Insight Analysis: Ad Downturn Could Get Worse Before It Gets Better
It seems that hopes of an advertising recovery in the second half are rapidly diminishing. ITV giant, Granada, this morning admitted it could see no end to the downturn (see Continued Ad Revenue Woe At Granada, But Results Are Top End Of Predictions), echoing comments made by Carlton Communications a few weeks ago (see Carlton Stock Dives On Indefinite Ad Downturn). Marketing agency Cordiant Communications just reported that the effect of the broader economic downturn has hit profits and jobs (see Economic Downturn Hits Cordiant Jobs And Profits).
The result of this peak, coupled with the general downturn in the economic and (consequently) advertising cycle, is that a 20% in revenues decline this year, for example, is pitched not against a ‘normal’ level of, say, 1999, but against a 10% jump of last year. These harsh comparables do make everything look particularly gloomy, but do not disguise the fact that there is nevertheless a general slowdown taking place at present.
Analysts at ABN Amro this morning downgraded their 2001 global advertising growth forecast to just 1.3%; it had previously stood at 3.4%. This is in response to an extremely weak first quarter, says the report, estimated to have been -0.2% on a global basis.
In the UK, growth for 2001 has been reigned in from 3.2% to 0.4%; in the US it drops turns to retraction from 1.9% to -1.0%. The tech sector advertising has been particularly hard-hit, impacting companies like United News & Media’s CMP Media (see UBM Feels Tech Advertising Slump), Reed Elsevier, VNU and Pearson.
| Changes in advertising growth forecasts (%) | Q1 2001E | New 2001F | Old 2001F | % Point Change |
| N. America | -5.2 | -1 | 1.9 | -2.9 |
| France | 3 | 2.2 | 4.6 | -2.4 |
| Germany | -3.6 | 0.7 | 3.4 | -2.7 |
| Italy | 6 | 6.1 | 7.6 | -1.5 |
| Netherlands | -1.9 | 2.2 | 3.1 | -0.9 |
| UK | 1.3 | 0.4 | 3.2 | -2.8 |
| Rest of Europe | n/a | 3 | 3.6 | -0.6 |
| Europe | 0.6 | 2.1 | 4.1 | -1.9 |
| Asia Pacific | -0.5 | 4 | 4.3 | -0.3 |
| Latin America | 4 | 5 | 7 | -2 |
| TOTAL | -2 | 1.3 | 3.4 | -2.2 |
Source: AC Nielsen, Secodip, CMR, Industry sources, ABN Amro
The Wall Street Journal Europe today ominously predicted that the European advertising climate will get worse before it gets better. The paper quotes Zenith Media director of knowledge management, Adam Smith, as saying that hopes of a second-half recovery seem to have ‘evaporated’.
Zenith is global media buying agency – owned by the UK’s Cordiant and France’s Publicis – which regularly produces trading-based forecasts on the health of the advertising and media industry. In April Zenith downgraded its global advertising forecasts and predicted that the UK would see a 1.3% growth in real terms (see Zenith Downgrades Advertising Forecasts For Global Markets).
The WSJ says that a new set of figures from Zenith, out next month, will show that in Europe’s five largest countries – Britain, Germany, France, Italy and Spain – real terms growth will be close to zero.
Separate ABN figures suggest that the UK will bear the brunt of this retraction – specifically the television sector. TV revenue in the UK is expected to decline by 4.3% during 2001 – this is borne out by the recent statements from Granada and Carlton. It is the only medium in the UK expected to turn in negative figures by the year end. Outdoor advertising – at 5.5% growth – is set to perform most strongly.
| Advertising growth in 2001 | UK | France | Italy | Germany | Spain | Netherlands | Europe |
| Television | -4.3 | 1.2 | 4.5 | 0.5 | 2 | 0 | 0.4 |
| Radio | 0.4 | 5 | 6 | 2 | 5 | 4.5 | 3.4 |
| Magazines | 2 | 1 | 8.9 | 1 | 4 | 2.2 | 2.2 |
| Newspapers | 3 | 5 | 8.4 | 0 | 5 | 2.8 | 2.6 |
| Cinema | 4 | 5.5 | 4.1 | 4 | 9 | 3 | 4.7 |
| Outdoor | 5.5 | 0 | 8.3 | 8 | 7 | 3 | 4.3 |
| TOTAL | 0.4 | 2.2 | 6.1 | 0.7 | 3.7 | 2.2 | 2.1 |
| Downgrade | -2.8 | -2.4 | -1.5 | -2.7 | -1.1 | -0.9 | -2.1 |
| Previous forecasts | |||||||
| Television | 1 | 3.8 | 5 | 2.5 | 4 | 4 | 3.1 |
| Radio | 5 | 4 | 10 | 3 | 5 | 5 | 5 |
| Magazines | 3 | 3 | 13 | 3.5 | 4 | 3 | 4.2 |
| Newspapers | 4 | 5.5 | 8 | 1.5 | 5 | 2 | 3.4 |
| All press | 3.7 | 4.3 | 10 | 2.2 | 4.7 | 2.4 | 3.7 |
| Cinema | 4 | 5.5 | 8 | 5 | 9 | 6 | 5.4 |
| Outdoor | 5.5 | 5 | 12 | 12 | 7 | 4 | 7.3 |
| TOTAL | 3.2 | 4.6 | 7.6 | 3.4 | 4.8 | 3.1 | 4.1 |
Source: ABN Amro estimates
ABN cites weaknesses in the telecoms and technology markets, shifts in media mix by FMCG companies and evidence that there is a ‘dislocation’ between the ad growth/GDP correlation normally seen, all as indicators that this may not just be a bad cycle we are witnessing.
Looking to the future, ABN believes that a growth rate of 6.4% is possible, although optimistic, and anticipates that a ‘slow recovery’ is more likely, with base growth rate estimates for 2002 at 4.5%.