Insight Analysis: Media Healthcheck – September 2002
Recent political and economic events have conspired to create an air of uncertainty in the media and advertising industries according to Lauren Rich Fine, a media analyst at Merrill Lynch. She says that negative earnings announcements, volatile share prices, confusing economic forecasts and the ongoing threat of war are resulting in advertisers becoming ever more reluctant to increase their spending.
Another economic dip – potentially brought on by war in Iraq – could cause consumer spending to drop; in these conditions heavy advertising spend might be ‘wasted’. As a result, advertisers are remaining very cautious on boosting spend. WPP chairman, Sir Martin Sorrell, has already argued that a pronounced recovery is not likely until 2004. However, it is generally thought that the worst is now over.
Global Merrill Lynch forecasts that global expenditure will fall by 1.2% for the full year 2002. Forecasts for next year, already reduced, may need to be downgraded further as they do not take into account the possibility of Middle East conflict.
Meanwhile, Lehman Brothers reckon that the US is looking like recovery, although the European outlook remains mixed. It is forecasting a global growth of 0.6% for 2002 and 3.8% in 2003; Zenith Media forecasts -1.4% and 1.5% for this year and the next respectively.
Havas chief, Alain de Pouzilhac, says that the advertising market could be just as tough next year as it has been in 2002.
Europe The picture in Europe is currently very mixed, with little sign of a strong positive upturn in advertising spend. The UK is looking strongest, with a decline of 1.2% forecast for this year by Zenith Optimedia. Germany is still weak, particularly in the television sector, where spend to July fell by 6.1%. Next year, Italy, France and the UK are to show the strongest growth.
Merrill Lynch has cut its European ad growth forecasts for 2002 and 2003, as economies remain relatively weak. The forecast for this year has been reduced from -2.0% to -3.0%, whilst 2003 is downgraded from 3.5% to 1.5-2.0%.
UK The latest figures from the Advertising Association show that the UK’s ad decline slowed in the second quarter of the year, posting a 0.1% decline on Q1 2001 spend. Television and direct mail were the only categories to return real-terms growth, with the former boosted by World Cup advertising activity.
For TV, the World Cup seems to represent the beginnings of a slow turn-around, although no dramatic recovery is anticipated. Ulster TV chairman, John B McGuckian, said that it would not be appropriate to predict a definite return to advertising growth, given the protracted period of limited visibility. Despite this, there are positive signals showing through, he added.
Early indications and forecasts from buying agencies and brokers show that TV is trading much more strongly than had been anticipated. ITV is now expected to show year on year growth of 7.0% in August and 2.8% in September. This compares to forecasts from Merrill Lynch of 3.0% and 0.5% respectively. October revenue is looking like it might grow by 6% or more; the broker had forecast 4.8% growth, as against a very weak October in 2001.
Figures from MindShare predict that ITV’s October revenue could be up by as much as 10%, in a commercial TV market up by as much as 13% overall.
Press was later into recession than TV but fell 9.0% in Q2. Zenith forecasts expect it to level out to -3.5% for the year. A Q4 pick-up in outdoor is looking likely, at least compensating for weakness earlier in the year, according to Zenith.
US Merrill‘s examination of individual US advertising sectors provides little encouraging evidence. The technology market remains depressed and car manufacturers, traditionally heavy advertisers, have shown little inclination to increase their budget for next year.
There are signs of growth in network TV, cable and radio advertising and the upfronts show that clients do want to increase their spending. However, newspaper ad revenues are expected to rise no more than 1% this quarter, less than previously forecasted.
The US is now showing signs of sustained recovery, with the bottom having been hit in Q4 2001, according to Lehman analysts. The strong television upfront season there has been particularly encouraging, showing growth of almost 15%. However, Zenith has warned that even in a good year, upfront spend accounts for only 25% of all TV and 10% of all media and a large proportion of future bookings are subject to cancellation. Nevertheless, the indications are currently that cancellation rates are very low.
Both Zenith Optimedia and Aegis have upgraded their 2002 revenue forecasts for the US. However, this is not unanimous, as Merrill Lynch’s downgrade indicates.
Zenith has added $1.6 billion to its forecast for US major media spend in 2002, which brings the year almost in line with 2001 in terms of gross spend. This increase is mainly fuelled by heavy spending in local markets by political candidates, auto, retail, telecoms and movie studios, says the report.
Veronis Suhler Stevenson is forecasting a 2.9% growth in revenue for US media this year and an annual growth rate of around 5.5% until 2006.