media innovation doesn't change shape of ad spending distribution

Looking at the top U.S. magazine advertisers from 1913 to 1929 shows a lot of familiar brands.  Proctor & Gamble, the leading magazine advertiser in 1913, was also the largest U.S. advertising spender from 1963 to 1986 and 1991 to 1996.[1]  Quaker Oats, Colgate, Kodak, Kellogg’s Corn Flakes, Goodyear Tire, B.F. Goodrich, and General Electric, among other familiar names, were all leading magazine advertisers in 1913.  Having a brand name become well known is an enduring asset.  Astonishing new communications technologies developed since 1913 haven’t obliterated brand names established with primitive print technology.

The distributional shape of print advertising spending among companies ranked by print advertising spending has changed little with the development of radio, television, and other new advertising media.  In the 1920s, the largest 75 U.S. national magazine advertisers, placed in descending order of advertising spending, are well described by a power law distribution.  The approximating linear slope of the distribution in log(ad spending) vs log(rank) space is -0.47.   The top 75 U.S. print advertisers in 1999 had a corresponding approximating slope of -0.54. The scale of advertising spending has grown enormously along with the economy at a whole.[2]  But the shape of the leading advertiser distribution, like the share of total advertising in GDP and average advertising to sales ratios across companies, changed little from the 1920s to the end of the century.

This regularity is consistent with an analogous regularity in the company-size distribution and with company size determining advertising expenditure.  Economists have long recognized that power laws describe well company size distributions, as well as many distributions of symbolic goods, including given names. If advertising spending is is a multiplicative share of company size (total sales), then the advertising spending distribution will have a distribution like that of company size.

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Notes:

[1] Based on Ad Age’s list of leading national advertisers, 1954-1997, summarized in Robert Coen, “Marketing elite,” p. 128 in Advertising Age Special Issue, The Advertising Century (1999).  The leading advertiser from 1955 to 1962 was General Motors, and from 1987 to 1989, Phillip Morris.

[2]  Total U.S. advertising spending in 1999 was roughly 200 times greater than in 1913.  See the Coen Ad Expenditure Dataset.  The largest print advertising spender in 1999, Macy’s Department Stores, spent roughly 100 times more than the largest print advertising spender in 1913. I estimate the latter assuming that the Crowell list covers 40% of magazine advertising for the leading advertiser (Proctor & Gamble) and that magazine advertising account for half of total print advertising.

Data:  Here’s the top 75 U.S. national magazine advertisers from 1913 to 1929 as an Excel workbook, with advertising expenditure calculated from Crowell’s magazine set and reported in Crowell’s National Markets & National Advertisers.  Here’s data from Ad Age on the Top 200 U.S. advertisers in 1999 as an Excel workbook. The top 75 print advertisers within this latter set probably is a good approximation for the top 75 print advertisers over-all.   In any case, those data are the basis for the 1999 estimate reported above.

2 thoughts on “media innovation doesn't change shape of ad spending distribution”

  1. The question I have is now we are in 2014, and there are new things which didn’t exist in 2009 and I’m curious to see the economic impact of Real Time Bidding, and ad networks on the effect and value on all digital advertising.

    The question stems for the idea that up to 2009 all advertising was based off of the idea of CPM, or display impressions. Now most all digital ads can be bought in real time, with full knowledge of the person they are advertising to. This makes the ad highly valuable, and can increase the value of the advertising medium in return. This then means the same ad inventory will increase in value because of the nature of content, and the value to the company to also be able to prove the return from the advertising, because it can be attached to a single person, which can be attached to the direct purchase.

    Also social advertising was not accounted for in your research, however it is now quickly on it’s way to the most expensive medium, which has also increased the overall budget of a marketer.

    So we are now in 2014, and the total ad is 794,317, with internet spending. But what effect will these two things have on this number in the future?

    1. Good question. Real time bidding and social advertising are big, new developments, but I doubt that they will have a bigger effect on advertising spending than the development of radio and television. Ad spending per media hour in the U.S. dropped from 1925 to 1965, and then was roughly the same level in 1995. See my 2001 paper, “Some Economics of Personal Activity and Implications for the Digital Economy,” Table 3. For a more recent, similar view, see:

      Gentzkow, Matthew. 2014. “Trading Dollars for Dollars: The Price of Attention Online and Offline.” American Economic Review, 104(5): 481-88.

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