Expectations: Recent Forecasts Suggest Ad Growth Is Nil

Looking past the gee-whiz ad forecasts should be mandatory for anyone playing in the media marketplace.

The double-digit advertising spending shift to the Internet will continue--mostly because it is a good value proposition that enables advertisers to value advertising on a ROI basis. That, in effect, puts pricing pressure on the traditional media.

In a year when print and broadcast television can only hope to have their advertising expenditures pumped up by the presidential election, much of the seminal change in marketing psychology and methodology will be masked. But make no mistake. It is the catalyst for emerging underlying spending patterns that will prevail long after the election-year folderol fades.

Of course, Internet ad spending will continue to pass milestones. Having exceeded outdoor advertising in 2007, it's set to surpass radio advertising in 2008 and magazine advertising in 2010, attain double-digit share of global advertising 2009, and comprise nearly 12% of total ad spending by decade's end--which puts it on par with newspaper spending, according to Zenith Optimedia. The Internet has nowhere to go but up.



Mounting economic and global uncertainties, coupled with burdensome credit and debt issues, will likely funnel more money to the Internet's accountable, targeted arena. A modicum of spending will continue to anchor traditional broadcast and print, although resistance to modifying mass-media advertising formulas and expectations will prove to be a destructive hindrance.

In other words, in trying times, there will be a place in the ad world for both the Internet and interactive platforms, as well as more traditional one-way media. The forecasts, and widespread reaction to them, can be unrealistic and extreme. Broadcast and print media advertising options will not disappear any time soon, but they will be only one component in a multi-marketing mix. The Internet is not the be-all and end-all, but it does pose some interesting and constructive new approaches to more effective advertising. The quadrennial presidential elections, Olympic Games and European soccer championships should not be presented as permanent props to an otherwise vulnerable television advertising marketplace.

Some experts forecast that these extraordinary events will account for at least half of the 6.7% global advertising spending growth (to nearly $486 billion) and the 4.1% North American ad spending growth (to $195 billion). That means actual, sustained advertising growth is virtually nonexistent.

The 10% rise in national spot TV sales and 4% rise in local spot sales in 2008 forecast by Universal McCann's Robert Coen is a misleading indicator of growth--it largely reflects special event-related ad spending. Psychologically, the quadrennial spending is letting broadcasters off the hook at a time when they should be intensely continuing to adjust to new ad methods and expectations.

Non-event-related spending is vulnerable to economic downturn as well as the continuing housing and credit crisis, which means forecasts for flat normalized advertising revenues in 2008 could be reduced to declines that would spell trouble for 2009. "As fundamental macro trends continue to deteriorate, the risk of recession and thus the risk that the advertising market faces an extreme downside scenarios increases," says Goldman Sachs analyst Anthony Noto.

Basic advertising growth (minus the election and Olympics-related spending) has been well below nominal Gross Domestic Product in recent years, resulting in corresponding declines in ad revenue growth. This trend is exacerbated by intensifying economic uncertainty, prompting many companies (and marketers) to cut costs. In fact, a 50 basis point cut in the prime rate expected by the Federal Reserve at their next meeting on Dec. 11 would only confirm, but not necessarily abate, the economic turmoil that companies are prominently building into next year's budget plans.

"For every percentage point of revenues lost, a greater percentage of expenses, such as advertising, must be cut to meet the same profit target, leading to a possible year-over-year decline in advertising expenses rather than the change in a given company's revenue," Noto said. Clearly, the 2008 ad spending forecasts aren't as telling as the trends and changes behind them.

BMO Capital Markets analyst Lee Westerfield contends that the unwinding of over-investment among financial-service advertisers is reminiscent of the unwinding of the and telecom categories that resulted in an ad recession in 2001. However, Westerfield says an outright ad recession is unlikely as long as "TV sales hold steady, while Internet media values potentially expand. Media multiples could compress 15% to 20% "from asset valuation contractions already seen" in a waning ad cycle that will see an overall 3% trend-line rate through 2009. He forecasts a 1% decline for broadcast networks and 6% declines for TV stations in 2009 ad spending--reflecting an increased switch to digital markets and a tepid impact of the new C3 ratings system on ad pricing.

Lehman Brothers analysts contend that uplift from the elections and Olympics will be limited to a handful of companies. The infusion of an estimated $800 million in U.S. ad expenditures tied to the Olympic Games in Beijing will accrue mostly to licensing host General Electric's broadcast and cable networks. With one-third of the Senate up for re-election and a significant number of House races expected to generate $3 billion-plus in campaign spending and as much as $1 billion in spending in the presidential race ($850 million of which is expected to be local), TV stations will be the primary beneficiaries of a political year.

Glowing digital ad growth forecasts notwithstanding, the Internet is not without its issues. Privacy and consumer protection concerns triggered by the kind of targeted ad data that is shared by Web sites and third parties are mounting, particularly in the wake of Facebook's new Beacon advertising program. Tracking users' Internet activities and preferences has become a sensitive issue on Facebook--sparking several mass protests, negative press coverage and Big Brother-like manipulation of a wildly popular social media platform. Facebook has announced it will not share or send messages about users' online activities without their explicit consent and knowledge. User preferences, recommendations and transactions tracked through Facebook pages represent a delicate, complex side to Internet marketing, which is yet to be fully explored. Like so many things about the digital broadband world, it's not just about the numbers and prices of ad units or major marketing campaigns. That means the forecasts for ad dollars spent on different media platforms doesn't tell the entire story. Welcome to the new face of advertising and ad forecasts.

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