Online Continues To Blossom As ML Raises 2007 Ad Forecast
Ad spending in the US will increase by 2.6% in 2007, according to Merrill Lynch’s annual bottom-up analysis. The forecast covers the major advertising categories, representing over 60% of US ad spending.
Changes include a slightly more negative outlook for Newspapers in 2006, recently raised Online advertising forecasts for 2006 and a slightly higher outlook for Yellow Pages in both 2006 and 2007, and higher growth forecasts for Outdoor in 2006 and 2007 to reflect digital.
Since 2007 is a non-political year Stateside and political was estimated to account for $2 billion in advertising spend in 2006, according to Advertising Age. ML has adjusted the forecast to strip out political spending from the bottom-up forecast, implying that total advertising growth for FY07 should actually be a reported 2.6% instead of 3.1%.
Given more muted economic expectations, the group is not surprised that the overall outlook is fairly tempered. The range of expectations by industry is more varied than in the past and seemingly being dictated by new product launches and/or competitive challenges.
While most traditional media struggled early in 2006, the performance has been more divergent of late. Newspapers, hurt by declining classified advertising, has weakened further. Broadcast and cable networks, however, have seen relative strengths. The internet continues to take share from most other media, while Outdoor remains a bright spot within traditional media.
The group retains its view that 2007’s Newspaper ad spend will be down 1.5%, whilst the Newspaper Association of America’s (NAA) 2007 Newspaper ad forecast estimates a 1.2% gain (Print flat, Online up 22%) compared to an essentially flat performance in 2006 (Print down 1.1%, Online up 28.7%).
September saw radio revenues were down 2% with national down 1%, local down 3% and non-spot revenue up 11%. However, year-to-date radio revenue growth is unchanged with flat growth (national up 2% and local down 2%). ML broadcast and radio analyst Laraine Mancini is still expecting FY06 radio revenues to be flat. FY07 growth is also expected to be muted with 1% growth forecasted.
Merrill Lynch continues to expect a 2.5% gain in magazine ad revenues in 2006 and 1% year on year growth in 2007 in view of a slowing economy.
Internet advertising revenues reached $4.2 billion for Q3 2006, up 33% year on year, according to the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers. Interactive advertising has now grown for eight consecutive quarters, with growth of 35.5% year on year for the nine-month period to September 2006.
Accordingly Merrill Lynch has raised its full-year 2006 growth rate to 34% from 31% previously, while for 2007, it has also increased its forecast to 23.3% compared to 22.5% previously, based on the continued strength of search.
Despite raising online estimates, the group suspects its estimates may need to be revised up over time, due to increased spending on social networks and online video.
eMarketer recently reported that worldwide social network ad spending will be $1.1 billion in 2007, up from $445 million in 2006. The group also forecast that US adspend on social networking sites is expected to reach $2.15 billion in 2010.
The report says that US marketers will spend $350 million placing ads on social network sites in 2006, up from its previous estimate of $280 million (see Social Network Adspend To Reach $2.8 Billion).
Merrill Lynch suggests that digital displays will drive Outdoor growth over the next 3-5 years. Although it is only 1-2% of current inventory for the public outdoor operators, the public operators are quickly installing digital boards nationwide and are likely to be even more committed as the price of digital displays continues to decline. The largest impediment to a rapid deployment remains gaining regulatory approvals.
Outdoor advertising is gaining share from other media. Stephan Freitas (OAAA) suggested that in five years, Outdoor advertising could hit the “tipping point” when critical mass of digital displays is achieved, attracting more national advertisers to the platform.
| Merrill Lynch Advertising Forecasts | ||||
| 2004 | 2005 | 2006E | 2007E | |
| Nominal US GDP | 6.6% | 6.4% | 6.5% | 4.5% |
| Real US GDP | 4.4% | 3.5% | 3.3% | 1.8% |
| Total US Advertising | 7.8% | 3.6% | 4.7% | 2.9% |
| Total US Advertising (ex direct mail) | 7.8% | 3.0% | 4.5% | 2.7% |
| Newspaper Advertising | 4.5% | 2.5% | -0.5% | -1.5% |
| Broadcast Television | 10.3% | -4.3% | 5.5% | -1.2% |
| TV Networks | 11.2% | -3.5% | 4.3% | -2.2% |
| TV Stations | 10.3% | -6.1% | 6.3% | -1.0% |
| Cable | 14.4% | 9.9% | 5.8% | 5.8% |
| Cable Networks | 17.7% | 11.4% | 6.0% | 6.0% |
| Cable Operators | 5.0% | 5.0% | 5.0% | 5.0% |
| Radio Advertising | 2.5% | 0.3% | 0.0% | 1.0% |
| Internet Advertising | 32.2% | 32.8% | 30.8% | 22.9% |
| Yellow Pages Advertising | 0.8% | 1.6% | 1.0% | 1.0% |
| Magazine Advertising | 6.0% | 3.0% | 2.5% | 1.0% |
| Outdoor | 6.0% | 8.0% | 8.0% | 7.2% |
| Total Non-US Advertising | 5.2% | 4.0% | 4.2% | 4.4% |
| Global Ad Forecast | 6.5% | 3.5% | 4.4% | 3.6% |
| Source: Merrill Lynch, December 2006 | ||||