Advertising market shrinks as media outlets struggle to maintain revenue streams
If your favorite local publication went from glossy color to black-and-white or has slimmed down or even disappeared altogether, it is probably because advertisements aren’t flowing in.
The advertising market is shrinking as real estate, construction, insurance companies, auto dealers, banks and investment houses are either slashing budgets or freezing spending.
Entering crisis management mode, companies shut advertising taps as one of the first measures. They often switch to “below-the-line” advertising, which doesn’t bode well for mass media outlets, since the niche form of advertising focuses on target markets and consumers, bypassing TV, radio, print, banners and other “above-the-line” product promotion.
Although the advertising market is still expected to increase in 2008, it is losing momentum as the year comes to a close. It is expected to end at roughly 15 percent up this year – half of the original forecast by the All-Ukrainian Advertising Coalition. Its experts told Korrespondent, the Kyiv Post’s Russian-language sister publication, that the ad market will grow at an even slower pace in 2009. Spending may remain flat or increase up to 10 percent, according to the best forecasts at the moment.
Print media have already lost an average of 10 to 30 percent in ads this fall, according to Telekritika, a private media watchdog. And this has not gone unnoticed. One publication to buckle under was KP Media’s own Ukrainian language weekly, Novynar. That magazine, citing weak advertising, closed in August after $2 million was invested over the last year.
Weak distribution has also plagued Ukraine ever since the state monopoly Soyuzdruk splintered into regional ownership after the fall of the Soviet Union. Today, essentially two large players control the printed press distribution market. Soyuzdruk has only 6,000-7,000 outlets nationwide and Ukrposhta, the state postal company, has 15,000 branches where certain newspapers and magazines can be bought, according to Delovoi magazine.
Other parts of Europe have a better distribution system. By comparison, for instance, France in 2002-2003 had three national newspaper distribution networks, 280 wholesalers and 33,000 retail outlets to sell national titles, according to a 2006 report by IFRA, a worldwide research and service organization for the news publishing industry. Germany had 118,000 retail press outlets, according to the same report.
So with the distribution ceiling fixed for the time being in Ukraine, publications are halting future projects, cutting pages, being sold to investors who can sustain short-term losses or are facing extinction in light of decreasing ad revenues – their main source of cash.
“This autumn will definitely play a sanitary [cleaning up] role of some kind,” said Alexei Pohorelov, general director of the Ukrainian Association of Press Publishers, referring to publications that are weakly positioned to deal with lower ad revenues.
Thus far, controlling stakes in respected business daily Delo and business weekly Invest Gazeta were sold to EastOne earlier in the year, which is controlled by Victor Pinchuk, Ukraine’s second richest man. Blik tabloid was sold to Romania’s Group Adevarul Holding.
Other printed media are seeking new owners: Holland’s Telegraf Media Group is looking to unload Obzor newspaper, and magazines Lubimaya, Domus Design, Maister, Glance, Panorama, Gourmet Guide and What’s On.
Another victim to falling ad revenue is Gazeta po-Ukrainsky, one of the country’s few national Ukrainian language newspapers, which went from being a daily to a weekly in August, Telekritika reported. The watchdog reported the newspaper’s employees are expected to receive October salaries only in December and that the publication’s owner froze plans to launch the “Krayina” weekly magazine because of illiquidity.
“It really all depends on the knowledge and skills of ad-sellers in the publishing houses and client managers in advertising agencies,” Pogorelov said. The NGO leader stated that business-to-business publications and other reader targeted publications with loyal audiences could stand to make as much money as some TV channels.
But the biggest hit is yet to come. “TV ads will suffer the least with revenue increasing insignificantly,” said Yevhenia Prodayeva, a media business project manager at Telekritika. “Radio stations will suffer the most as well as outdoor advertisers,” she added.
Interestingly, online media are expected to witness ad revenue increases in 2009, according to Kommersant Ukraine, a business daily. The online ad market may surge 50-80 percent and is expected to reach $20 million in 2008. The business daily cited Google’s Ukraine representative who said cheaper ad placement will trump mainstream media for companies looking to save money.
But regardless of advertisers’ spending reluctance, ad prices are not expected to go down. Oleksiy Pohorelov, general director of the Ukrainian Association of Press Publishers, said it makes no sense to lower ad prices. They are expected to increase by 10 to 30 percent in 2009. Some publications will offer discount plans or barter.
Nevertheless, just like cash-rich companies are scooping up businesses in distress in other sectors, some bigger players are maintaining their course or even expanding. The Novaya Gazeta newspaper recently announced it was taking on more employees in order to make the switch to a daily, Korrespondent reported. Novaya Gazeta newspaper is part of Glavred-UNIAN Holding controlled by Oleksandr Tretyakov, an influential presidential ally.
But the future is grim for smaller media groups, industry participants said. “Only the leaders will be able to stay afloat,” said Jed Sunden, KP Media owner.
