Ad Holding Cos: Moderate Expectations Till Late '13

ArrowUP-DOWN-ChartThe ad economy will probably get worse before it gets better. That’s the bottom-line assessment of Pivotal Research Group Senior Research Analyst Brian Wieser who put out an updated report on the second-quarter performance of the major ad-holding companies today.

“Over the summer, we have become incrementally pessimistic about conditions for the economy, advertising and agency services,” Wieser stated. “We are now moderating expectations through the end of 2012, and for the first part of 2013 to reflect a tougher environment for advertising." Things should start to improve late next year, he added, with expectations that the economy will be improving by then.

Part of the reason for the near-term pessimism is that second-quarter results were fairly sluggish for the major holding companies. Wieser reports that globally, WPP, Omnicom, Publicis, Interpublic and Havas grew organically by just 3.1%, down from the 4.2% that the companies achieved in both the prior quarter and the fourth quarter of 2011.

Excluding political and Olympic dollars, second-quarter performance was worse: just 1.3% organic growth combined for the five companies.

Wieser downgraded his second-half organic-growth projections for both IPG and Omnicom, noting that revenues “decelerated more rapidly,” in North America, where both do most of their business.

Ongoing risks for the agency world, Wieser noted, include a continual effort by clients to squeeze service providers on fees. “Marketers are typically squeezing their agencies for operational efficiencies on an ongoing basis,” he said.

Shops will also face new competition from adjacent industries, such as IT services firms like IBM and Adobe, which are providing enhanced data analytics capabilities directly to marketers. “This type of competition is likely to increase in the future,” said Wieser. Search engine marketing is another field where competition is increasing outside the agency space, Wieser noted.

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