Advertising growth will remain ‘muted’ for the next few years and will not show a great return to strength by the end of 2002, as some industry observers have hoped. This is the opinion of media analysts at ABN Amro, who in a report released at the end of last week, state that consumer and corporate spending will assume greater in importance than advertising for the media sector in the coming years.
In 2002, global advertising is expected to decline by 1.4%, with a recovery emerging in Q3. However, analysts say that the bounce-back will not be strong, as advertising tends to be ‘early in, late out’ of a recession.
Drawing on evidence from the recessionary period in the early 1990s, ABN forecasts that it will take at least four years from now for the ad market to recovery from its downturn; it can take up to ten years for advertising to regain its former share of GDP, adds the report.
A bad year Last year was the worst for advertising in 50 years, with global adspend estimated by ABN to have fallen by 5.7%. The decline in telecoms, media and technology (TMT) and finance advertising is thought to have been a major factor in the overall retraction of the advertising market. ABN believes that this decline is structural rather than cyclical, suggesting that it will be some time before this important driver of advertising growth is restored (see Forecasts).
The first half of 2002 is forecast to show a global ad revenue decline of 6.5%, whilst H2 grows by 3.7%. In 2003, ABN says it expects another ‘below-trend’ year, before the market returns to normal rates of growth of 5-5.5% in 2004 and beyond.
Media mega drivers The report says that advertising, consumer spending and corporate spending are the mega drivers behind media growth. Consumer spending, which already accounts for 50% of sector revenues, is forecast to continue its strong growth; corporate spending, which accounts for around 19%, will grow, but at a lower rate.
Advertising represents about 31% of global media revenues.
Cost cutting may hold companies back ABN says that the cost cutting which has been instigated by many media groups following the difficult trading conditions of 2001 may result in a dip in their competitiveness. The broker identifies Interpublic Group, Havas, the European cable companies, Carlton, Granada and Primedia as being affected in this way.
ABN Amro has upgraded its stance on European media to Neutral.
