ABN AMRO Forecasts Gradual Ad Growth In 2003, Rising In 2004

The broker forecasts that global advertising spend will grow by 2.2% in 2003 and by 3.9% in 2004. Advertising contributes around 30% of the media sector’s overall revenues. Consumer spend, which accounts for around 20% of revenues, is looking ‘uncertain’ on both sides of the Atlantic, but media’s share of household spend is fairly secure, says ABN.

In the UK, advertising revenues are expected to be up 0.2% this year, rising to 3.0% and 4.9% in the next two years, outperforming the global average, as shown.

Advertising Growth Forecasts By Region
	2000	2001	2002	2003	2004
North America	11.1	-6.1	0.5	2.2	3.4
Germany	7.2	-5.5	-10.1	1.3	1.7
UK	8.8	-4.4	0.2	3.0	4.9
France	10.3	-4.9	-2.2	3.3	3.9
Italy	13.4	-3.7	-3.9	3.0	3.7
Europe	10.1	-3.2	-1.7	2.0	3.4
Japan	6.9	-2.0	-3.8	0.6	0.9
Asia Pacific	10.4	-1.2	1.4	3.5	5.1
Latin America	2.2	-1.1	-10.6	-3.8	5.7
TOTAL	10.3	-3.9	-0.4	2.2	3.9
Source: ABN AMRO, November 2002

ABN says that there seems to be little evidence of companies looking to increase marketing spend significantly, moving into 2003 and agencies have commented that some companies have deferred spend. There are also no large international sports or political events to spur to spend in 2003, the report notes.

In 2004, on the other hand, the US presidential election and the Olympics in Athens should provide some stimulus for a recovery in advertising. The broker forecasts that advertising will start to show some growth in 2003 with a stronger 2004.

Falling valuations Media stocks have take a hefty fall over the last couple of years, with companies’ balance sheets taking write-downs on devalued acquisitions and divisions. The FTSE TMT index, which covers a range of technology, media and telecommunications shares, has fallen by 77% since September 2000, as shown in the chart.

ABN says that advertising agencies will experience slow revenue recovery, with continued pressure on fees and margins. Companies in the broadcasting sector, on the other hand, are well positioned to benefited from renewed revenue growth and lower content costs.

The varying performance of the sectors since March 2000 is shown here.

Consumer publishers have proven very resilient, largely because circulation revenues offset the decline in advertising revenues. The broker says that the agencies, down 39.2%, were late into the recession and will be late out; further stock declines are expected.

Revenue growth rates are forecast to be strongest in broadcast, pay-TV and music over the next two years, at 5.4% and 6.1% for 2003 and 2004 respectively. Weakest revenue growth rates are expected to be in the agency sector, down 0.6% next year and up 4.0% in 2004.

Media Revenue Forecasts By Sector
	2003	2004
Agencies	-0.6	4.0
Broadcasting, pay-TV & music	5.4	6.1
Publishing	0.2	5.1
Whole sector	3.3	5.1
Source: ABN AMRO, November 2002