INSIGHTanalysis: Media Healthcheck – September 2003
On the whole the advertising market is heading in the right direction, with confidence and trading figures a little better now than they were six months ago. This is evidenced by comments from WPP‘s Sir Martin Sorrell, one of the industry’s most venerable and (generally) cautious market callers. Sorrell recently told a media conference that a revival is underway, with the US driving the upturn. He believes that 2004 will be a good year for the industry.
Whilst the engine of growth sits in the US, markets remain a bit patchy even there. In broadcasting, for example, the weakness of the local advertising market is mitigating against accelerated growth in the sector as a whole. Whilst an improvement in the macroeconomic indicators tends to spur national advertisers to greater spend, local brands are typically more cautious and hold back until there is a definite improvement in actual market conditions.
This local advertising weakness led Merrill Lynch to tweak its forecasts last week, dropping the 2003 US ad forecast from 3.2% to 2.8%. The 2004 forecast was also reduced slightly, from 5.7% to 5.4%. Analysts say that newspaper advertising has not bounced back as quickly as hoped for and radio revenue forecasts have also been cut to reflect a shifting demand.
A survey by the American Advertising Federation found that seven out of ten industry leaders believe that the industry is now recovering, although only 16% think that this is part of a sustained, strong recovery. Over half of respondents to the survey reckon that the market is improving slowly and that there is no prospect of strong growth.
Looking at the global advertising picture, Merrill decided to pull back this year’s forecast just a touch, from 2.0% to 1.9%. The latest figures from ZenithOptimedia showed a revision in the upward direction, with global growth now expected to be 3.2%, up from the previous forecast of 2.9%.
ZenithOptimedia talks of stronger than expected activity in the US, coupled with a slight upturn in Europe. Despite this rising confidence, growth is not expected to exceed 5% over the next couple of years, with the major markets slowing to 4.6% in 2005, according to ZenithOptimedia’s figures.
The UK picture Within ZenithOptimedia’s ad growth forecasts, the UK remains one of the weaker nations, with a lacklustre market showing total spending barely above 2001 levels. The agency reports that press shows no improvement, but demand for outdoor is up. TV is not so strong, but Zenith is confident that the European Championships will drive up revenues next year.
Recent trading statements in the UK have been mixed, but broadly the picture remains one of gradually improving, although not strong, conditions. Capital Radio is expecting airtime revenues to drop 4% in its financial year and says there are limited improvements, but these are not strong enough to call a recovery.
GWR Group is a little more optimistic. It is experiencing an improved short-term visibility for ad revenues and expects a satisfactory outcome for the year. EMAP concurs with Capital Radio, saying it is too early to tell whether the slight pick-up heralds any greater upturn.
The Daily Mail & General Trust says its most advertising-reliant businesses have continued to experience difficult trading conditions over the last year, although the decline is slowing.
On the other hand, Maiden Group, Chrysalis Radio and Ulster TV all continued to outperform the broader market and their peers. Also, SMG said that it has detected signs of significant improvement in each area of its businesses. Nevertheless, it too believes it is too early to take a view on whether this is a sustained upturn.
UK ad growth Overall, the latest figures from the Advertising Association show that total UK adspend rose by just 1.2% in the second quarter of the year. Growth was hit by weaker than expected business conditions surrounding the war in Iraq.
Merrill Lynch is forecasting UK display ad growth of just 1.0% this year, before heading into stronger growth over the next three years, although none of these is expected to break the 5% mark.
The UK’s Technology, Media and Telecommunications (TMT) FTSE shares index fell by 4.9% across the course of September as shown.
