• by Joe Mandese  @mp_joemandese, April 18, 2005

Two leading trackers of the advertising economy - Publicis media agency ZenithOptimedia Group and Wall Street's Merrill Lynch - Monday upgraded their industry outlooks.

Describing traditional media ad spending as being in "excellent health" and noting that online ad spending is "even better," Zenith said it raised its predictions for ad spending growth in each of the years it has already forecasted through 2007.

"Advertising is now growing as a proportion of world GDP for the first time since 2000," estimated the media agency, noting that ad spending "contributed 0.99% of the world's economic output in 2004, up from a trough of 0.98% in 2003.

"We expect advertising's contribution to world GDP to continue to grow throughout our forecast period, as it normally does in times of economic confidence. We do forecast adspend to decelerate slightly in 2005, but this is because of the absence of the Euro 2004 football competition, the Olympic Games and the US elections."

Nonetheless, ZenithOptimedia now expects worldwide ad spending to rise 5.4 percent during 2005, up from its previous forecast of 5.0 percent. The market is expected to growth 6.5 percent (revised from 5.8 percent) in 2006) and 6.1 percent (revised from 5.8 percent) in 2007. The agency upgraded its outlook for all regions except for Europe due to continuing weakness in Germany.

However, the agency foresees a tipping point for the TV advertising market, which has been expanding at a disproportionate rate since 1980, but which ZenithOptimedia now expects to "peak" in 2006 as ad budgets begin shifting to other media, particularly the Internet.

The agency estimates online had a 3.6% share of worldwide ad spending in 2004, up form 3.2 percent in 2003. In the U.S., online advertising now accounts for a 5.4 percent share of the market, though Sweden - at 7.7 percent - now has the highest share of online ad spending.

"The internet's share of world adspend could easily double in the longer term; we expect it to rise to 4.4% by 2007," predicted ZenithOptimedia.

Meanwhile, Merrill Lynch analyst Lauren Rich Fine issued a report upgrading the outlook for two top agency groups - Omnicom and WPP Group - noting that U.S. ad spending continues to rise, albeit at a "fairly slow rate thus far into the year."

Fine echoed the sentiment of ZenithOptimedia's report regarding media share shifts, and indicated the move is a positive one for ad agency margins: "We are seeing shifts from traditional media to newer media such as local cable and the Internet. Agencies are compensated increasingly on fees rather than commissions so this is not really an issue for them; in fact, complexity is their friend."