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Big Advertisers Set to Cut Back Big-Time on TV Spending

The article "Advertisers Ratchet Down Spending: 'A Seismic Shock,'" which posted April 7 in these pages, noted:

The large-scale shift in social mood from positive to negative, as indicated by the swift and dramatic downturn in the stock market, has led to businesses scaling way back on advertising spending.

The article showed this April 3 New York Times quote:

Facebook has described its advertising business as "weakening." Amazon has reduced its Google Shopping ads. Coca-Cola, Kohl's and Zillow Group have stopped or limited their marketing. Marriott's advertising, in the words of the company's chief executive, has "gone dark."...

As a follow-up, here's an excerpt from a May 12 Wall Street Journal article:

Big advertisers from General Motors Co. to PepsiCo Inc. to General Mills Inc. are seeking to walk back spending commitments they made to broadcast and cable networks, a dynamic that is testing the industry's five-decade-old way of doing business.

TV ad spending fell in the initial weeks of the coronavirus pandemic, but was insulated from an even bigger drop. That is because the majority of the roughly $42 billion spent on national TV ads in the U.S. is bound by contractual commitments that are made well in advance of a new TV season, which starts each September.

Under those "upfront" deals, the first real opportunity since the pandemic struck for advertisers to cut back future spending commitments began May 1. Companies now have the option to cancel up to 50% of their third-quarter ad spending.

Many companies are seeking to take advantage of that option to varying degrees, including General Motors, PepsiCo, Cracker Barrel Old Country Stores Inc., General Mills, Domino's Pizza Inc. and pharmaceutical giant Sanofi SA, according to people familiar with the discussions.

Ad buyers estimate that roughly $1 billion to $1.5 billion in commitments for third-quarter ad spending could be canceled. "The cuts are going to be pretty deep," said [the] chief investment officer at media buyer Horizon Media.

Advertisers have had these options in their contracts for years, but exercising them to this extent is unusual, ad buyers said.

Marketers are worried about the ability to sell their products in a prolonged economic downturn, and aren't certain what programming networks can put on the air, given the near-total shutdown of production in Hollywood.

Yes, COVID-19 has certainly played a role in the cutback of television advertising spending.

Yet, Elliott Wave International's analysts also believe a developing deflationary psychology is at work.

On that note, here's how hard magazine advertising got hit in the 1929-1933 deflationary depression, as once noted by the Elliott Wave Theorist:

The advertising industry got clobbered in the depression. Space in magazines dedicated to ads dropped by 70 percent.