Listless ad spending expected to worsen

July was a cruel month for the advertising and media industries.

Ad spending for the first half of the year was sluggish, and based on a slew of indicators last month, folks had better suck in their guts: The belt-tightening has more notches to go.

"The weather conditions are dreary and worsening," says BMO Capital Markets analyst Leland Westerfield. In July, Westerfield, along with several other ad prognosticators, ratcheted down their spending forecasts for how 2008 will finish.

The auto industry is "retrenching" on ad spending, and "the outlook for retail, financial and telecommunications advertising is negative for the second half of the year," Westerfield says.

Robert Coen, director of forecasting at Interpublic Group's Magna unit, downgraded his 2008 U.S. ad-spending estimate to 2% growth, from 3.7% at the start of the year. He sees no recovery soon. "It'll be 2010 before you see any real improvement overall," he says.

Signs of trouble in July:

•Carmakers tap brakes on spending:On its second-quarter earnings call, Ford said it slashed advertising and sales promotions spending to $100 million, vs. $300 million for the same period in 2007. Faced with a dismal market, cash-strapped automakers won't be loosening the purse strings anytime soon.

"We're in a tough industry right now … most of the players in the automotive space are cutting back" ad budgets, says Mark LaNeve, GM's North America sales and marketing chief.

Among GM ad cutbacks: fewer sponsorships and less truck advertising. The money left will focus on GM's "fuel-efficient cars and crossovers," LaNeve says.

Those cuts hurt: GM was the No. 4 U.S. ad spender in 2007, shelling out $2.1 billion, reports TNS Media Intelligence. Ford was the sixth, with $1.6 billion.

•Big spenders lose marketing chiefs:The nation's top two ad buyers — Procter & Gamble and AT&T — revealed major marketing executive shifts in July. Longtime P&G Global Marketing Officer Jim Stengel stepped down, while AT&T's advertising head, Wendy Clark, said she's leaving the company.

P&G spent $3.5 billion last year on advertising; AT&T, $2.3 billion, says TNS.

•Soft drink giant cuts back:While beverage ad spending and sales have traditionally held up in economic downturns, Coca-Cola CEO Muhtar Kent said in July that Coke is "aggressively reviewing" its marketing expenditures. It's part of Coke's overall plan to cut $400 million to $500 million in annual costs by 2011.

•Beer budget under scrutiny:Big spender Anheuser-Busch agreed in July to be bought by Belgian brewer InBev.

While CEO Carlos Brito says he won't scale back A-B's spending as long as it creates brand growth, InBev is renowned for its cost-cutting.

A few boost budgets

There are some bright spots amid the gloom, say forecasters. Media outlets should benefit this month from spending around the upcoming Olympics and presidential elections.

And a few marketers, such as Kraft and PepsiCo, are responding to the economy by strategically pumping up their ad budgets to keep or gain market share.

"Across the board, we are planning to invest even more in 2008 than 2007 for marketing, quality and innovation focusing on our key brands and categories," says Kraft spokeswoman Lisa Gibbons.

Pepsi added spending this year to promote its new Gatorade G2. In a July earnings call, CEO Indra Nooyi said Pepsi is "not backing off" ad spending. "We really have an eye towards the long-term future of the company," she said.

Jon Swallen, senior vice president of research at TNS, says these food companies have increased spending in a "shrewd" and "deliberate" way.

Not only do they want to keep their brands front and center as shoppers consider cheaper store brands, they're also "anticipating that people will be eating out less and eating in more."

Contributing: Theresa Howard