Merrill Revises 2005 Ad Growth Forecasts Downwards
The US advertising market looks set to remain relatively tepid, with analyst Merrill Lynch revising US ad growth for 2005 downwards to 4.5%, from the previously expected 4.8% growth.
An initial forecast by the analyst for 2006, puts US ad growth at 5.5%, while globally the sector is expected to rise by 5.6%.
Merrill’s expectation for European advertising growth in 2005 continues the downwards trend, revised to 2.5%, from 4.5%. The following year looks stronger, with the analyst predicting growth of almost 6% in 2006, buoyed by spending related to the football World Cup taking place in Germany and recovery in certain markets.
Overall, Merrill believes the muted advertising growth reflects a weaker than average economic recovery coupled with low inflation as well as difficult comparisons created by political events last year.
The increasing shift by marketers from traditional to newer, or more cost effective, mediums, such as cable or internet, is also blamed for slowing ad growth.
Merrill claims that marketers are starting to be more holistic in their approach, evaluating marketing and ad budgets together, leading the analyst to suspect that marketing is gaining share relative to advertising.
These opinions are confirmed by a recent report from Forrester Research, predicting US online advertising and marketing expenditure to reach $14.7 billion in 2005. Online advertising channels such as search engine marketing, online display adverts and email marketing are forecast to become more effective, relative to traditional channels (see US Online Ad and Marketing Spend To Reach $14.7 Billion in 2005).
Internet based advertising, both branded and search is predicted to exceed 7% of total US advertising by 2009 and represented an estimated 3.6% of US advertising in 2004, or $9.6 billion, according to Merrill.
The decline in traditional media usage is attributed to new technologies, rapid changes in media consumption, and changes in consumer buying patterns.
The analyst argues that personal video recorders (PVRs) are threatening the core of ad based television, resulting in a surge in branded entertainment and product placement.
Sponsored video on demand is also revealed to be on the rise, while local television is shown to be feeling intense pressure from local cable as local interconnects is making the medium easier to buy.
Newspapers are reported to be visibly losing share to other mediums as circulation volume continues to decline at an accelerated pace.
Merrill recently revised downwards its adspend forecasts for the US newspaper industry, predicting adspend (print and online combined) to rise by 3.3% in 2005, down from 4%, based on uneven economy and an unlikely industry resurgence in the latter half of 2005 (see Merrill Revises Down US Newspaper Ad Predictions).
New predictions for 2006 see newspaper adspend at 3%, down from 4%, based on slightly lower forecasted economic growth and more muted ad rate increases.
The radio industry is shown to be facing threats from satellite radio and the rapid penetration of iPods. According to Forrester Research, satellite radio is estimated to reach more than 20.1 million households in the US by 2010, up from 4.5 million subscribers at the end of 2004 (see Satellite Radio To Reach Over 20.1 Million US Households By 2010).
| Merrill Lynch Advertising Forecasts | ||||||
| 2001 | 2002 | 2003 | 2004 | 2005E | 2006E | |
| Nominal US GDP | 3.2% | 3.5% | 4.9% | 6.6% | 5.6% | 4.8% |
| Real US GDP | 0.8% | 1.9% | 3.0% | 4.4% | 3.3% | 3.1% |
| Total US Advertising | -6.3% | 2.1% | 3.9% | 7.8% | 4.7% | 5.4% |
| Total US Advertising (ex direct mail) | -7.8% | 1.9% | 3.7% | 7.8% | 4.5% | 5.5% |
| Newspaper Advertising | -9.4% | 0.4% | 2.6% | 4.3% | 3.3% | 2.8% |
| Broadcast Television | -13.2% | 8.2% | -0.3% | 10.3% | -1.5% | 5.0% |
| TV Networks | -10.0% | 4.9% | 0.2% | 11.2% | 0.2% | 4.2% |
| TV Stations | -16.8% | 11.9% | -2.4% | 10.3% | -2.7% | 5.0% |
| Cable | 1.8% | 3.6% | 15.4% | 14.4% | 12.0% | 8.2% |
| Cable Networks | 0.1% | 2.5% | 15.6% | 17.7% | 12.0% | 8.0% |
| Cable Operators | 7.3% | 6.7% | 15.0% | 5.0% | 12.0% | 9.0% |
| Radio Advertising | -7.5% | 5.7% | 1.2% | 2.5% | 3.0% | 3.9% |
| Magazine Advertising | -7.5% | -3.5% | 3.0% | 6.0% | 4.0% | 4.0% |
| Yellow Pages Advertising | 1.4% | 0.9% | 0.8% | 1.7% | 2.0% | |
| Internet Advertising | -11.8% | -20.8% | 16.9% | 32.5% | 29.6% | 25.4% |
| Total Non-US Advertising | -8.6% | 0.5% | 1.4% | 5.5% | 3.2% | 5.5% |
| Global Ad Forecast | -8.2% | 1.2% | 2.5% | 6.7% | 3.8% | 5.6% |
| Source: Merrill Lynch June 2005 | ||||||
| Comparisons of 2005 Ad Forecasts | ||
| Old | New | |
| Total US Advertising | 4.9% | 4.7% |
| Total US Advertising (ex direct mail) | 4.8% | 4.5% |
| Newspaper Advertising | 4.0% | 3.3% |
| Broadcast Television | -1.4% | -1.5% |
| TV Networks | 0.1% | 0.2% |
| TV Stations | -2.7% | -2.7% |
| Cable | 12.0% | 12.0% |
| Cable Networks | 12.0% | 12.0% |
| Cable Operators | 12.0% | 12.0% |
| Radio Advertising | 3.0% | 3.0% |
| Magazine Advertising | 5.0% | 4.0% |
| Yellow Pages Advertising | 2.5% | 1.7% |
| Internet Advertising | 29.8% | 29.6% |
| Total Non-US Advertising | 4.5% | 3.2% |
| Global Ad Forecast | 4.6% | 3.8% |
| Source: Merrill Lynch June 2005 | ||