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Forecasters Say Growth in Industry Revenue Will Slow


Advertising spending in America in 2001 will not grow as fast as had been anticipated as recently as this summer, two leading industry forecasters predicted yesterday.

But both characterized the slowdown as a soft landing after a year of record results bolstered by special factors like the Summer Olympics and the elections rather than a harbinger of a more serious downturn.

The predictions by the forecasters opened the annual UBS Warburg Media Conference in Midtown Manhattan. They were deemed significant because while the ebb and flow of ad spending is typically watched carefully, it is being scrutinized even more closely now because of a consensus that the economy is slowing as consumers reduce spending.

For example, the Conference Board said yesterday that its composite index of leading economic indicators, a key gauge of future economic activity, fell 0.2 percent in October. And ad spending in outlets like national broadcast television networks and local TV stations has slowed appreciably in the fourth quarter.

``We don't think things are falling apart because of a little softness,'' said Robert J. Coen, senior vice president and forecasting director at Universal McCann in New York. ``The outlook is generally quite good.''

The presentation by John Perriss, chairman and chief executive at Zenith Media in London, came after - and echoed - Mr. Coen's.

``There are really no signs in the activities of our clients around the world that we're on the verge of a decade-leading recession as in 1980 and 1990,'' Mr. Perriss said. ``Marketing is more of a `must have,' not easily cut any longer.''

Analysts who attended the presentations said they agreed with Mr. Coen and Mr. Perriss to varying degrees.

``The outlook is for moderation, not oblivion,'' said Leland A. Westerfield, a director in the communications group at UBS Warburg Equity Research in New York. Mr. Westerfield endorsed Mr. Perriss's assertion that spending should not decline too steeply because ``the need to maintain and build your brand name is becoming more of a fixed cost'' than a variable that rises and falls with every economic cycle.

``People are reacting to short-term declines in corporate profits with some sense of fear,'' Mr. Westerfield said. ``But Bob Coen indicated that ad spending would outpace G.D.P., which is remarkable in a post-election, post-Olympics year.'' His reference was to Mr. Coen's revised estimate that American ad spending in 2001 would increase 5.8 percent compared with an increase in total gross domestic product, including consumer price increases, of 5.7 percent.

``There's a tentative comfort from the numbers'' offered by the forecasters, said Michael J. Russell Jr., who follows advertising for Morgan Stanley Dean Witter in New York. That contrasts, he said, with ``the news events around the conference,'' like the recent declines in media stocks.

``A lot of it boils down to the economists' viewpoints'' about gross domestic product growth, he added. ``Our economists here are less optimistic than Bob Coen, so I'd say there's more risk on the downside than the upside.''

In his presentation, Mr. Coen trimmed his prediction of ad spending growth in 2001 to 5.8 percent from 6.5 percent, a prediction he made in June. American ad spending in 2001 will total $250 billion, he said, compared with a revised figure of $236.3 billion spent in 2000.

Among the reasons Mr. Coen gave for cutting his prediction for next year were a continued lag in ad spending in local media like newspapers, an inability by the big broadcast TV networks to raise prices in 2001 as much as they did in 2000 and a likelihood that huge increases in spending this year by advertisers in categories like computers and telecommunications could not be sustained.

One TV executive, however, took issue with Mr. Coen's estimate that the money spent to buy commercials on the four big broadcast networks would increase only 1 percent in 2001 from 2000.

At a presentation after the one made by Mr. Coen and Mr. Perriss, David F. Poltrack, executive vice president for planning and research at the CBS Television Network unit of Viacomcoei in New York, estimated a gain of 7 percent. That was possible, Mr. Poltrack said, as long as there were no substantial difficulties from a potential strike by writers that could affect the schedules for the 2001-2002 season.

If Mr. Coen's new forecast for 2001 pans out, ad spending would amount to 2.37 percent of gross domestic product, the same as the record level achieved in 2000. The most recent low, 2.1 percent, was set in the recessionary years of 1992 and 1993.

Mr. Perriss said he reduced his 2001 forecast to an increase of 4.6 percent from one he made in July of an increase of 6.1 percent because, in retrospect, the gains made in 2000 ``represent the peak of this particular trade cycle'' as a result of a subsequent ``decline in corporate profits.''

``Through 2003, we're in for a gradual soft landing,'' he added. ``Things could make that landing harder rather than softer, but the chances of that happening are not materially greater than a year ago.''

Mr. Coen's figure of $236.3 billion for 2000 was an increase of 9.8 percent from the $215.3 billion spent in 1999 and represented the third time since June 1999 that Mr. Coen increased his estimate of spending for 2000. The 9.8 percent gain was the largest since 1984 - also a year of Olympics and elections - when American ad spending increased 15.8 percent.

Overseas in 2000, Mr. Coen said, ad spending totaled $229.2 billion, up 7.2 percent from $213.8 billion in 1999. That was unchanged from his forecast in June; he cited continued strong results in countries like France, Germany, Italy, Mexico and South Korea.

Mr. Coen's worldwide total for 2000, then, is $465.5 billion, up 8.5 percent from $429.1 billion in 1999. Though that rose only slightly from the $464.8 billion he forecast in June, it was the largest one-year percentage gain since an 11.5 percent increase in worldwide ad spending in 1995.

Turning to 2001 ad spending abroad, Mr. Coen predicted yesterday a total of $244.1 billion, up 6.5 percent from the revised 2000 total. That represented a slight decrease from the $247 billion forecast he initially made in June, up 7.8 percent.

So Mr. Coen's total worldwide estimate for 2001 is $494.1 billion, an increase of 6.1 percent from his projected total for 2000. That compares with his estimated total six months ago of $498 billion, up 7.1 percent from 2000.

Though Mr. Perriss uses different methods from Mr. Coen's, keeping track of only so-called major media like television, print and the Internet, his estimates were similar to Mr. Coen's.

Mr. Perriss said ad spending in North America this year would total $145.7 billion, up 8 percent in current prices from $134.9 billion in 1999. For 2001, he predicted $152.5 billion, up 4.7 percent from 2000.

His worldwide ad spending totals were $331.7 billion in 2000, up 7.9 percent in current prices from $307.6 billion in 1999, and $351.7 billion in 2001, up 6 percent from 2000.

Mr. Perriss also offered forecasts beyond 2001. In North America, he predicted total ad spending of $160.4 billion in 2002, up 5.2 percent from 2001, and $168.6 billion in 2003, up 5.1 percent from 2002. And worldwide, Mr. Perriss predicted a total of $372.5 billion in 2002, up 5.9 percent from 2001, and $393.5 billion, up 5.6 percent from 2002.

Mr. Coen and Mr. Perriss make their predictions twice a year and revise them based on updated data. Universal McCann, where Mr. Coen works, is the media services division of McCann-Erickson Worldwide Advertising, part of the McCann-Erickson World Group unit of the Interpublic Group of Companies. Zenith, which Mr. Perriss heads, is jointly owned by the Cordiant Communications Groupcoei and the Publicis Groupe.

 

Stuart Elliot, The New York Times. December 5, 2000

Copyright © 2000 The New York Times Co.. All rights reserved.