DiscussEconomics

Is Terrorism Reducing Advertising Demand?

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**originally posted in our now closed forums in 2007 by user MarkTwain***

so……i tried to answer someones question on a media/politics message board on this issue…

the guy was asking why are mainstream or corporate media companies are so keen to follow the government line on terrorism (sometimes abbreviated to MSM, mainstream media, in contrast with the growing alternative media market, i use the term traditional media too)

he thought that it would reduce “consumption” (his term) by scaring consumers into not spending money and therefore advertisers would`nt like it and should put pressure on media corps to change their coverage. (to become more reasonable and less alarmist about the issue)

he proposed…”how does this (alarmist terror coverage) increase consumption which is the aim of advertising in the media?”

I thought his confusion was due to the terms of his question (like wittgenstein said, if you cant answer a question there is something wrong with the question……i dont take this as an absolute rule but it holds true in many circumstances)

here is my post in reply to him…..(i would appreciate a brief comment about whether i am on the right track, be honest please!!, if its bad its bad etc and i dont want to put about false arguments so i should adjust it if its wrong etc but everyone else had crashed on the rocks trying to answer his question so i took a deep breath and had a go)

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right, im not an economist but i’ll have a go at discussing the subject (im teaching myself at the moment, if there are any more knowledgable on the subject reading this then please post if my analysis is flawed or whatever)

firstly advertising is not solely about selling products and services, think about political ads (a big industry in the u.s., not so much in the uk but still a factor) and charities advertise too, i cant produce a comprehensive list of ads which are not product or service based but there are enough different types to challenge this premise in your question daniel (in my opinion)

so media products which survive on ad revenue are not soley reliant upon product/service based sources. (although i would think its the major share)

secondly, you say that advertisers wish to increase the level of consumption.

yes and no, those who sell products or services wish to increase their market share and increase demand for their products/services, not overall consumption as such. (managing levels of consumption is the job of government fiscal policy, and in global terms its the job of macro economic institutions like the IMF amongst others to research the issues and advise governments etc, they were set up after the war to avoid great depressions etc, at least thats part of what they claim to do, we all know there is alot more to the bretton woods gang than that but thats another story)

according to the IMF and other macro economists the u.s. and the u.k. populations are consuming too much and not saving or investing enough, while the converse is true of china. (their risk averse tendancies are helping to fuel the spending binges of the anglo-americans, this is a source of global economic instability)

so consumption as an economic factor or indicator must respond to domestic and global need/situations and grow in proportion with other factors. (overall GDP growth is definately wanted by governments, industry and advertisers etc)

so its not the case that industry or government or advertisers wish to see an increase in consumption per se, they do but only if this increase is part of a balanced growth overall. (although some short term-ist flyby nights might not be bothered about overheating the economy till it collapses, i dont think this is the majority view however)

if we contrast consumption with investment or savings we see that both industries are advertisers, banks for instance advertise savings and investments and pension plans etc etc while car companies and retail chains for example advertise products for sale etc etc, so advertisers are both champions of consumption and saving/investment, some like banks offer both, selling credit products on the one hand and investment or savings products on the other, people have to do something with their money remember, they cant keep it under the bed or it will lose value due to inflation, they have to spend it or save/invest it, this happens regardless of terrorism)

thirdly your question seems to imply that levels of consumer demand should be dropping because of this terror situation, have you checked the figures? (retail would be a good one to look at), however if there is slight downward trend you would find it difficult to analyse why that is happening, and would probably conclude rising energy costs and local taxes and possible inflation fears and interest rate rises would be the cause. (and in terms of advertising it makes little difference, energy companies advertise too remember)

so to conclude, i dont see how this terror situation is going to reduce the overall ad spend significantly enough for the media to reduce its support for the political establishment.

The thing that is hurting the traditional media at the moment is the internet primarily, there has been a fragmentation in audiences and readerships etc, and the advertising industry is trying to adjust to the new situation and to find spaces to put its ads online. The newspapers are considering raising their cover prices to make up the drop in ad revenue while trying to increase their online presence to catch that market, Tv companies are also trying to get their share of the online market, and look at murdoch buying Myspace, this isnt even news or entertainment, its networking communications(although his empire is not sure how it will make real money out of it yet), the tradional media are worried that they wont be able to keep up their high budgets and profits unless they can find ways to preserve their ad revenues or find other methods for making money, i think this is due to technology not terrorism, check out the interview with alan rusbridger from the guardian which is posted in the video thread, he discusses how they are trying to make up for lost revenue and how much money newspapers are losing at the moment)

2 responses to “Is Terrorism Reducing Advertising Demand?”

  1. barry econ Avatar
    barry econ

    I think your missing out a major major component and that is consumer and investor confidence. America was thrown into a recession after sept 11. Was it because of the degradation of consumer confidence? Well it was the big straw that broke the camel’s back, but consumer confidence is the major player in a healthy economy. Consumer don’t trust govt, they won’t spend. Look at Japan, 0% interest for the longest time but people didn’t spend. America was the same thing; not only is it important but it’s also very hard to predict. You’d think that dropping interest rates would help, but really, in some cases it won’t because the confidence level won’t budge…..Just a thought.

    Reply
  2. Marktwain Avatar
    Marktwain

    you are totally right, i posted again on the issue after reading up more. (realising consumer confidence was the best measure for the job)

    i hadnt considered investor confidence

    i`ll look it up thanks.

    ……………………………………………………………………………………………………………………………

    i said in my more or less economic post that looking at retail sales figures might be a good indicator of consumer behaviour, what i should have said was that the consumer confidence index is the best indicator for this sort of thing. (i was just reading some economics news and spotted an article about u.s. consumer confidence and thought thats the measure i/we need to help answer these questions, as i said im not an economist, yet)

    looking at the recent figures for both the u.s. and the u.k. there is no dramatic movement going on (unless im reading the figures wrong), according to nationwides consumer confidence index for the uk nothing has changed for the last 3 months and no mention is made about terrorism effecting confidence. (some areas of confidence have dropped like in the job market but its been steady overall for the past 3 months, in general confidence has been dropping for a while give and take a few spikes upward here and there (like the world cup), basically there is nothing to suggest terrorism is having much effect…. in general confidence is on a downward trend for less exotic reasons shall we say)

    in the u.s. consumer confidence has dropped slightly but again this isnt thought to be terrorism related. (i`ll post the articles at the bottom so you can read up on whats effecting things at the moment, and as i wrote in my economic post its difficult to work out exactly whats going on or why confidence drops, its all a matter of research again and the reading and prioritizing of various economic indicators)

    as a comparison i pulled up an article from just after september 11th on consumer confidence in the UK, and the thinking at that time was that this was having a negative effect on confidence but not as bad as some had predicted.

    According to research carried out by GFK before and after 11 September, confidence was only slightly reduced by the attacks in the US. Analysts also noted that the post-attack findings were in line with long-term trends and were slightly up on last September.

    “It could have been a lot worse and it wouldn’t appear to suggest that the consumer is going to lead the economy into recession” said Ciaran Barr, chief UK economist at Deutsche Bank.

    source: bbc online 2001 (link at the bottom)

    (although another report did contradict those results a bit, but nothing significant really)

    its all a bit like weather forecasting, imprecise. Even if consumer confidence falls a bit discerning whether it is about terrorism or not is difficult and relies on some of the same research methods i talked about in my advertising/marketing post and is plagued by alot of the same problems. (you rely upon what people say about their confidence, i think most of this economic research is quantative like the survey in the nationwide pdf ive posted below, i would recommend a more in depth approach adding qualatative of active and passive varieties to give a clearer a picture, however given the need for quick turnover of results to produce regular reports this would have to act as more of a background resource for economists to draw information from, perhaps a study being produced yearly, this may or may not already exist)

    what is fairly clear is that if 911 didnt make much difference in terms of confidence then these recent scares are much less likely too. (although we are talking about physchology here so we cannot assume the public are rational actors so to speak, its not a certain thing that the general terror level will have less effect that in 2001 but its a probable one i would say)

    adding this stuff to the wider argument.. industries who rely entirely on the consumer market (those who sit on the consumption side rather than savings/investments end of things) will be concerned about consumer confidence and how terrorism effects it (and in general consumer confidence effects the economy as a whole so all industries and businesses will be concerned about it) however it seems since 911 terrorism has not made a significant difference to these confidence indexes, certainly not significant enough for consumer industries to put pressure on media corps to reign in their alarmist coverage. (or to make companies pull their ads in protest etc)

    the fed big wig ben bernanke has made a recent statement about protectionist policies hurting economic growth (protectionism is a term to desribe economic controls and tarrifs placed on imports by domestic economies and trading blocs like the EU etc if you didnt know) relevant here is that he also said that terrorism was presenting problems in terms of economic intergration, presumably he is talking about inefficient movement of goods and services due to tighter border and port controls and inter-regional differences in security policy and protocol etc etc and other stuff probably. (im not sure though as the article does not include that detail, im guessing, i could research it more but i think ive done enough for now)

    “The risk of terrorism already constrains the pace worldwide of economic integration and may do so even more in the future,”

    ben bernanke

    this shows some of the divergence between macro economic orthodoxy (open/free trade etc) and self interested/dangerous government policy.

    (although to say that this is a highly politicised area is an understatement, bernanke and/or the bbc may have made a point about terrorism for political/ideological reasons etc, however it doesnt mean he isnt correct about the problems it causes)

    these are the kinds of areas where international terrorism and the capitalisation of it by governments and media breaks with the doctrine of the pure or rational capitalist system and shows up differences of opinion or criteria amongst the elite institutions in my view (one area anyway).

    this is analogous to your original question daniel about whether alarmist reporting on terorrism is breaking with the propaganda model in terms of ad revenues and media etc, however in this case i think it really is a contradiction in the world system, but then the beliefs and wishes of economists are not always followed by governments by any means.

    I think many economists are as exasperated as some of us by what is going on at the moment, its hardly what smith or ricardo had in mind with their ideas of the market reaching equalibriums of supply and demand and having “invisible hands” sorting stuff out, governments have proved themselves more than willing to upset the macro economic apple cart when it suits their ends. Capitalizing on terrorism is just one example of this.

    in media terms then its business as usual. (terrorism is just another big scare story, like a killer on the loose or bird flu etc……none of it really seems to effect consumer confidence much (although this is something being constantly checked and thought about) and therefore doesnt make much difference to ad revenue or demand for ads from consumer industries etc, and if it does its probably beneficial….. it increases circulation in the short term and will therefore have an effect on ad prices and demand when looking at it in the medium and long term…..((by pushing up circulation or audience figures month to month or year to year etc))

    so thats my 2 pence on all this, or maybe given the amount i have rambled on about this topic in various posts maybe its more like my 2 quid…. (hope its of use to people, ive learned some stuff anyway)

    [links are now broken]

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