Analysts Upgrade '06 Ad Outlook, Downgrade Most Traditional Media

The influential equities research team at Merrill Lynch late Wednesday issued a report upgrading its outlook for U.S. ad spending in 2006, albeit for a short-term anomaly: higher than expected mid-term election campaign ad spending. The Wall Street firm also issued its first outlook for U.S. ad spending in 2007, a relatively lackluster growth rate of 3.6 percent.

The revised outlook followed the release of a dour report on the newspaper industry, including a significant downgrade for Dow Jones & Co. (see related news brief), despite an anticipated boon from record political ad budgets. "This higher growth projection is slightly offset by our lowered newspaper forecast," said the analysts, adding, "Lower radio forecasts were also incorporated due to a weaker start to the year."

Merrill Lynch nonetheless sees the political ad surge as enough to warrant a 0.7 percentage point gain in the 2006 U.S. ad outlook. The firm now expects U.S. ad spending to rise 5.3 percent vs. its previous forecast of 4.6 percent for 2006.

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The analysts also upgraded their worldwide ad outlook to a growth rate of 5.1 percent vs. 4.8 percent previously, and issued a 2007 projection of 4.2 percent ad spending growth.

"Despite our raised 2006 estimate, we do not sense good momentum across most of the traditional media," the team warned.

By medium, Merrill Lynch lowered spending for newspaper ad spending to 1.8 percent from an earlier forecast of +2.0 percent for 2006, while radio ad spending was downgraded to +2.2 percent from +2.4 percent.

Broadcast TV, however, was upgraded to a 5.5 percent gain vs. an earlier projection of +4.8 percent. Most other projections remained unchanged.

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