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Published: June 22, 2010
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.
The Industry
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
uptick of +5.3%.
Where will the cash come from? Well, consider that Coca-Cola
(NYSE: KO) alone spent $752 million to advertise on TV,
newspapers, Spanish-language magazines and many other places
last year. Procter & Gamble (NYSE: PG) dished out $4.8
billion to promote brands like Pampers and Duracell. AT&T
(NYSE: T) and Verizon (NYSE: VZ) were close behind,
saturating the airwaves with a combined $4 billion in their
fierce battle for mobile
market share. Other big spenders include Wal-Mart (NYSE:
WMT), and General Motors (NYSE: GM).
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 Macy's
(NYSE: M) 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
below:
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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.
-- Nathan Slaughter
Editor
StreetAuthority Market Advisor
The ETF
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