ads. The question there is whether they continue with the same media -- newspapers and local TV -- or if they look to Internet-based ads for greater return on investment. And that question is exactly why TV networks are sweating right now.