DESCRIBING TRADITIONAL MEDIA AS BEING

As Ad Spend Grows 'Tepid,' Agencies Grow Neutral, Less Dependent On Traditional Media
by Joe Mandese

DESCRIBING TRADITIONAL MEDIA AS BEING "under siege," a top Wall Street firm issued a report Wednesday suggesting that major ad agencies have finally reached the point of "neutrality" - meaning they are no longer depending on traditional media like television for their profits and cash flow. The big change, wrote Merrill Lynch analyst Lauren Rich Fine, has been the shift from media commissions to fee-based compensation by major marketers, as well as the rapid acceleration of new media and marketing services. "There is no question that marketing services businesses are growing more rapidly as large marketers are questioning the return on traditional advertising," said Fine, noting agencies now "participate equally in both sectors and [are] relatively indifferent to how a client chooses to spend."
Fine hinted there still is tremendous upside for Madison Avenue among digital media, especially the online search marketplace, as most agencies "are not fully participating in the migration to online search but they do have decent representation in other Internet based activities."

Last week, Carat CEO David Verklin revealed a major push by the media agency into search, citing recent acquisitions such as iProspect, and a fundamental shift in the media planning structure of the Aegis Group unit. Verklin said Carat soon plans to make search a component of every media plan developed by the agency for its clients.

Meanwhile, Merrill Lynch's Fine makes a compelling case for traditional media indeed being under siege, and portrays a frenzy on Madison Avenue as agencies strive to develop branded entertainment, sponsored video-on-demand and other new, non-linear media opportunities.

"Local television is feeling intense pressure from local cable as local interconnects is making that medium easier to buy. Newspapers are visibly losing share to other mediums as circulation volume continues to decline at an accelerated pace. The radio industry has self-inflicted wounds that appear to be healing, but now faces threats from satellite radio and the rapid penetration of iPods," she cautioned, nonetheless offering a "positive note," pointing at that local cable, cable networks and the Internet are also "on the rise."

"Internet-based advertising, branded and search represented an estimated 3.6% of U.S. advertising in 2004 or $9.6 billion and is forecasted to exceed 7% of the total by 2009."

Despite that contribution, Fine once again revised Merrill Lynch's ad outlook downward, describing the U.S. ad cycle as "relatively tepid."

Merrill Lynch now expects U.S. ad spending to rise only 4.5 percent in 2005, down from a previous forecast of 4.9 percent. The biggest corrections were due to print media, with magazine ad growth dropping to 4.0 percent from 5.0 percent, and newspaper spending declining to 3.3 percent from 4.0 percent. The picture also darkened slightly for broadcast TV, the only medium projected to decline in 2005. Instead of losing 1.4 percent, Merrill Lynch now expects broadcast TV ad spending to fall by 1.5 percent this year.


Editor, MediaPost