Will the Olympics Spur an Ad Recovery?
Feb. 8, 2002 -- Pulling the media world out of its advertising slump could be an Olympian feat — literally.
With advertising in the doldrums — McCann-Erickson WorldGroup forecaster Bob Coen said the ad market in 2001 saw the biggest spending decline since World War II — some are hopeful that the Winter Olympics, a 17-day event that gets under way this weekend, could spur companies to delve into buying commercial time again.
Other industry watchers say an advertising recovery is likely to be slow in coming and may not get started until later on this year, when political ads for many senatorial and gubernatorial races are expected to flood the airways.
To be sure, the Olympics will give its broadcaster NBC a boost in advertising revenue. The peacock network's commercial time during the Games was about 98 percent sold as of last week, bringing the company close to its goal of $720 million in ad sales for the games. But whether or not that translates into a full-blown advertising recovery is another matter.
"The Olympics and sports events do give a modest boost to all TV advertising, but it tends to shift the market share to the network who is carrying the sporting event," says Lee Westerfield, broadcasting analyst for UBS Warburg in New York.
Westerfield expects the Olympics and the Super Bowl, the year's other prime advertising venue, to boost the ad revenue of NBC and Super Bowl broadcaster Fox by between 2 percent and 8 percent. Competitors CBS and ABC, which is owned by ABCNEWS.com's parent company Disney, will see their ad revenues drop by between two and 20 percent, he estimates.
Location, Location, Location
Making the Games especially attractive to U.S. advertisers is their Salt Lake City location. This year's competition marks the first Winter Olympics in the United States since the Lake Placid Games in 1980.
Location is important for advertisers because of the difference in time zones. During the Summer Olympics in Sydney, Australia — when many U.S. fans found out the results on the Internet before NBC replayed the events during prime-time hours — some advertisers were given extra commercial time because the ratings were not as good as the network had promised. A guarantee of a certain rating is usually part of a company's ad purchase for an event like the Olympics, say industry insiders.
"That they're in the U.S. makes them a stronger ad vehicle than normal because the events are live, and because of the whole patriotic feel this year," says Leo Kivijarv of New York-based media merchant bank Veronis Suhler Stevenson "There's going to be higher viewership."
NBC executives say they've shortened their prime-time coverage to focus more on the Games' highlights during heavy viewership hours. NBC's Olympic broadcasts will now be 3 ½ hours, from 8 p.m. to 11:30 p.m., compared to the Sydney Games' 7 p.m.-until-midnight slot.
"That means we'll be much more live and certainly we'll be much more event heavy, because obviously, we feel we have to get the events on the air before we put anything else on the air," said NBC Sports and Olympics Chairman Dick Ebersol at a recent news conference.
First-Time Advertisers
Certainly many advertisers are making the Olympics the focus of their campaigns this quarter, taking advantage of the timing of the Games and the large television viewers expected.
Among them are first-time Olympic advertisers Hallmark cards, computer maker Gateway and technology company EDS. Other advertisers include Nike, Coca-Cola, Allstate and Bank of America.
Gateway, which would not divulge how much it will spend on Olympic ads, says its ad budget in February will be twice that of January because of the Games. The computer maker will use the opportunity to advertise some new promotions, like its Gateway Gold Medal Savings Event, and product upgrades. A spokesman for the company estimates that 85 percent of Americans will see a Gateway spot an average of 10 times each during the Games.
"It's among the highest levels of advertising we've ever run ever, and that includes pre-holiday advertising," says Gateway's director of media relations, Brad Williams.
Hallmark decided that the confluence of Valentine's Day with the widely watched event gave the card purveyor a good opportunity for both sponsorships and advertising.
"I can't even think of a sporting event that is more emotionally packed than the Olympics. That makes this event particularly relevant to our brand," says Kylie Watson-Wheeler, Hallmark's director of advertising.
Technology company EDS, which made a big splash in the Super Bowl two years ago with its commercial showing cowboys herding cats, decided to pass on the game this year and instead purchased 50 30-second spots during the Olympics. The company would not comment on how much it was spending on the ads.
Signs From the Economy
Apart from the Olympics, other ad watchers say recent positive economic news could also spur advertisers to start dipping their toes into the advertising market again. The fourth-quarter GDP numbers, which showed an unexpected rise of 0.2 percent, along with the Federal Reserve's decision to leave interest rates unchanged, a signal that the economy is on the mend, could add some confidence in the economy.
"[Advertisers] are probably feeling a little less draconian in their views, but I don't think they're confident yet," says McCann-Erickson's Coen.
But if the GDP numbers, which are preliminary and could still be revised downward, do end up being negative, that could hamper an advertising comeback, which usually takes place around three to six months after a GDP recovery when many companies start making capital expenditures again, notes UBS Warburg's Westerfield.
"When advertisers start seeing more positive comments about the economy, they start spending more, and they're starting to see this," says Kivijarv. "We haven't necessarily seen it yet, but it's coming."