• by Joe Mandese  @mp_joemandese, July 19, 2004

Zenith Optimedia Group today became the latest of the major ad forecasters to upgrade its outlook for both U.S. and worldwide ad spending in 2004 and beyond in a report that also goes a long way toward explaining why the accelerated rate of expansion in ad spending is not triggering a corresponding increase in advertising cost inflation. It's mainly due, the agency says, to increases in spending on the Internet and other new media that are acting as a pressure valve to keep ad prices in check in the other major consumer media. The finding is significant given that 2004 is a so-called quadrennial year in which incremental ad spending pressure related to the Olympics and political elections normally puts extreme pressure on demand, and consequently, advertising prices.

"Internet advertising revenue is by far the most comprehensively measured of the newer media which include innovations in ambient, in-store, product placement, sponsorship, and co-promotions. The amount spent on these is unknown but substantial," concludes the report, released early Monday morning. "These outlets for advertiser demand, including the Internet, may we think partly explain the absence of rapid, inflationary recovery in traditional media which we have seen in past recoveries."

Interestingly, Zenith's estimates put the Internet at a relatively small share of global ad budgets, but find that it is becoming a significant share of U.S. spending. In Europe, for example, the Internet accounts for only about 2 percent of total ad spending, whereas it is now at a 5 percent share of U.S. ad budgets.

The report appears to be the first to correlate the expansion of the advertising marketplace into new and in some cases, unmeasured media, to moderate rates of advertising price inflation. At least part of that was evident during the 2004-05 upfront network TV advertising marketplace, which saw the lowest rates of network ad price inflation in three years, as budgets shifted to cable, syndication and other media.

"Big advertisers shied away during the upfront, and we expect moderate activity in the 2004 scatter market, with more aggressive spending in 2005," predicted Zenith.

The agency now anticipates that U.S. ad spending will rise 5.7 percent among the major media in 2004. That's an increase of 0.2 percent from Zenith's last estimates, released in April.

Zenith upgraded its worldwide ad spending forecast to a rate of 4.2 percent, up from a 3.7 percent estimate in April. The agency expects the U.S. to essentially match worldwide growth in 2004, but to lag it in 2005 and 2006.

Ad Spending Growth (Major Media*)

                   2003    2004    2005    2006 
U.S.              +1.9%   +5.6%   +3.8%
+4.8% 
Europe            +2.5%   +4.2%   +4.0%   +4.5% 
Asia-Pacific      +5.4%   +6.4%   +5.4%   +5.2% 
Latin America     +2.8%   +5.4%   +5.0%   +6.1% 
Rest of World    +19.2%  +12.9%
+11.4%  +11.0% 

Worldwide         +3.4%   +5.7%   +4.6%   +5.1% 

Zenith Optimedia Group. *Newspapers, magazines, TV, radio, cinema, outdoor, Internet.