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Ad spending predicted to get better in 2002 Analysts say increase will be small

Spending on advertising in the United States, which fell precipitously this year along the economy, is expected to pick up somewhat in the latter part of next year, several influential analysts said yesterday.

The decline has been severe in all media, but the 8 percent decrease in newspaper advertising expenditures that is expected for this year would be the largest year-over-year decline since 1938, an official of the Newspaper Association of America said yesterday at a media industry conference in New York hosted by investment bank UBS Warburg.

"Nobody correctly forecast that the downturn would occur so quickly. Nobody saw it coming," said Jim Conaghan, vice president of market and business analysis for the Newspaper Association of America, a trade association representing 2,000 newspapers in the United States and Canada.

Indeed, he added, newspaper advertising expenditures for the third quarter totaled $10.6 billion, a decrease of 10.3 percent from the year-ago quarter, according to the NAA. By comparison, total newspaper advertising in the third quarter last year was up 4.3 percent.

Advertising is an important element in the economy because of the jobs it sustains and business it tries to stimulate. Newspapers, in particular, have suffered. A 20 percent decline in advertising revenue last week led the Hearst Corp., owner of The Chronicle, to announce plans to cut 220 jobs, or about 8.5 percent of its workforce, in the coming months.

There have also been job cuts of 10 percent this year at the San Jose Mercury News and Contra Costa Times, both owned by Knight Ridder. In recent weeks, the Seattle Times, the Wall Street Journal and the Dallas Morning News have also eliminated jobs.

The fall-off in spending has cost a great number of jobs in advertising in the Bay Area and across the country.

"Everything you're heard -- it's worse," said Jef Loeb, an independent creative director at Brainchild Creative in San Francisco. He estimated several thousand advertising jobs have been lost in San Francisco, including perhaps 1,500 that were serving dot-com clients now out of business. "Even though we're in what's classified as a recession, I'd call that a depression," Loeb said.

In New York, Bob Coen, a closely watched industry forecaster at Universal McCann, said he expects a 4.1 percent drop-off in ad spending in the United States this year, followed by a 2.4 percent increase in 2002. The shrinkage would be the first annual decline in U.S. ad spending since 1991, well off the 9.6 percent growth enjoyed in 2000 when dot-com spending and the economy were in full bloom.

John Perriss, CEO of Zenith Optimedia, a London advertising company, told the conference he expects global advertising to edge up 0.8 percent in 2002 and 3.6 in 2003 as the worldwide economy improves.

"The sun also rises," said Leland Westerfield, a UBS Warfield analyst, noting that both forecasters noted "a reasonable likelihood for an advertising recovery by late 2002 carrying momentum to 2003."

Another analyst, Lauren Rich Fine, of Merrill Lynch, said of the forecasts in a message to clients yesterday, "They were more sanguine regarding 2002 than we had expected."

Last week, Merrill Lynch lowered its U.S. ad spending forecast to a minus 6. 9 percent and maintained a forecast of a 1.5 percent decline in 2002.

According to Fine, marketers are holding off from making any budget changes until they get more clarity about the economy of 2002.

"Unfortunately, this could result in continued paralysis and some shortfalls later in 2002," Fine said. "In the absence of solid clients' budgets, we think the prognosticators are putting the best face possible on an uncertain situation."

For newspapers in the third quarter, classified advertising declined 17.1 percent to nearly $4 billion, compared to the year-ago quarter, said the NAA. Retail advertising fell 3.8 percent to $4.9 billion while national advertising was down 10.8 percent to $1.7 billion, according to the NAA, which is based in Vienna, Va.

For next year, the NAA's Conaghan sees both national and retail newspaper advertising up 1 percent and classified advertising flat, for a total gain of 0.6 percent.

Miles Grove, chief economist at the Barry Group, a Bethesda, Md., newspaper consulting company, had a more optimistic forecast for the newspaper industry yesterday -- with 2.3 percent growth for 2002.

But the climb back up will be steep, he said. At major U.S. newspapers, including The Chronicle, recruiting ads in classified sections are down 50 percent during 2001 as the economy sheds jobs, Grove said. Spending for those ads was up 12 percent in the first half of 2000, Conaghan said.

Last week, Time Inc. shut down three magazines, Family Life, Asiaweek and On, because of the decline in advertising revenue. In Hong Kong, where the announcement of Asiaweek's demise was made, Norman Pearlstine, Time Inc. editor in chief, said that while the staff had "met or exceeded every expectation," economic reality did it in.

"No one could have predicted that the downturn in the advertising market would be this brutal," he said


George Raine, The San Francisco ChronicleTuesday, December 4, 2001

Copyright © 2001 San Francisco Chronicle. All rights reserved.