Insight Analysis: Media Healthcheck – April 2002
Cautious, weak recovery seems to be the current advertising and economic outlook for the US and Europe, with the first signs of a lift now beginning to filter through.
The improvement in economic conditions is being led by the US; in Europe, where the growth rate never fell as sharply as the US, and where the policy response was less aggressive, growth is expected to pick up a little later, reaching 1.5% this year and 2.9% in 2003.
In a survey of senior US advertising and marketing executives (see AdMedia Discovers Optimism Amongst Ad Execs), AdMedia Partners found evidence of optimism when asked about their outlook for the industry. Ninety percent of those surveyed predict that ad spending will bounce back before the end of 2002, with the majority saying the comeback will occur by Q3.
AdMedia asked the same questions of senior media executives (see Majority Of Media Executives Expect Ad Recovery In Q3 2002) in the US and found that 47% think a recovery will begin in Q3 2002; 28% thought even earlier, in Q2, whilst 13% forecast recovery in Q4 and 10% not until 2003 and beyond.
Despite these positive expectations for 2002, Zenith Media this month downgraded its ‘overly-optimistic’ forecasts (see Zenith Downgrades 2002 Forecasts), citing a lag in advertising recovery behind that of the economy as the main culprit.
Zenith forecasts that advertisers will only start spending when earnings improve and thus predict that ad expenditure in the top seven markets will shrink by 1.9% in 2002. As with the previous recession, Zenith believes that advertising will be harder hit than the economy at large and will take longer to recover.
Merrill Lynch concurs, saying the advertising recovery is currently lagging 3-6 months behind economic recovery across the world (see Merrill Lynch Forecasts ‘Lag’ In Ad Upturn). The broker expects a global advertising decline of 2.1% in 2002, with the US and Europe showing -1.5%.
Meanwhile, Lehman Brothers said that whilst there are now signs of a recovery in advertising spending around the world, it is by no means clear that the recovery will be either strong or uniform (see Advertising Recovery Will Be ‘Neither Strong Nor Uniform’, Says Lehman Brothers).
UK Marketing and advertising optimism may be on the up in the UK, with the first quarter 2002 IPA Bellwether Report showing that current marketing budgets are being revised upwards for the first time since Q2 2000 (see Insight Analysis: Latest Bellwether Report Indicates Mixed Feelings). When asked if pre-set budgets for the coming financial year have been increased, reduced or left the same in the last three months, a slight majority of marketers said that they had been increased. However, the margin is very slim – just 2.6% points.
The main shift shown by the Bellwether survey seems to be a movement from decreasing budgets to leaving them the same, rather than increasing spend. This again suggests a cautious approach to the gradually improving advertising and economic conditions.
Zenith’s ad forecasts predict that the UK will not see real terms growth until 2004. The figures show that the five major European ad markets of France, Germany, Italy, Spain and the UK will show a combined real terms growth (after accounting for inflation) in advertising of 0.2% in 2003, following a 3.2% decline this year. The UK, meanwhile, will fall 0.4% in 2003 and will not see positive growth until 2004, when it will be just 0.9%. US recovery will be faster according to the figures.
The Advertising Association‘s latest UK media forecasts anticipate that spending in Q1 2002 will fall by -10.0% in current prices. Growth of 0.5% will return in Q2 and pick up slowly from there, reaching 5.2% by Q1 2003.
Consumer magazines are forecast to outperform the market again in 2002, according to the AA figures, with a 2.1% growth. Television growth will not return until 2003, when it will be about 6.0%, slightly ahead of the total market which will increase by around 5.5%.
However, TV advertising figures leaked to the Sunday Times apparently showed that the current slump is about to come to an end, with revenue showing a predicted 11.6% increase in May and a 7.0% rise during June (see Leaked Figures Forecast End Of TV Slump).
Cordiant Communications described 2001 as ‘extremely difficult’ and says it is not expecting any revenue growth this year (see Cordiant Profits Hit By ‘Extremely Difficult’ Year). SMG, meanwhile, said that is has seen a return to traditional media buying patterns, particularly in radio (see SMG Profits Hit By Ad Downturn).
Europe The euro-zone economy is set to grow by 1.4% this year and by 2.9% next year, the EU Commission said this week (see Euro-Zone Economy Shows Gradual Recovery), adding to signs already noted from Germany and the European Central Bank that recovery has replaced the of weakness at the end 2001.
US Erring on the pessimistic side (see Myers Prefers To Err On The Pessimistic Side In His Forecasting), Jack Myers decided not to upgrade his US media outlook for 2002, instead restating figures released in December last year (see Myers Restates US Outlook For 2002).
Total US magazine advertising revenue for March showed a 1.7% decrease on last year, although the decline was less sharp than in recent months, according to PIB data (see US Magazines Revenue Decline Slows In March).
Discovery Networks‘ sales chief, Bill McGowan, predicts that US cable advertising revenues will increase from $4.0 billion to $4.5 billion in the 2002/03 season and to $5.5 billion in 2003/04; network upfronts have remained weak (see US Cable Upfronts Look Stronger, Whilst Network TV Sales Remain Weak). Jack Myers reckons sales will be pretty flat (see US TV Revenue Forecasts Fall Flat).
US national radio revenue figures rose 1% in February, while local spend fell by 6%, according to the latest data from the US Radio Advertising Bureau released in April. The RAB says that the dip in local advertising is due primarily to the lack of TV sweeps advertising in this Olympic year.