• by Joe Mandese , July 10, 2007

Whether it may be a harbinger for other major media markets isn't clear, but the erosion of demand for traditional media appears to be stabilizing in the U.K., and may be poised for an upswing, predicts GroupM, the global media unit of London-based WPP Group.

"We think demand has almost stopped slipping," the agency said in the most recent edition of its periodic "This Year, Next Year" economic tracking studies. "By our previous gloomy standards, this merits a national holiday. Not counting internet, we think the other media are in for a 1% drop in revenue this year and something nearer 0% next."

The study, which was released this morning, indicates the Internet is the primary catalyst of advertising spending growth in the U.K., and will contribute to an overall growth rate of 4% in total U.K. ad spending in 2007.

Interestingly, the GroupM report suggests that the underlying impact of that growth may be more profound than its advertising dollar volume might otherwise indicate. The agency believes online media may be contributing to "price dilution" that is keeping advertising inflation in check for many media, something other analysts believe may also be contributing to the relatively slow rates of growth in other markets, including the U.S.

"We already see this in market research and directories," the GroupM report notes. "Doing it digitally can cost you less. Market research had the flat revenues to prove it last year, and directory revenue is only growing because of unsustainable oddities in its printed domain (up-selling and pressure to be in every title). Newspaper price dilution is evident in classified migration to the Internet."

GroupM, the parent of WPP media agencies such as MindShare, Mediaedge:cia, and MediaCom, did not speculate how this price dilution might be impacting other big media like television, but the report shows that unlike the U.S. market where audience share erosion has been fueling advertising price inflation, the U.K. TV marketplace is going through a period if disinflation.

The average cost-per-thousand for TV advertising time in the U.K. is predicted to decline 4.1% this year, after declining 5.6% in 2006. GroupM also believes it will drop another 3.7% in 2008.