INSIGHTanalysis: Media Healthcheck – February 2003

One indication of weakness is the decision by analysts at Merrill Lynch to downgrade their global and US advertising forecasts for 2003. The broker has pulled down global growth from 3.0% to 2.7%, due to tougher than expected comparisons with 2002, a deterioration of the European economy and a tentative start to this year.

Improvements in Europe, such as they are, are much weaker than in the US, as the continent tends to lag behind the US markets. Europe is therefore dragging down global growth. Nevertheless, Merrill has also reduced its 2003 US ad growth forecasts from 4.0% to 3.7%.

The threat of war with Iraq adds a whole additional layer of uncertainty to markets across the globe at present. The media and advertising sector – along with business and the economy in general – is holding its breath to some extent to see the outcome of the Middle East crisis.

Neil Blackley, one of Merrill Lynch’s top media analysts, rather damningly said that the media industry is currently in a ‘dire’ decline, which shows little sign of being fully reversed. His team sees no turning point despite the ‘crumbs of comfort’ offered by a slowing rate of decline.

Whilst Merrill is reducing its figures, Jack Myers is insisting that the US advertising market is thriving, albeit only for the medium-term. Myers says that the ad sector is in a period of ‘sustained upward momentum’ and that this should last for the next 18-24 months, after which the market will catch up with a failing economy and a broader recession will resume.

This latter downturn will be a result of a weakening economy and marketers’ reluctance to match US television costs per thousands with sustained budget increases, according to Myers. “Use this 18 to 24 month window for investment and preparation for the time when business is not as good as it is now,” he writes in the Jack Myers Report.

Some confidence is being shown in the offices of marketing executives too, with a recent survey of over 1,000 marketers showing that 2003 is considered to be a ‘rebound year’. Conducted by InsightExpress, the survey shows that 45% are expected budget increases, with only 18% anticipating declines.

Total 2002 US advertising rose by 6%, according to new figures from Nielsen Monitor-Plus. US radio also saw its revenues jump by 6% year on year in 2002, according to separate data from the Radio Advertising Bureau.

US magazine revenue rose by 9.5% year on year in January, according to the Magazine Publishers of America.

UK data Blackley’s warning to the UK is that there is likely to be the much-feared ‘double-dip’ in the markets as consumers stop spending money. The ratio of debt to earnings is now very high and house prices are teetering at a peak and are likely to fall. These factors are likely to curtail consumer spending, which has so far been the primary prop holding up the economy. When consumer confidence does fail, a second economic (and therefore media) dip is expected.

Looking at the media economy across Europe, UK media consultancy Billetts says that the UK is battling the economic and advertising downturn pretty well at present. It says that there was growth in GDP in 2002 and that this is likely to increase in 2003 by just over 2%. Advertising spend stabilised in 2002 and is expected by Billetts to show growth again in 2003 of about 2% overall.

UK consumer magazine advertising performed relatively well in Q4 2002, although the full year is still expected to show a 6.7% decline in revenues. UK magazines are forecast by Zenith Media to show a 0.6% decline in 2003. Newspaper adspend is expected to fall by 2.9% in 2002 and to rise by 0.7% in 2003.

However, Financial Times owner Pearson this morning said that adspend at the paper had become weaker during the second half of 2002 and added that it does not expect any recovery in advertising this year. The FT saw 2002 ad revenues drop by 24%.

UK outdoor advertising rose by 15% in Q4, putting the full-year 2002 at +1.9%, according to the Outdoor Advertising Association. Commercial radio, meanwhile, saw 2002 revenues rise by 2.5%, although Merrill Lynch describes this growth as ‘subdued’.

Overall, though, 2002 was not too bad for the media agencies, with the top ten showing a combined revenue rise of 5.4% year on year, according to the new top 300 table published by Campaign, featuring Nielsen Media Research data. The same report shows that the top ten advertising agencies’ combined billings declined by 1.1% in 2002.

Lastly, a consensus of recent UK advertising forecasts compiled by MediaTelINSIGHT puts 2003 growth at 3.6%, rising to 3.9% for 2004.

The UK’s Technology, Media and Telecommunications (TMT) FTSE shares index fell by 9.3% during February as shown.