In the early 1970s, the concept of "light beer" hadn't yet
caught on with most beer drinkers, particularly men. So to help
promote its new Miller-Lite brand, Miller Brewing turned to ad
agency McCann-Erickson -- which came up with an ingenious idea.
The company began running a series of commercials featuring Bubba
Smith, Mickey Mantle and other legends from the sporting world
arguing over Miller-Lite in the now famous "tastes great/less
filling" debates. By positioning the beer as less filling rather
than low-calorie, it was perceived as being more "manly" -- you
could drink more of it.
The ad campaign propelled sales of the brand from just seven
million barrels in 1973 to 31 million in 1978 -- unprecedented
growth for a beer company. Today, Miller-Lite is one of the top
selling beers in the nation, and the light beer category accounts
for roughly half of the domestic beer market.
Of course, that's hardly an isolated example. Advertising has
played an instrumental role in the success of just about every
popular product from toothpaste to auto insurance.
To say the last couple years have been a cost-cutting period for
advertising would be an understatement. But the hibernation period
is over and those same companies are waking from their slumber. And
they're hungry. An aggressive increase in marketing activity should
occur as they start reaching out to customers once again.
ZenithOptimedia, which keeps close tabs on the industry, has raised
its outlook twice since December and is now forecasting global ad
spending of $456 billion in 2010, a +$10 billion (+2.2%) increase
over last year's total. While the percentage increase is modest,
keep in mind that it follows 18 consecutive months of downward
revisions -- so any positive number signals a major shift. Any big
moves made by stocks in this sector are likely to come in the early
stages of recovery, not after it has come and gone. This could
indeed just be the beginning. The growth outlook for next year has
been lifted to +4.1% and 2012 is expected to bring an even sharper
Where will the cash come from? Well, consider that
alone spent $752 million to advertise on TV, newspapers,
Spanish-language magazines and many other places last year.
Procter & Gamble (NYSE:
dished out $4.8 billion to promote brands like Pampers and
were close behind, saturating the airwaves with a combined $4
billion in their fierce battle for mobile
. Other big spenders include
General Motors (NYSE:
Follow the Cash
Newspapers still account for an 18% chunk of advertising, but that
percentage is spiraling downward. As circulation rates dwindle, key
advertisers like department store owner
have pulled the plug and cut ad spending by more than -50% during
the past few years.
Magazines and traditional radio haven't fared much better; both
suffered harsh declines of about -20% last year. With fewer
eyeballs glued to the tabloids and traditional radio giving way to
satellite radio and MP3 players, I don't expect either to reach
their former peaks.
Fortunately, that money has to go somewhere.
Outdoor billboards are expected to be a good way to capture
drivers' attention this year. Cable and network television spots
are also forecast to rake in more revenue.
But simple intuition will tell you the strongest industry growth
drivers are found in the digital realm. Video game advertising
enjoyed brisk double-digit growth last year. The same thing goes
for mobile phones.
Paid search and other online marketing also remains in high demand.
In fact, the Internet now captures more ad revenue than magazines
and is expected to post healthy growth of more than +13% in 2010.
With that in mind, I'm keeping my eye on the stocks in the table
|Value Click (Nasdaq:
|Focus Media (Nasdaq:
|Vision China (Nasdaq:
Action to Take -->
The entire industry looks to have a tailwind, but some segments
(particularly digital) will clearly sail at a much faster clip than
others. The stocks in the table above are all interesting
candidates worthy of additional research.
Editor: Market Advisor, The ETF Authority
Disclosure: Nathan Slaughter does not own shares of any security
mentioned in this article.
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