Carriers prop up ad market as battles engage on mass scale

Editor’s Note: This article is an excerpt from RCR Wireless News’ May Special Edition, “Enabling the Mobile Revolution: Mobile Chips, Devices and Accessories.” The 80-page special edition is available here.
To analyze Madison Avenue is to journey through a labyrinth of unknowns. And yet our society hangs so much of our guessing work on “indicators” that are culled from the movement of dollars and sense in the world of advertising.
If the stock market is at times late to the game in providing a clear economic outlook, the advertising space is often hailed as the next best bellwether to draw from for long-range conclusions.
Reading the tea leaves of Madison Avenue is a task that never ends. Advertising spending is always up, down or flat.
As of late, because advertising spends are on the rise for the first time since early 2008, there is a growing perception that things are looking up on Madison Avenue. And like the guessing game generally goes, the situation on the ground of Main Street America should follow in kind.
“With the economy turning from recession towards growth, marketers appear to be more confident about a pickup in consumer activity and have increased ad budgets to support their brands,” Jon Swallen, SVP of research at Kantar Media, a lead tracking unit at WPP plc, said in a statement.
“While the rising tide has thus far benefited some media sectors more than others, Q1 spending hikes were broadly distributed across advertisers and categories and that’s an encouraging signal for the market going forward,” Swallen continued.
The first quarter of 2010 closed with a total U.S. ad spend of $31.3 billion, according to Kantar Media. It not only marked the first increase in quarterly spending since the same quarter two years prior, but it was also the largest gain since the first quarter of 2006.
Not surprisingly, as wireless carriers become more entrenched in media so too do the ad dollars that follow their pursuit for more streams of revenue. As such, telecom has contributed to a large share of the riches on Madison Avenue for many years.
Telecom money flowing
Ironically enough, the No. 1 and No. 2 carriers in terms of subscribers have reversed their roles in the ad market. While Verizon Communications Inc. and AT&T Inc. maintain the same respective one and two positions in the wireless market with their mobile divisions, AT&T spending has surged while Verizon continues to contract.
AT&T increased spending by a whopping 26.7% while Verizon dropped spending by 9.1% from the year-ago period, according to Kantar Media’s data. The first quarter of 2010 ended with AT&T in the No. 2 spot with $576.4 million spent and Verizon pushed back to the No. 4 position overall with spending capped at $571.2 million.
“Both telecom companies continued to allocate more resources to promote their TV service products as they try to win subscribers from cable and satellite operators,” Kantar Media wrote it its latest report on the quarter end. AT&T put a considerable amount of money behind a TV ad buy during the Winter Olympics.
The telecommunications sector comprised the second largest category by dollar volume. On the whole, ad spending from telecom was up 10.6% from $2.06 billion in the first quarter of 2009 to $2.276 billion in the latest quarter to close. Automotive was the only category that grew at a higher year-over-year rate. Manufacturers and dealers in that sector comprised to lift the auto industry’s ad spend 18.6% from $2.545 billion in the first quarter of 2009 to $3.017 billion in the most recent period.
Despite all the economic concern of late, the telecom sector appears to be a unique standout as a solidly growing category even during the recession. The industry captured $8.51 billion of the ad market in 2008 and grew a nominal 2% to $8.678 billion in 2009. The year-over-year jump in 2010 could be much greater if the industry maintains double digit quarterly increases like it did during the most recent quarter.
Part of the reason for the less-than-impressive increase in 2009 could be blamed on Verizon and AT&T. Full year advertising spending was down overall for both companies from 2008 to 2009. AT&T spent $1.987 billion in 2008 and dropped about 3.5% to $1.913 billion in 2009. Verizon spent $2.399 billion in 2008 and shed about 6.3% to $2.248 billion in 2009, according to Kantar.
Sprint Nextel Corp. alone helped the telecom category post an annual gain last year, but 2010 will be a much different story. Sprint Nextel’s increase in ad spending during the eye of the economic hurricane is noteworthy though. The No. 3 U.S. carrier spent $949.8 million in 2008 and upped its annual spend by 25.2% to $1.265 billion in 2009.
Competition put on public display
Competition for wireless subscribers in the U.S. market has been fierce for many years. The bulk of wireless carriers’ spend on advertising seems to be driven by competitive tactic and strategy.
It never ends – despite some surveys that show subscribers don’t really care to see their carrier duke it out with a competitor over the airwaves. Moreover, it would be difficult to quantify just how many potential customers make up their mind based on these attack ads.
Particularly with regard to Verizon and AT&T, there is a seemingly never-ending stream of points to score with the public.
Network superiority is one mainstay in these ad campaigns. Reliability, coverage, 3G and service are right at the top of the list for the two largest U.S. carriers. AT&T Mobility owns claim to “more bars in more places” just as much as Verizon Wireless owns claim to “the nation’s most reliable network.” Those catch-phrases have cost a pretty penny to promote over the years.
Beyond each carrier’s longstanding battle cries over dropped calls and rampant claims of network superiority, there also seems to be plenty of money in the budget for attack ads. “There’s an app for that” begets “there’s a map for that.” iPhone begets “iDon’t,” and it goes on and on.
It’s worth noting that while AT&T Mobility and Verizon Wireless continue to battle on these fronts, rarely does either carrier mention price or affordability of services as part of its strategy. That missing piece has been played up to great effect by Sprint Nextel and T-Mobile USA Inc. Sure enough there is at least some truth in advertising. The No. 3 and No. 4 carriers regularly offer more affordable packages and both seem happy to be playing in that sandbox for the time being.
The latest salvos
There’s been no shortage of advertising from carriers this summer. As Sprint Nextel launched the Google Inc. Android-powered, HTC Corp.-built Evo 4G, it launched a TV ad campaign about “firsts.” Going for a more gentle approach in the commercial, a voice actor says: “First is the beginning. First kicks open the door and possibilities follow. First resets everything. First moves us forward fast. We all want first. First isn’t later, it’s now. What will you do first with Evo? The first 4G phone, only from Sprint.”
Meanwhile, AT&T Mobility and its parent company has rolled out a major new branding campaign called “rethink possible.” The carrier has aired a series of commercials, each with slightly different tactics. One simply shows orange material blanketing over buildings and stretching to the see then ends with “AT&T covers 97% of all Americans.”
Another recent commercial from AT&T plays against “Pure Imagination” from “Willy Wonka & the Chocolate Factory” and ends with a narrator saying: “Remember when you were five and anything was possible? Happy fifth birthday again.”
Verizon is readying
a major campaign around its latest Droid smart phone, the Droid X from Motorola Inc. One of the first commercials to air on TV followed the trend of a previous Droid commercial that played up a robotic, futuristic theme. There’s only one word uttered in the ad: “Droid.”
But fear not, Verizon has no plans to keep things simple and tame. In a full-page ad in The New York Times, Verizon mocked Apple Inc. (and by association, AT&T) for the reported reception issues with the new iPhone 4.
The ad highlights the features of the Droid X while taking some hard-to-miss stabs at the iPhone, particularly on the reception point. “Most importantly, it (Droid X) comes with a double antenna design,” the advertisement stated. “The kind that allows you to hold the phone any way you like and use it just about anywhere to make crystal clear calls.”
And yet for all the money these carriers spend on ads in the mass market, there is an ongoing debate about eventual reach of mobile. Many still hold firm to the belief that online and mobile advertising have plenty of roadway left to give, but that doesn’t necessarily mean that mass media is on a path to certain decline.
Perpetually unmet opportunity?
Advertising permeates every industry on some level, but to get a grasp of how much opportunity mobile executives still see in this market, a quick tweet can do the trick.
On the Fourth of July, Michael Schneider, CEO of Mobile Roadie LLC, tweeted: “We spent 28% of our time online in 2009, advertisers spent 13% of their budget online. That 15% gap = $30B opportunity.”