Last week, TNS Media Intelligence issued its third quarter report on domestic ad spending on measured or traditional media. It wasn’t pretty.

Expenditures in the first nine months of the year were up just two-tenths of a percentage point over the same period of 2006, the report says, and that’s only because a slight gain in the third quarter (1.3 percent) was able to offset the declines in the first and second quarters.

For the nine months, television was down 1.9 percent, from $47.3 billion in 2006 to $46.4 billion in 2007.

It should come as no surprise to TV stations or groups that spot TV led the TV decliners. Without the heavy political and Olympic spending, it was off 6.8 percent for the nine months, compared to syndication (down 4.6 percent) and the broadcast networks (down 3 percent).

Cable was the only TV winner. It was up 4.7 percent in the three quarters.

To peer deeper into the numbers, three key advertising categories (automotive, telecommunications and restaurants) and what they mean for spot TV, TVNEWSDAY Editor Harry A. Jessell spoke with TNS chief researcher Jon Swallen. The bottom line: Hang on. Those automotive dollars will come back—eventually.

TNS reported last week that the growth in measured media through the first three quarters would be just two tenths of a percent. What’s that mean for the year?

I had issued a midyear forecast that spending would come in at 1.7 percent for the full year. It’s pretty clear now that it’s going to come in below that level.

So where do you think it’s going to finish?

I don’t know yet, but it’s not a good year. I’d be surprised if it cracks 1 percent. It’s going to be, I imagine, somewhere between zero and plus 1 percent.

Why such a feeble growth rate in 2007?

No. 1, we are marking comparisons against 2006 when ad spending was inflated by Olympics and election activity. Odd-year forecasts tend to be a little bit lower. Even-year forecasts tend to be a little bit higher.

More important, what we’ve seen throughout 2007 is sort of a shaky economic picture. Consumer spending has been slowing down and the growth in corporate profits has been slowing down. Both are now at their lowest levels in the past three to four years. That directly impacts the decisions that marketers make and how much money they allocate towards marketing and advertising.

Some of the biggest slowdowns have come in some of the biggest advertising categories. We’ve still got the whole automotive problem with sales at a much lower level than they were as recently as two or three years ago. Marketing budgets and ad budgets have been reduced to bring them in line with current levels of sales.

My company measures traditional media. Some of the marketing budgets are getting redirected towards a growing array of unmeasured and untracked media alternatives—mobile advertising or video advertising in elevators or video advertising in movie theaters, or search advertising on the Web, video advertising on the Web. It alls eats into the amount of money that is being spent on traditional core media.

Auto accounts for 11 percent of all advertising spending. In September, at the TVB forecasting conference, you predicated that auto would be down 8 percent for the year. Are you sticking with that number?

It’s improved a little bit in the third quarter so we’re now tracking at minus 7 percent for the year, which would put it on pace to still be somewhere around $16.7 billion or $16.8 billion dollars for the year. It’s still way off the high [$19.9 billion in 2004]. It’s still looking at roughly a $3 billion reduction over the course of three years.

What’s the outlook for the category?

Clearly, the overarching picture is the upfront level of unit sales is very flat and the balance between domestic manufacturers and import manufacturers is shifting. Wrapped around that, in turn, is the collateral effect of ad spending via dealer associations because it has been much more skewed towards the domestic manufacturers.

I understand that auto ad spending is a function of how many cars are sold. You said in September that the ratio of how much they’re spending per car is falling. Is that correct?

That’s correct. They’re not spending as much on measured media. But, again, some of that marketing money may be being redirected towards unmeasured alternatives, stuff like search advertising on the Web or event sponsorship or other kinds of marketing programs,

Another thing that is happening is back in ’03, ’04, ’05, the factories kind of spent their way out of a sales decline with very aggressive promotional offers, financing offers, rebates, etc., and very aggressive levels of advertising.

They were able to sustain sales rates, but they in effect moved forward sales that would have naturally occurred in another six months, 12 months, 18 months. They brought those sales forward, so, in effect, they depleted the pipeline. You can do that one time, but you can’t do that forever. Eventually the front end of the pipeline runs dry and now you’re at a level of sales that are much lower. It’s going to take a much longer time to fill that pipeline back up.

So, that’s where the industry is right now. That explains why sales will probably remain at or near current levels at least for another year.

Through 2008. So maybe we see a rebound in 2009 as more people finally begin to replace their cars in large numbers.

It’s possible. One of the other key factors that plays into this is cars are still an expensive purchase decision for households. So consumer confidence certainly has a short-term effect on auto sales. If consumers feel that they’re struggling, buying a new car or leasing a new car is one of the purchases that they’ll defer.

What can you say about the split between national and spot TV in auto?

The rate of spend on national TV is falling faster than the rate of spend on spot TV. What we’ve seen on national TV through September is a 9 percent reduction in total category ad spend. With spot TV, it’s a 7.3 percent reduction and that gap has been widening a little bit throughout the year. It was a little bit closer back in January, coming out of 2006.

Imports are grabbing a larger share of the auto market. Do you see that affecting the TV mix of spending at all?

Not from the factories, but maybe from the dealers and the dealer associations. One of the interesting things about factory spend between domestics and imports is that the domestic factories put proportionately more of their national TV dollars into broadcast network whereas the import manufacturers put proportionately more into cable networks.

Why do you think that is?

I’m not sure what’s going on there because we’ve got companies like Honda, Nissan and Toyota. They are true national brands that are selling cars everywhere. You have BMW, Mercedes, what have you, that are smaller brands, more targeted. They may have some geographic skews and therefore cable television with some of its targeting capabilities may be a more efficient mechanism for them. It’s kind of interesting: the three big Detroit manufacturers and the three big imports have very different philosophies about the split of money between network TV and cable TV.

You say that in the auto category spot TV is not declining as rapidly as national TV. I presume that’s because of the association money and the local money. By definition, that’s spot money, right?

Yes it is. Dealers have been cutting back on spending as well, but they are cutting back more aggressively on local newspapers. Spot TV is actually gaining share of a smaller pie.

Let’s talk a little bit about telecom. In September, you said that it was pacing down 6 percent and would finish the year at $8.7 billion.

The telecom number through September is pacing at $8.8 billion. That just a smidge higher.

Telecom is sort of kind of an interesting category because there are some very distinct segments there. You think mostly of whole wireless, the competition between AT&T, Verizon, Sprint and T-Mobile. It’s half the total ad spend in the category. But telecom also includes includes cable, satellite TV, alternative phone services, all the bundling that’s going on.

The wireless piece is up slightly. The reductions have come from those other sectors of telecom. One of the big factor is AOL. It has virtually eliminated all of its consumer marketing and consumer advertising for acquisition and customer retention. They were a $140 million advertiser in 2006. They’re virtually a zero advertiser in 2007. That reflects a strategic business decision at Time Warner to reposition the AOL brand not as a dialup ISP, but rather as an advertising medium.

The big question from the station perspective is why aren’t they getting any of that wireless money?

Consolidation. I mean you’ve got we’ve got four major national brands or 3.75 major national brands. T-Mobile is a half step below the other three. AT&T, Verizon, Sprint and T-Mobile in recent years have grown through consolidation and built out their networks so it’s all national. So, as a result, advertising budgets have shifted from local media to national media.

So there’s no mystery there?

There’s no mystery there, no.

So what’s the upside for spot in telecom?

The growth potential is with the regional and local advertisers, cable companies. In the short term, it’s also phone companies with video services as Verizon rolls out the FiOS services and as AT&T rolls out its U-verse services. Those build outs will happen locally and regionally. Although FiOs TV service is in a very limited number of markets, they have been spending against it in those markets. So there’s a growth opportunity from the cable and phone companies as they get into VOIP and video delivery services, respectively.

So you would advise stations to focus on cable and telephone, which are trying to target their marketing?

Yes. The competition is going to continue to be very fierce in these secondary product areas. There’s money to be had there and there will continue to be.

In September, you said the restaurant category was bumping along with modest growth and would end the year at $4.83 billion.

Right and we’re still pretty much on track with that. It’s now pacing at just a little bit less—$4.75 billion.

Chain restaurants are really two categories. You’ve got the casual dining and you have the QSR or fast food segment. How are they doing, particularly in regard to spot?

Sales growth for the restaurant business is very sluggish right now. Retail sales are growing at about 3 to 4 percent for the category as a whole, which is appreciably lower than last year or the year before. Five to 7 percent growth rates have been a more normal level.

With the exception of McDonald’s whose same store sales are up 3 to 4 percent, most of the major chains are flat or slightly down. And you still have the uncertainty surrounding Wendy’s and Applebee’s with respect to sale and merger activity.

In the casual segment, the ad spend is up only two-tenths of a percentage point versus last year. The QSR segment is only up one-tenth of a percentage point versus last year. Pizza is down 2.3 percent versus last year. The only real growth has come from steak houses.

So this is not a very happy place for TV people.

No. I mean if you take a look at the top 10 advertisers, only two of them have increased their ad spend through September this year—McDonald’s and Subway.

All of the other brands in the top 10 from Taco Bell to Pizza Hut to Chili’s have reduced ad spending by anywhere from 5 to 20 percent year to date through September.

And the big spenders on the QSR side are all national brands, which means they tend to put their TV money into network rather than spot.

Yes, for QSRs, the spending’s been consolidated in national TV. But there are more casual dining brands and many of them are still at a point where they have regional concentrations or regional strengths. They don’t have as many stores as the fast-food restaurants do and, as a result, they don’t have quite the geographic footprint. So, on the casual dining side, it’s more favorable to the local broadcasters.

Let us finish up with this. Looking across all categories, particularly the ones that we just talked about, is there any one category or subcategory that you see as a particular bright spot for spot TV going into 2008? What’s the good news?

Well, besides politics, telecom is probably the best story and the strongest story. It’s still a growth business and as a result it’s a growth opportunity for advertising and for spot TV.

Even though the wireless carriers have shifted budgets to national TV, they are still spending huge amounts of money—$3.6 billion a year. So, even though spot TV’s share has shrunk in the past few years, it’s still a thick pie. There’s still a significant dollar volume that’s being spent there. And, as we discussed, all the collateral stuff is right now is much more geared towards local and regional markets as all these companies attempt to flesh out their product offerings.

What’s the bad news for spot?

It’s cars and retail department stores. I’m not sure that the department store business is ever going to come back the way that it was for local media and for local TV again just because of the consolidation. Federated is the poster child for that.

But the car money will come back, right?

What’s going on with the department stores is fundamental and structural and it ain’t going to change. The automotive stuff, it’s kind of OK. You’re at the down point in the business cycle just now.