Tuesday, December 09, 2008

Forecast for 2009: It Could Have Been Worse

Forecast for 2009: It Could Have Been Worse
by Michael Bush
NEW YORK (AdAge.com) -- Considering the economic uncertainty that has gripped nearly every global market and the fact that a major U.S. industry may end up driving off a cliff, taking millions of jobs and billions of advertising dollars with it, it could have been a lot worse. At today's UBS Media Conference, ZenithOptimedia and Group M both forecast global ad spending on measured media will experience no growth in 2009, the first time in years, and will instead decline 0.2% compared to 2008.

ZenithOptimedia projects global ad spending will hit $490 billion next year, down from $491 billion. Group M's estimate is $458 billion for 2009.

Forecaster Robert Coen Sees a 0.3% Decline in Global Ad Spending U.S. looks worst
When broken down by region, the numbers are a little more worrisome. In ZenithOptimedia's report, North America is expected to decline 5.7%, with a 6.2% drop in the U.S., while Western Europe drops 1%. Asia Pacific (up 3.2%) and Central and Eastern Europe (up 1.5%) are still expected to grow, albeit at a slower rate than was previously estimated.

Latin America (14.9%), bolstered by very strong growth in Brazil (30%), as well as Africa, the Middle East and the rest of the world (11.2%) will not only show growth in 2009 but exceed the impressive numbers they posted in 2008, according to ZenithOptimedia. Like Brazil, the remaining BRIC countries of Russia (5%), China (9%) and India (13%) are also expected to post impressive growth numbers in 2009.

ZenithOptimedia projects a "very tough" global ad market for the first half of 2009 but is anticipating a "mild" turn for the better starting in the third quarter with year-on-year comparatives starting "to get a lot easier" in the fourth quarter.

Developing nations expand share
Throughout 2010, ZenithOptimedia predicts global ad spend will increase 5.5%, to be followed by 5.8% growth in 2011 with developing markets behind most of that increase. "We expect the sharp disparity of growth rates between the developed world (which we define as North America, Western Europe and Japan) and the developing world (which we define as everywhere else) to continue," it said in a statement. "We estimate developing markets will contribute 89% of all ad expenditure growth between 2008 and 2011, and increase their share of the global ad market from 30% to 36% over this period."

Despite all the talk about newspapers (23.8%) and TV (38.3%) losing their appeal as ad media, ZenithOptimedia expects both to still garner the lion's share of ad dollars in 2009. Not surprisingly, as marketers look for cheaper and more measurable ways to market, the overall ad spend against web advertising is expected to increase to 12.1% in 2009, up from 10.3% in 2008.

ZenithOptimedia believes the global ad spend on web advertising will jump to 15.6% by 2011. It's also forecasting "substantial growth" for cinema and outdoor advertising in 2009.

In its study "This Year, Next Year," Group M said the global decline in spending is the first since 2001. Its numbers for U.S. activity are less ominous at -3.2% growth, but its projections for Western Europe (-1.7%) are slightly worse than ZenithOptimedia's. Group M is also predicting a strong 2009 for Latin America (8.1%), though down from 9.9% in 2008. The Middle East and Africa are estimated to show 8.7% growth, but that is also down considerably from 2008 (15%), according to Group M.

Tight spending
"Advertisers are scrutinizing every penny," said Adam Smith, Group M futures director, who oversees all of Group M's "This Year, Next Year" reports. "The automotive and financial services categories have obviously seen weakness across 2008, and retail will be under pressure as we move beyond its busiest fourth-quarter into 2009. Among our own client base we are not seeing wholesale cancellations, but we are seeing migration from expensive and less-tried-and-true media to value and certainty."

While Mr. Smith called out internet ad spending as the only "significant growth area," at 5% for 2009, he added that spending is still down compared to the expected 16% growth in 2008. Group M expects global web ad growth to slow from 22% in 2008 to 10% in 2009, which represents $5 billion growth reaching $59 billion or 13% of measured media investment.

Ad-Spending Forecasts Are Glum
Estimates Vary, but Economic Crisis Is Expected to Spur Cuts in U.S., AbroadArticle

For the advertising and media industries, the worst is yet to come, according to some of Madison Avenue's most closely watched forecasts.
Fallout from the global financial crisis will bring cuts in total ad spending next year both in the U.S. and abroad, though predictions vary widely. Publicis Groupe media agency ZenithOptimedia expects U.S. ad spending to drop 6.2% in 2009 to $161.8 billion. WPP's agency GroupM sees a decline of 3% to $157 billion.

Continued growth in emerging markets will help offset declines in North America and Western Europe, according to both firms, which predict that global ad spending will decline by 0.2% in 2009.

Both companies plan to present their forecasts Monday morning at the UBS Global Media and Communications Conference in New York. Their predictions have been keenly anticipated as industry observers seek signs of how severe an impact the economic downturn will have on the ad business.

Another high-profile forecaster, Robert J. Coen, senior vice president and director of forecasting at Interpublic Group's Magna, also plans to present his predictions at the conference Monday. IPG declined to release its forecasts ahead of time.

Forecasts from Zenith and GroupM represent differing views on ad spending in 2008. Zenith says the current ad spending downturn started in the third quarter and has accelerated through the end of the year, with U.S. ad spending down 3.8% in 2008 to $172.5 billion. Group M is predicting that U.S. ad spending increased 0.3% this year to $162 billion.
In addition to weakness in spending from automotive and financial advertisers, GroupM predicts that retailers will be under pressure following the critical holiday sales season. It says that while it has yet to see wholesale cancellations among its clients, advertisers are now watching every penny.

Spending cuts probably will be most severe for newspapers, magazines and radio as advertisers shift dollars to digital media. One bright spot continues to be Internet, which will keep on growing, albeit not as quickly as in recent years. Online ad spending is expected to increase 5% in 2009, down from 16% growth in 2008, according to GroupM. TV spending also should fare relatively well in the downturn. Advertisers are familiar with using that model to build brands, and TV viewing tends to rise in recessions because TV is a low-cost entertainment option, according to Zenith.

Still, these forecasts paint rosier pictures than recent predictions from Wall Street analysts, which also are split.

Just last week, Fitch Ratings cautioned that U.S. ad spending next year would drop between 6% and 9%, in line with the steep downturn experienced in 2001 following the bursting of the dot-com bubble and the Sept. 11 terrorist attacks. That year was the worst ad recession since 1970.
Fitch predicts that the current downturn will extend well into 2010, probably causing broad pullbacks in both the national and the local markets, pressure across a wide spectrum of advertising categories including retail, auto and financial services, and a glut of ad space thanks to the Web and other emerging media.

UBS is forecasting that U.S. ad spending will fall 6% in 2009 but doesn't anticipate the ad spending decline will be as steep as in 2001.

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