A feature of the agency landscape over the coming few years will be a return to slow, more stable revenue growth, according to analysts at Merrill Lynch.
Looking ahead, agencies are expected to concentrate more on organic growth and less on acquisitions, not least because there is little room left for continued consolidation via major deals. Merrill Lynch says that this will result in high single-digit or low double-digit growth for the agency networks over the next few years. It has produced a set of forecasts for the major players, as shown here.
Agency Organic Revenue Growth Rates | ||||||
ÂÂ | ÂÂ | ÂÂ | ÂÂ | ÂÂ | ÂÂ | ÂÂ |
ÂÂ | 2000 | 2001 | 2002 | 2003F | 2004F | 2005F |
Aegis | 18.4 | 5.2 | 3.4 | 11.2 | 6.7 | 5.0 |
Havas | 13.8 | 0.3 | -5.8 | -5.5 | 1.1 | 4.1 |
IPG | 13.0 | -2.9 | -8.4 | -3.0 | 4.0 | 6.5 |
OMC | 16.6 | 8.5 | 2.8 | 4.0 | 7.0 | 8.5 |
Publicis | 15.0 | 3.1 | -3.9 | 1.3 | 5.3 | 5.3 |
WPP | 15.0 | -3.0 | -5.9 | 1.0 | 4.0 | 5.0 |
Source: Merrill Lynch, November 2003 |
The market During an economic downturn, advertising will lag by six months, as it typically does in a recovery. Advertising fell by more than 6% in 2001 and only staged a muted recovery of 2.5% in 2002. During the early stages of a recovery, at best, advertising tends to grow in line with GDP but in a rapid recovery or an extended one, advertising will outpace GDP, according to the broker.
Analysts forecasts that in the US, real GDP will rise by 4.6% this year and 5.5% in 2004. US advertising is expected to grow by 2.8% and 5.4% respectively. Global ad growth is forecast at 1.9% and 4.7% for this year and next.
Advertising And GDP Forecasts | |||||
2000 | 2001 | 2002 | 2003F | 2004F | |
Nominal US GDP | 5.9 | 2.6 | 3.6 | 4.6 | 5.5 |
Real US GDP | 3.8 | 0.3 | 2.4 | 2.8 | 4.0 |
US advertising | 10.1 | -6.3 | 2.5 | 2.8 | 5.4 |
Non-US advertising | 6.1 | -8.6 | 0.5 | 0.8 | 3.8 |
Global advertising (exc. direct mail) | – | -8.2 | 1.4 | 1.9 | 4.7 |
Source: Merrill Lynch, November 2003 |