Things are looking shaky, but not entirely bleak, for the media and advertising industries at present. Following a recent period of slight recovery, the deteriorating outlook for consumer spending levels may begin to negatively impact on advertising spend, forcing growth down once again.
As consumer confidence has begun to slip, particularly in the US, there are increasing worries that a rise in interest rates could severely curtail consumer spending, as debt to disposable cash ratios are particularly high at present. This would put the squeeze on adspend. On the other hand, corporate profitability is improving. This is a key factor in determining the levels of advertising expenditure and an improvement should help buoy ad revenues to some degree.
Most recent advertising news has been relatively positive, apart from WPP‘s surprise earnings warning last week, which stemmed mainly from the fall in consumer confidence. Nevertheless, analysts at Merrill Lynch are looking set to downgrade their advertising forecasts, describing the current 2003 figures of 4.0% US growth and 3.0% global growth as more optimistic with each passing day.
“Massive uncertainty regarding the prospect of war, the financial markets, and consumer behaviour seem to have led to a state of paralysis regarding spending of any kind,” says the broker.
The conditions in Europe are still very patchy, with economic indicators continuing to deteriorate. In the US, network TV, TV stations, local cable and radio are all looking strong, although this is driven mostly by the November elections.
UK data A seven month run of growth at the UK’s ITV is set to come to an end in December, as tough comparisons with a five-weekend month last year bring growth to -10.0% in a market down by 5.0%, according to Merrill Lynch analysts. Nevertheless, the first quarter or so of next year is expected to be relatively strong for UK television revenues.
The most recent Bellwether Report from the IPA shows that confidence among media and marketing professionals has declined in the last three months. However, the third quarter is traditionally seen as a time when spending levels are adjusted and the cuts were not as pronounced as in previous years.
Merrill Lynch is sticking with a muted 0-2% growth forecast for UK advertising in 2003. OMD UK reckons growth will be flat this year, rising to 3.4% in 2003.
In a set of long term forecasts, the Advertising Association warned that the media and advertising industries should not fall foul of recession-fuelled pessimism when considering revenue prospects for the sector. The AA claims that it is confident that ad expenditure will recover from the current recession in the longer-term, just as it has in every previous post-war recession.
