Ad Growth To Accelerate In 2004, Says Merrill Lynch

Fourth quarter advertising pacings in the US are looking weak (see US Q4 Advertising Weak, But Broker Positive On 2004) and the growth forecast for all media has been cut from 2.8% to 2.7% (2.9% excluding direct mail). This reflects downward revisions for broadcast network, cable network, broadcast station, radio and yellow pages advertising.

Online is performing above expectations but signs are that advertising will, for the third year running, underperform GDP growth, which is predicted to be 4.6% in 2003.

Merrill predicts that US adspend will grow by 5.8% in 2004 (6.0% without direct mail), up from the previous estimate of 5.4% (see Top Broker Trims Advertising Forecasts, Blames Local Ads). Excluding the incremental outlay from the Olympics and political spending, revenues are expected to rise by 5.5%, in line with estimated nominal GDP growth.

The broker has also raised its global adspend forecast from 1.9% to 2.1% in 2003 and from 4.7% to 5.0% in 2004, in both cases excluding direct mail. Asia Pacific has rebounded well from the SARS outbreak with the Japanese market stronger than anticipated. Demand is robust in Latin America and the continent should see 2.6% this year and 2.7% in 2004. However, analysts have left their projections for Europe unchanged at 0.5% and 3.5% respectively.

Worldwide Advertising Forecasts
	2001	2002	2003	2004
Total US	-6.3	2.5	2.7	5.8
Total US exc. direct mail	-7.7	2.4	2.9	6.0
Newspaper	-9.4	-0.5	2.0	4.5
Broadcast Television	-23.2	8.2	2.4	6.8
TV Networks	-20.0	4.9	7.0	8.0
TV Stations	-26.8	11.9	-2.0	6.2
Cable	1.8	3.6	8.8	8.8
Radio	-7.5	5.7	1.5	8.2
Magazine	-7.5	-3.5	3.0	5.0
Yellow Pages	–	1.4	1.2	1.6
Internet	-21.6	-5.0	12.0	20.0
Non-US	-8.6	0.5	1.4	3.9
Global	-8.2	1.4	2.1	5.0
Source: Merrill Lynch, November 2003

Merrill Lynch has also surveyed top national advertisers to ascertain spending expectations for 2004. It found that 55% intend to maintain expenditure levels while 36% plan to increase spending and 9% expect to reduce their budget. This compares to 2003, in which 54% anticipate their adspend will rise, 23% predict that it will be flat and a further 23% believe it will fall.

Based on these results, Merrill observes that advertisers are prepared to invest in resurrecting their top line growth but there has been a change in how ad/marketing budgets are perceived internally.

Advertisers have expressed that the budgets are now another cost item rather than an investment in growth and the tension between these contradictory factors will go a long way towards dictating whether 2004 is a good or great year.