Wall Streeter Offers Dour Ad Outlook, Cites Depressing Survey Of National Advertisers

On the eve of a conference call scheduled for today and a series of ad forecast updates scheduled for early next week, Merrill Lynch's equities research team has issued a troubling new outlook for U.S. ad spending that includes a modest downward revision from its previous estimates. Citing a new survey of U.S. advertisers, the securities firm said the U.S. ad industry would "underperform" nominal GDP (gross domestic product) growth for the third consecutive year and it questioned whether the U.S. ad recovery is actually approaching a "tipping point."

In fact, the survey of national advertisers conducted by Merrill Lynch found that more than 50 percent intend to keep their ad budgets "flat in 2004, although 36 percent of them also intend to raise their ad budgets." That would be a marked downturn from 2003, for which 54 percent of the advertisers said they anticipated their spending would rise, while only 23 percent expected it to be "flat" and 23 percent expected it to decline.

The survey yielded other mixed signals. "An overwhelming majority (90%) of the advertisers surveyed have not cancelled their upfront commitments for the next few quarters, while over 50% of the respondents plan to put pressure on the broadcast/cable networks for lower prices," says the Merrill Lynch report.

Perhaps most concerning of all for ad agencies, is the fact that Merrill Lynch finds an acceleration in the trend toward procurement department control over advertising expenditures, as well as greater pressure and oversight over agency compensation for buying media.

"Based on the results of our survey and anecdotes from advertisers, we observe that there is a somewhat concerning trend in advertising. On the one hand, we believe that most advertisers are prepared to invest in resurrecting their top line growth. On the other hand, we have sensed a change in how ad/marketing budgets are being perceived internally; advertisers have expressed that the ad/marketing budgets are now another cost item versus an investment in growth," cautioned the securities firm.

The revelations come in contrast to some recent improving advertising indicators, as well as some modestly upward revisions in some other advertising outlooks. On Monday, the chief forecasters for ad agencies Universal McCann and Zenith Optimedia Group will reveal their revised outlooks during the opening session of UBS Warburg's Mediaweek conference.

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