Insight Analysis: Media Healthcheck – July 2002

Flynn is in a good position to call market changes, according to ABN Amro analysts, who noted that it was Aegis which was the first European company to warn of the downturn in the ad market early in 2001. Aegis’ outlook is much more optimistic than that of WPP CEO Martin Sorrell, who predicts that the ad market will not show a pronounced recovery until 2004.

Global Aegis’ figures imply a 2002 global advertising growth of 0.7%; this is above ABN’s -1.4% prediction and well above the -2.0% to flat growth range consensus. The higher forecast from Aegis follows the beginnings of a pick-up in media spending, Flynn said.

Universal McCann‘s Robert Coen is even more optimistic for the global outlook this year. In a revised set of forecasts, released this month, Coen predicts global 2002 ad growth at 2.1%. Zenith Media, meanwhile, expects a 0.5% decline.

Europe The European market overall remains in decline: Aegis sees a 2.0% drop in ad revenue this year. Zenith figures indicate an average European country decline of 1.1% this year; an average of Coen’s country by country figures shows a 0.5% increase.

UK Advertising conditions in the UK are beginning to improve, with ITV‘s revenues showing some stable growth for the first time in many months and the year now predicted by the Advertising Association (AA) to show positive overall growth.

Recent trading statements have indicated these improvements. Press advertising revenues, for example, may be showing signs of an upturn, albeit patchy.

At Trinity Mirror, struggling national revenues have begun to recover in May and June, turning positive after a 10.3% decline in the first five months of the year. Merrill Lynch is forecasting a full-year national advertising decline of 4.0%, which implies a H2 recovery of about 3.0%. Johnston Press, meanwhile, saw revenues rise 2.0% in the first five months; a further indication of improvement. The broker has increased its full year forecast from 0.5% to 2.0%.

RTL Group, which owns a stake in Channel 5, says it can see the first shoots of recovery in the UK advertising market. It says that although advertising conditions in Germany and France remain unfavourable, there are ‘tentative’ signs of a revival in the UK.

ITV advertising revenues for July and August are continuing to look strong, after a boost in spending received by the Network during the World Cup last month. With the recovery holding out for the foreseeable future, Merrill Lynch is now forecasting that ITV revenue will fall by just 1.6% in 2002, suggesting that the remainder of the year will show positive or flat growth on a month by month basis.

In revised figures the AA is now expecting 2002 to turn in a 0.1% growth; previously a decline of 0.9% had been expected. The figures show growth of 2.3% Q2, dropping to 2.1% in Q3 and rising to 4.6% in Q4; these figures are more positive than previous forecasts.

Television is to lead the way in the UK recovery in 2002, according to Zenith Media, which predicts growth of 2.5% in 2002. In the AA’s forecasts, consumer magazines are expected to show the strongest growth in 2002 – at 3.3%.

Radio trading remains erratic, although May and June are looking a little stronger than April, which was weak. Recent results from Capital Radio, GWR and EMAP have all pointed toward a slowing in momentum of the decline, although the World Cup does disrupt underlying trends.

The IPA‘s Bellwether Report, which examines movements in marketers’ budget allocations, pointed less toward an increase in budgets than it did to a tendency to leave budgets unchanged rather than reduce them (see Insight Analysis: Bellwether May Show Slowly Returning Confidence). This suggests that any improvement in marketing confidence is at best very cautious. The report’s data on media budgets showed that reductions remain more prominent than increases.

US Coen’s figures for US growth this year have been revised downwards, with the weakness of the stock market cited as the main reason for his new found pessimism.

In the current economic climate, financial service companies are unwilling to increase advertising spend and this reluctance has spread to other businesses, he said. His forecast for 2002 ad growth is therefore accordingly dropped from 2.4% to 2.1%. Merrill Lynch is expecting a 0.7% growth this year, whilst Zenith Media predicts a 1.2% decline.

US radio advertising revenues are expected to rise by 3.0%-4.0% in Q2 2002 and by 8.0%-10.0% in Q3, leading the US media industry out of the doldrums, according to Merrill Lynch. A full-year growth of 4.6% is predicted by the broker for radio.

Accordingly, data from the US Radio Advertising Bureau (RAB) showed an 11% jump in national revenue during May; local rose by 1.0%, giving a combined 3.0% rise. “All indicators point to continued sales gains for radio as the year progresses,” says Gary Fries, president and chief executive officer of the RAB.

Magazines are not so strong. Whilst mags’ adspend increased 6.1% year on year in June, the number of advertising pages fell by 1.2%, according to the PIB. Data from French publishing group, Lagardere, indicated a weak magazine sector in the US, with no visible improvement until after October.

TV revenues, on the other hand, are beginning to accelerate. Station revenue is estimated to be up by 4.0%-6.0% in Q2, with June and July showing growth of 10.0%-15.0%. Very early indications for August show growth of up to 15.0%, according to Merrill Lynch.