Advertising's hangover gets better: The party's over, but Neil Thapar finds optimism returning to a sobered industry

AFTER the worst recession it has faced since the war, no one in the advertising industry expects a return of the boom days of the 1980s. But there is growing optimism that a turning point has been reached.

For many who worked in the sector, the 1980s were one long party. While advertisers spent billions puffing their products with glamorous television and press campaigns, the champagne flowed at their creative agencies and pay packets became fatter by the month. Advertising's share of national output rose from 1.15 per cent in 1982 to 1.52 per cent in 1989.

But after the party came the hangover. With the economy tipping into recession, many companies were forced to slash their promotional budgets. As a result, advertising spend in real terms declined for three consecutive years from 1990 to 1992, as did the sector's share of national output.

The impact on the sector, bloated by high cost structures and weak balance sheets during the excesses of the 1980s, was severe. Thousands have lost their jobs over the past three years and former high-flyers, such as Saatchi & Saatchi and WPP Group, owner of the J Walter Thompson and Ogilvy & Mather agencies, have been forced into several refinancings.

Although the industry's prospects are still far from rosy, 1993 marked a turning point. According to Zenith, the media buyer, advertising spending grew by an underlying 2.3 per cent to pounds 8.1bn last year.

Many observers now believe the recovery will gather further momentum this year and total spending is expected to jump by 6.4 per cent to pounds 8.7bn in 1994, with even stronger growth over the following two years.

Peter Mead, chief executive of Abbott Mead Vickers, the agency best known for its Sainsbury and Volvo campaigns, said: 'Over the past three years companies have been cutting their budgets, but there is now evidence that budgets are firming as a result of willingness of consumers to spend more.'

Confidence has also been lifted by the decision of some big companies in the financial services sector to resume spending on advertising after holding back for almost a year. Billings from this sector dropped away markedly during the recession but higher consumer saving and the outflow of money from building societies into other financial groups have encouraged some advertisers to loosen their purse strings.

They include Nationwide Anglia Building Society, which has recently hired Gold Greenlees Trott to spearhead an estimated pounds 10m television and press campaign; Lloyds Bank, which has appointed Lowe Howard-Spink; and Allied Dunbar, the life insurer whose man-in-the-operating-theatre campaign has been masterminded by Grey Advertising.

However, advertisers in other sectors are still reluctant to start spending because of uncertainty about the strength of the UK's economic recovery, particularly in light of the tax increases taking effect this April.

Corporate advertising, aimed at boosting the public image of companies such as ICI rather than selling products, has suffered the biggest cutback. Most advertisers regard this form of promotion as 'nice' rather than necessary - so when profits come under pressure, spending on corporate promotions is the first area to be sacrificed.

The categories least affected by recession were fast-moving consumer goods, such as detergents and confectionery, where intense competition for market share dictates a high level of promotional activity, whatever the conditions.

Television, regarded as the lead indicator of the British advertising climate, has shown signs of growth for some time. Spending on TV rose by 9 per cent in the first quarter of last year but slowed significantly in the second, giving total growth of 5.4 per cent to pounds 3.17bn, according to Zenith.

The agency predicts that TV will outperform other media, increasing revenues by about 8.4 per cent this year. That would lift its share of the total advertising cake from 32.1 to 32.7 per cent in 1994.

The climb out of recession is following the traditional pattern, with radio, newspapers and magazines also showing much growth.

Radio, which has only a 2 per cent share of the market, is expected to grow by 8.3 per cent, while newspapers are expected to increase revenues by 6.2 per cent thanks to an expected recovery in the recruitment market.

Posters and cinema, which are used heavily in promoting spirits and tobacco, are also expected to grow, although the future could become cloudy if new curbs on tobacco advertising are introduced later this year.

Behind the bald figures, however, the TV market is undergoing considerable change, which could put Channel 3 licence-holders under pressure. One factor is the high level of bid activity among the independent television companies, including Granada's hostile bid for LWT, which has had a huge impact on their advertising sales departments.

Most ITV companies have pooled sales departments, but the takeovers are likely to shake up these arrangements. Current laws prevent one broadcaster controlling franchises representing more than 25 per cent of ITV revenue but advertisers fear that a further concentration of airtime selling points into fewer hands could drive up rates and create potential monopoly abuses.

The issue has arisen at a time when relations between TV sales houses and advertisers are under strain because of huge overselling of airtime by the Yorkshire-Tyne Tees sales team. The problem, which is likely to cost the company about pounds 10m, came to light when Laser, LWT's sales house, took over airtime selling on behalf of both channels late last year.

ITV is also coming under increasing threat from Channel 4, which it helped to spawn 10 years ago. Thanks to the channel's innovative and popular programming - such as the hugely successful coverage of Italian football - it has been winning a greater share of TV spending.

Channel 4's revenue is estimated at about pounds 324m in 1993, the year in which it took over selling its own airtime from ITV. Experts believe it could boost revenue by about 15 per cent this year.

In the longer term, the growth of satellite, dominated by Rupert Murdoch's BSkyB network, and cable television are also expected to erode the TV companies' market share. Estimates suggest that although satellite and cable took only 4 per cent of revenue last year, that will rise to almost 20 per cent by 2000.

Ray Kelly, managing director of Aegis, the media buyer, said: 'As satellite and cable develop, they will erode some other TV companies' hold. But television's share will continue to rise overall because of more opportunities to advertise on it. There are more dynamic things happening there than in other media.'

(Photograph and graph omitted)