An Auto Ad Upturn Ahead?

The media, including myself, has been buzzing about the ongoing doom and gloom for the advertising industry as automakers continue to pull back their marketing spend. But now we're hearing about some green shoots (if you will) for auto ads.

Sanfrord C. Bernstein's Michael Nathanson turned heads when he upgraded estimates and stock price targets for media stocks Disney, News Corp, and CBS . Nathanson is flat-out bullish, despite the fact that GM cutting its number of brands in half, could reduce auto advertising by $1.3 billion, 9 percent, next year.

Nathanson's optimistic: he figures auto ads have to eventually strengthen in 2010, which will lead to strenth in local ad markets. Local ad markets are suffering from a cyclical and secular decline, many wondering if advertisers will permanently flee the format for more measurable and targeted web or cable ads. But Nathanson is counting on an uptrun in this embattled sector next year. (Nathanson even upgraded CBS, which is more exposed to local TV ads than other media giants.) He's not alone, UBS' Michael Morris is also pretty sanguine about the impact of the GM bankruptcy on the media giants. But Morris is very down on newspapers, which he says should suffer a blow from the auto ad downturn, and won't benefit when the economy recovers.

A number of analysts have told me to underestimate how much automakers have already cut back their ad spending. GM's spending peaked in 2005 and has been on the decline since then. I would cautioun not to underestimate the negative pressure GM and Chrysler's bankruptcies could put on ad rates in the near-term. During the few months of restructuring, spending is likely to be especially tight, and then we'll see what happens.

GM has traditionally spent about $300 million during the upfront ad sales period, in which the networks lock down ad commitments for the upcoming TV season. This year GM's spending will be determined by a bankruptcy judge, so we'll see what's deemed appropriate. I'd argue that marketing is key right now to reassure anxious potential buyers. We'll see if ads are deemed a discretionary expense. No matter what it's tough on the ad industry: GM's bankruptcyis just one of many negative factors that could send the TV networks' upfront take down up to 15 percent.

Questions? Comments?