If you think economic recessions are bad for the advertising industry, they're nothing compared to changes in the methods used by Madison Avenue's official scorekeeper to estimate the industry's size and growth. Based on that new math, Madison Avenue has lost billions of dollars -- nearly half a trillion dollars, to be exact -- virtually overnight. That's right, the difference between Interpublic's old and new forecasts for 2009 ad spending amounts to a decrease of $479.7 billion. How is that possible? Well, the devil, as they say, is in the details.
For one thing, the new estimates released Monday by Madison Avenue's new chief forecaster, Magna Global Director of Forecasting Brian Wieser, does not actually include any estimates for the global advertising marketplace outside the U.S. In his last forecast released in December 2008, now retired Magna Director of Forecasting Bob Coen estimated overseas markets would spend $382.0 billion on ad-supported media in 2009.
Though it's likely that Interpublic still has, and may yet release an overseas estimate, even just looking at the domestic U.S. marketplace yields a significant - nearly $100 billion - contraction for Madison Avenue. According to Wieser's new forecast, utilizing a revised methodology, U.S. ad spending is projected to be $161.0 billion this year. That's about a third less than the $258.7 billion Coen had projected for 2009 U.S. ad spending in his last forecast.
Part of the reason for the difference is the change in the underlying method Wieser is using versus how Coen calculated things. Another reason is what they actually look at, and how they define advertising.
The most fundamental shift is that Wieser utilizes a deductive, "top-down" method that calculates advertising volume based on the reported revenues of media companies, trade associations, and other sources, such as the U.S. government. Coen had utilized an inductive, "bottoms-up" approach that projected advertising volume by adding up the spending estimates for advertisers and brands based on a combination of proprietary data and information from third-party ad monitoring firms, much of which was based on "rate card" estimates that inflated media cost estimates.
Wieser claims his method is more holistic and more representative of actual advertising commerce, though coming in the midst of the industry's worst recession since the Great Depression, the recalibration of the industry's totals will likely be one for the record books.
Another big change in the methods between Coen and Wieser is what they include or do not include as advertising, and how they even define each medium.
Coen, for example, historically undercounted online ad spending, squeezing it in as a small line item in between Yellow Pages and "other national media." In Wieser's new forecast, the role of online media has been greatly elevated, as well as its share. Online media accounts for 14.3% of Wieser's 2009 ad spending total, nearly three times the 4.6% share that Coen had in his last U.S. ad forecast.
There are other marked differences in the way the two economists looks at the ad industry, and the media that depend on it. Take television as an example. Coen's $61.9 billion estimate for 2009 TV ad spending is much closer than the volumes brandished by the TV industry and Wall Street, but Wieser's new math strips out billions, taking the U.S. TV advertising marketplace down to $47.7 billion.
But the medium that takes the biggest methodological hit, is not one many agencies and media vendors normally think about: direct mail. Under Wieser's new math, the direct mail industry has shrunk by $39.2 billion, from $58.4 billion in Coen's last estimate, to $19.2 billion in Wieser's revised projection.
Wieser tried to explain that remarkable difference in a conference call briefing Wall Street analysts and the news media on his new forecast, and said it mainly had to do with the fact that his new method is based on the "revenue to the media" vs. what is billed by ad agencies. The revenue to the media in this case, he said, is the cost of postage associated with sending direct mail via the U.S. Postal Service, and excludes all the production and creative costs that likely inflated Coen's estimate for the medium.
In the end, many of the differences amount to a comparison of apples and oranges, and the actual meaning of the respective numbers will be in the eye of the stakeholder. To that end, Wieser is making the model he utilizes to compute his forecasts available to anyone to scrutinize, and to factor as they see fit.
The Case Of The Missing Ad Billions
(Bob Coen Vs. Brian Wieser: 2009 Forecasts)