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Uncertain Ad Trends Continue

Providing juice to all media houses, ad spending reports and forecasts are watched carefully. The big trends haven’t changed much over the last year. As the summer of 2011 draws to a close, the tone has become ominous.

monopoly chanceMedia buyer Carat, part of Aegis Group, dropped its 2011 global ad spending forecast (August 25) to US$ 481, growing but 5.0% over 2010, down from 5.7% in its previous estimate. “Global macro-economic factors, natural disasters and political instability,” said the Carat statement, are causing ad spending distress. Forecasts for Western Europe, Asia Pacific and the US were downgraded, Latin America flat with Central and Eastern Europe ad spending upgraded.

“The long term trend of the two-speed advertising world and the rapid growth of digital are very much in force,” said the Carat summary the Carat study stated. “The faster-growing regions of the world - particularly China, Russia and Latin America - will continue to eclipse performances from the developed economies.”

The same conclusions, not unexpectedly, were drawn in the World Advertising Research Center’s (WARC) Consensus Forecast based on a composite of several prognostications for 13 countries. WARC lowered its August global ad spending growth forecast for 2011 to 4.4% from April’s 5.1%. Developing economies up – double-digit growth in China and Russia - and the rest not so much.

“In just a few months the global economic outlook has worsened considerably and this is reflected in the latest Consensus Forecast,” added WARC editor Suzy Young in a statement. “Ad markets in the US and Western Europe seem particularly vulnerable. But all markets will be affected if we go into a double dip recession.”

Economists see advertising, like housing costs, as lagging indicators of economic trends. Advertisers have more to spend when economies have already improved. On the other side, advertisers will continue to spend for a time after consumer spending starts to fall.

So, as advertisers and media buyers shovel money into growth markets the other well-known trend is greater allocation to new media, online and mobile.  Trumpeting the ascendancy of online advertising, eMarketer forecast 17.2% growth of web ads this year to US$80.2 billion out of total ad spending of €500 billion.  “Online advertising has become a crucial element in ad budgets worldwide and will account for 16.1% of total media spending across the globe in 2011,” said the eMarketer report. “By 2015, online advertising will comprise nearly 22% of total media spending.” Online advertising in the US will take 35% of all ad spending by 2016, says market researcher Forrester Research, beating TV.

In the Asia-Pacific region, with smartphone penetration rates smoking, Gartner forecasts mobile advertising this year will reach US$3.3 billion, doubling in one year. Mobile advertising in the US has the attention of local advertisers, says Borrell Associates report “Main Street Goes Mobile”.  The forecast predicts “main street” businesses in the US will spend more on mobile advertising by 2016 than online ads.

The biggest of the big advertisers, it seems, are spending more. Procter & Gamble (P&G), arguably the world’s biggest advertiser, raised global ad spending 8% in the fiscal year ending June 30 over the previous year to US$9.3 billion. P&G’s ad spending as a percentage of sales rose to 11.3%, the highest since the pre-Great Recession days.

In its first half 2011 financial report (August 30), cosmetics giant L’Oreal reported world-wide operating profits lower than experts had predicted, €1.7 billion against expected €1.77 billion. “It looks like their advertising and promotional costs were bigger than planned,” said an analyst quoted by Reuters.

Media buyers, too, are having a day. Aegis Group, based in the UK, reported (August 25) pre-tax profits in the first half 2011 up 20% to GB£ 58.9 million.  First half sales at WPP, the world’s biggest ad group, rose 6.1% year on year. Ubiquitous chairman Martin Sorrell, quoted by Reuters, is cautious: “Some of the forecasts for 2012 look a bit conservative, but frankly everyone is so frightened at the moment that it's understandable.”

All this shifting and swaying does, eventually, trickle down to media houses. Bertelsmann posted (August 31) a first half 2011 net profit of €269 million on sales of €7.2 billion. Profit was up 9.3% and sales up 1.9% against the same period one year on, attributed, according to AFP, to reasonably good ad sales at broadcaster RTL Group and publisher Gruner+Jahr. “We are cautiously optimistic for the second half,” said CFO Thomas Rabe, “even though economic uncertainty has increased.”

The advertising people, like the insurance people, know the value of uncertainty. The media mix, though, is shifting to low CPM online and mobile platforms. Broadcasters and publishers reducing exposure to the haze of advertising is the certain long-term trend.


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