Their comments echo the general cycle that occurs when a recession sets in, where ad spending tends to fall off several quarters after the economy struggles, since many buys are placed ahead of time.
The executives said spending in 2008 looks to be helped by some $2 billion to $3 billion from elections as well as Olympic spending--which could contribute to flatness next year in comparison in an odd year.
The revelations came Tuesday from Citigroup analyst Catriona Fallon, who conducted a call with the executives at the Interpublic agency and derived conclusions from the discussion in a new report. An Initiative representative did not immediately provide details on who the executives were.
There is "no pull-back yet evident" in spending this year, Fallon wrote, something top IPG leaders have said in recent calls with investors.
The pair of executives at Initiative--which has won a slew of new business recently--suggested that should belt-tightening take place later this year, dollars will be trimmed more from print and broadcast TV than digital, which looks to continue its seemingly inexorable rise. Some 30% to 40% of online dollars are currently spent on search and the remainder on display ads. The former will yield "slight growth" and the latter "faster" increases, Fallon wrote.
The agency executives appear to have indicated that as online spending increases, agencies need to find breakthrough ways to use Facebook, MySpace and other tentpoles in the increasingly cluttered arena. "As advertisers move spend to the Internet, there is an increasing need to push the envelope on the creative side," Fallon wrote in the report. "Social networks and blogs are allowing for viral marketing opportunities, but the creative aspect must step up to online media competition."
At last week's AAAAs media conference, Google's advertising chief Tim Armstrong hinted that the online giant is not looking to impinge on agencies' business--only to make their jobs easier via improved metrics. Initiative executives seem to buy that and/or believe their skill sets are unrelated. "We believe the agencies continue to offer the strategy and creative aspect that drives ad [revenues]," Fallon wrote.
Back on the economic projection front, Fallon said if the economy stays rocky, small businesses would be expected to cut back spending on local search before large companies with brands to protect retrench on the national stage.
Initiative has some clients that could be affected more by an economic slowdown than others. While Hyundai could pull back--even though foreign automakers appear to be spending more robustly now than their domestic counterparts--Home Depot might loosen the purse strings, figuring that people will be less likely to sell their homes, but could look to make modest upgrades. Also, Cadbury Schweppes, with its portfolio ranging from Dr. Pepper to Snapple, could be as recession-proof as any business.