Madison Ave.'s Big 3 Forecasters Predict 4% '07 Growth, Already Called 'Optimistic'

Three of Madison Avenue's leading forecasters unveiled their outlooks for 2007 ad spending Monday indicating moderate, but generally optimistic growth for what many might have expected to be a hangover year coming out of 2006's Olympics and election spending boon. But despite higher than expected local and regional political ad spending, 2006 generally came in softer than most analysts had expected due to the reluctance of big marketers to free up ad spending despite strong, sustainable corporate profits.

The compound average of forecasts issued by Interpublic's Universal McCann, Publicis' ZenithOptimedia and WPP's GroupM Monday during the opening day of UBS' weeklong media conference in New York was about a 4.3% rate of growth for U.S. ad spending, and a 5.3% growth for worldwide ad spending in 2007.

Universal McCann was the most upbeat on the U.S. outlook, projecting a 4.8% rise in domestic ad spending vs. 4.1% for ZenithOptimedia and 2.0% (North American) for GroupM. Globally, the three agencies were within a tenth of a point of each other's forecasts.

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Despite the relatively modest rates for growth, Merrill Lynch analyst Lauren Rich Fine issued a report this morning calling them "optimistic."

"These are quite a bit above our expectation of 2.9% growth in 2007, built from both a tops-down, by medium approach, and bottoms-up, by industry, which we updated just last Friday. Globally, we are expecting 3.6% growth in 2007 vs. Universal McCann's & Zenith's respective forecasts of 5.3% and 5.4% growth. We think they are being overly optimistic," she wrote.

Both Universal McCann Director of Forecasting Bob Coen and ZenithOptimedia CEO Steve King cited strong ongoing corporate profitability as a hedge, noting that marketers have been reluctant to reinvest those profits in the form of increased ad budgets. Coen indicated there might be some hangover from the War in Iraq, while King cited the lack of any significant new advertising categories, which tend to fuel incremental ad spending and drive overall industry growth.

King said this was the first time ad spending has "lagged behind" corporate profitability for such a sustained period. He also said there were fundamental shifts taking place in both corporate spending and consumer behavior due to new technologies, especially digital and online media, which he said reached a "tipping point" in 2006.

As for the lackluster growth in 2006, Coen cited lower than expected results from local advertisers.

"We thought the local entrepreneurs would show some significant expenditure levels this year," he said.

Nationally, he said advertisers in the top advertising categories, a group that represents about half of all U.S. ad spending, have been especially tight gripped, boosting spending only 2% during the first nine months of the year. By comparison, the secondary product categories - things like telecommunications, computers and insurance - have been "going gangbusters," said going, growing at a rate of 15% during the same period.


Universal McCann's 2007 Advertising Outlook
% Change 2007 Projections
Vs. 2006 $(000,000)
4 TV Networks +3.0% 17,442
Spot TV NC 11,144
Cable TV +6.5% 20,362
Syndication TV +6.0% 4,301
Radio +4.0% 4,588
Magazines +5.0% 14,096
Newspapers +1.0% 7,313
Direct Mail +7.5% 64,405
Yellow Pages +3.0% 2,229
Internet +15.0% 10,715
Other National Media +5.7% 39,045
Total National +5.9% 195,640

Local Newspapers +2.0% 41,277
Local TV +4.0% 15,572
Local Radio +1.0% 15,355
Local Yellow Pages +1.5% 12,370
Other Local Media +5.6% 18,559
Total Local +2.7% 103,133

Total U.S. +4.8% 298,773

Total Overseas +5.8% 332,600

Total Worldwide +5.3% 631,400
Source: Universal McCann, Dec. 4, 2006 "Insider's Report"

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