• by Joe Mandese , July 10, 2009

Interpublic, the de facto source for Madison Avenue's official industry growth estimates for more than half a century, is radically changing the way it calculates advertising, categorizes media spending, and even how it defines media. In a complete overhaul of its methodology being unveiled during a webinar this morning, Brian Wieser, director of global forecast for Interpublic's Magna unit, has shifted from an ad industry-centric, "bottoms-up" model for calculating U.S. and global ad spending to one that takes a top-down view analyzing the advertising revenue reported by the media industry. The new method also revises many of the underlying definitions of media, incorporating newer ones like online search for the first time, and realigning others into discrete categories based on "national," "local" and "direct" media.

The changes are the most significant since Interpublic began tracking and forecasting the advertising industry's growth during its post-World War II boom years, and reflect underlying shifts in the advertising and media industries. The changes are likely to impact a wide range of stakeholders ranging from Madison Avenue to Wall Street to individual media companies, and even the U.S. government, which has incorporated Interpublic's data as part of its official estimates for U.S. industrial growth.

But Magna's Wieser, who will also be releasing the new mathematical model he is using for public scrutiny and application, argues the shifts will make the ad industry's estimates more accurate and more representative of the real world of advertising commerce.

"No advertising agency holding company actually touches every single piece of the media economy. There are small- and medium-size enterprises that account for a quarter of all advertising. That's a million small advertisers, and there is no single entity that could possibly know all of that," Wieser says of the methodological shift.

Consequently, he says that relying on data aggregated from what advertisers and agencies spend on media - whether it is from their own internal sources, or from industry ad monitoring services that typically derive it based on "rate card" estimates for the cost and volume of ad spending - Wieser says the new approach calculates advertising volume based on the actual revenues reported by media companies, trade associations and other sources, that capture more of the totality of advertising spending.

The approach makes sense, and will likely radically shift the official volume estimates for certain media as a result. Take online search as an example. Madison Avenue's big agency holding companies still account for a mere faction of total search advertising volume. The vast majority of search advertising buys comes from small- and medium-size advertisers, often mom-and-pop organizations that have been dubbed the "long tail." Relying on Madison Avenue's intelligence for calculating search advertising volume would likely be less accurate than utilizing empirical, publicly reported advertising revenue data from big search engine operators such as Google, Microsoft, and Yahoo.

The same thing is true for other big media, and even though Madison Avenue may dominate more of the supply of advertising sales for media such as TV, radio, newspapers or magazines, Wieser says their publicly reported revenue data still is more accurate than relying on "rate card" estimates derived from agency and advertiser sources.

While many media companies are not publicly traded, Wieser says there are other good sources, such as trade association compilations, that help fill in the gap in his new model. And where there are voids, he says, Interpublic will utilize other proprietary factors, judgment and common sense.

Fundamentally, he says, it is easier and more accurate to track, model and forecast advertising volume based on the share of advertising going to specific media and media companies than it is to rely on what agencies, advertisers, and third-party syndicated monitoring firms, estimate.

He concedes that some media are more opaque in the new methodology than others. Many big consumer magazine publishers, for example, are privately held, and don't report their advertising revenues or share publicly.

Another big problem Wieser had to deal with, was the "double-counting" that has occurred when advertising expenditures traverse traditional silos of media. Take newspaper publishing as an example. A newspaper like the New York Times began as a local newspaper publisher, and its revenues rightly fit into the local newspaper spending category. But over the past decade, the Times has essentially evolved into a national newspaper, and has now been regrouped into that category along with other national papers such as USA Today and The Wall Street Journal.

Meanwhile, Wieser says he has taken another form of newspaper advertising revenues - their online publishing sales - and stripped them out of their newspaper industry estimates and put them into online industry estimates instead. And not simply under one online banner, but into discrete buckets of "local online" and "national online" advertising, depending on their source.

Wieser concedes the method is not perfect, and that it will likely evolve over time as new media emerge, and as older media adapt, and as the industry redefines the nature of both media and advertising. But he says utilizing an adaptive, open source model, is the most accurate and holistic way of forecasting the growth of an industry that will likely be in a state of constant flux.

Importantly, Wieser says key stakeholders are welcome to access Interpublic's model, and to factor it for their own purposes and perspective. He says certain "power users" of the data, especially big Wall Street firms, venture capital companies, and media companies trying to launch new advertising-based enterprises, are likely to do so, because they have so much at stake in projecting future advertising trends, shares and volumes.

To help the industry transition to the new methodology, Wieser has gone back and readjusted Interpublic's historical advertising estimates going back to 1980 based on the new model. And in another significant change, he has gone back and estimated the industry's quarterly growth estimates going back to 1990, and will begin reporting them quarterly beginning with Interpublic's next new forecast being released on Monday, July 13th.

Wieser says the shift to quarterly forecasting and revisions is essentially, because the advertising and media industries have grown more dynamic since Interpublic's McCann-Erickson unit first began tracking the industry's volume back in the 1940s.