WPP's Four Shades Of Grey: Bevy Weighs Heavy On Ad Economy

by Joe Mandese, Oct 25, 2012, 9:09 AM

• Comment
• Recommend
• Tweet
• 

WPP this morning released relatively tepid third quarter results, crying foul and attributing the advertising and media industries’ uncertain economic outlook to some waterfowl. Specifically, a bevy of swans.

“There seem to be four ‘grey swans’,” WPP said in its quarterly statement, emphasizing “grey, because we know about them. By definition, we do not know the black ones.”

The first of the grey swans, WPP said, not surprisingly is the Eurozone crisis. And while “concern about this has lessened slightly,” the world’s largest advertising services company implied the biggest concern is whether key government leaders have the “political will to implement the necessary European fiscal integration.”

The second member of WPP’s shady bevy is the “heightened political concerns in the Middle East, exacerbated by the continuing deterioration in Syria and most recently Lebanon, the developments around the Arab Spring in Libya and Egypt, and the possibility of an Israeli attack on Iranian nuclear installations - the latter which will remain a possibility, with or without American backing.”

The third swan, WPP said, is “continued concern about a hard or soft landing in China,” as well as the other BRIC nation drivers, Brazil, Russia and India. “Although our own experience suggests soft landing, as the massive new middle and lower-middle classes up consumption patterns, particularly in the capital consumer goods and FMCG categories. After all, the Chinese 12th Five-Year Plan is about consumption, social security and service businesses.”

The last of the fouling waterfowl, WPP indicated, is the “biggest grey swan” of all, “the health of the American economy and its fiscal cliff, deficit and indebtedness.”

WPP suggested the U.S. presidential election may in fact be composing its own swansong by “kicking the can down the road, but clients and financial markets will be watching for an early bi-partisan resolution post-election of these issues.

“The American economic engine is, after all, the biggest at $16 trillion out of a total global GDP of $65 trillion. China, although now the second biggest economic engine, is still only $7-8 trillion. Fears remain that whoever wins the Presidential election, will be unable to deal with these issues given a dead-locked Congress.”

Amid these grey areas, WPP said advertising and marketing services budgets continue to rise.

“Western-based multi-national companies and increasingly new-market based companies are prepared to invest in both capacity and behind brands in fast growing markets,” the agency holding company noted, adding: “At the same time, they are also prepared to invest in brands to maintain or increase market share even amongst slower growth Western markets, such as the United States and Western Europe. This has the virtue of not increasing fixed costs, although we in the communications business regard brand spending as a fixed investment and not a discretionary cost.”

That “positive double whammy,” WPP concluded, will continue to benefit the ad industry this year, albeit at diminishing rates as macro-economic pressures increase.”

“The pattern for 2012 continues to look very similar to 2010 and 2011. Forecasts of worldwide real GDP growth still hover around 2.5-3.5%, with inflation of 2% giving nominal GDP growth of 4.5-5.5% and remain at similar levels for 2013, although they have been reduced recently and will probably be reduced further in due course.

“Advertising as a proportion of GDP should at least remain constant overall, although it is still at relatively depressed historical levels, particularly in mature markets, post-Lehman and advertising should grow at least at a similar rate as GDP.”

• Comment
• Recommend
• Tweet
• 

Be the first to comment on "WPP's Four Shades Of Grey: Bevy Weighs Heavy On Ad Economy"

Leave a Comment