Citi analysts: The ad slump approacheth

Citi Investment Research (formerly Smith Barney) looked at the near future of advertising and predicted yesterday that US advertising budgets will shrink by almost 2% by the end of this year, and as much as 4% next year.

Analysts from Citigroup said that decreased consumer spending, as well as budgetary and credit constraints placed upon businesses, will lead to an overall advertiser pullback in all media that could last until the fourth quarter of 2010.

Broadcast Television ad budgets will be hit hardest according to the group. The Hollywood Reporter cites UBS analysis predicting a worst-case 24% drop in ad revenue for News Corp.'s broadcast TV.

Online advertising will likewise be hit, according to the group. There are more than 300 online ad networks today, and many feel that it is bubble waiting to burst. Roger Lee of Battery Ventures spoke at Advertising 2.0 last summer, saying that online video and social networks are extremely overfunded and he expects "90% of them will disappear in the coming year."

So the economic recession and the end of the Web 2.0 gold rush are major indicators of a coming online ad slump, say analysts. Further, a tremendous cash displacement was no doubt caused by the end of the US election cycle, which infused more than a combined $265 million into print, television, and Internet marketing just for the two major presidential candidates.

This does not even begin to include the countless millions spent in local Senate races. The battle between Republican Elizabeth Dole and Democrat Kay Hagan for North Carolina's Senate seat totaled about $35 million in media spending between the two parties. The Boston Herald reported that even independents spent $22 million in advertising in that race.

Typically, ad buying retailers look forward to the period after elections because that is when advertising real estate opens back up, and the holiday shopping promotions begin. But this year, the combination of increased electoral advertising and decreased consumer spending leaves the post-election ad market with big holes in its revenue stream.

According to the National Retail Foundation, the average surge in holiday retail sales is 4.4%. In 2007 it was only 2.4%, and the group expects it to be 2.2% this year. TNS Retail Forward has placed growth this year at just 1.5%.