Encouraged by robust ad spending from movie studios and political campaigns and by upturns in the fortunes of broadcast television networks and radio stations, a leading advertising industry forecaster has significantly increased his estimates for this year.
But before a beleaguered media industry gets too giddy, persistent signs remain that the comeback will continue to be uphill, prompting Sir Martin Sorrell, chief executive at the WPP Group in London, the world's largest agency company in revenue and billings, to repeat that a full recovery is unlikely before 2004.
The sharply improved estimate was made yesterday by David Peeler, president and chief executive at CMR in New York, the division of Taylor Nelson Sofres that tracks ad spending in major media. In January, Mr. Peeler predicted that ad spending in 2002 would rise a scant 1.5 percent from 2001. He has now raised his prediction to 2.5 percent, banking on a second-half gain of 6.2 percent to more than make up for a decline of 0.4 percent in the first half.
Besides the much higher spending in categories like entertainment and political advertising, Mr. Peeler's optimism is fueled by additional spending in Hispanic media and the stronger-than-expected sales last month of commercial time by the broadcast television networks ahead of the 2002-2003 season, in what is known as the upfront market.
"We took a look at upfront trends over the last five years, and a positive upfront has a positive impact, filtering down into other advertising expenditures," Mr. Peeler said in an interview after he spoke a conference, AdWatch: Outlook 2002, at the Grand Hyatt Hotel in Midtown Manhattan. The broadcast networks took in an estimated $8 billion this year, compared with $7 billion last year.
"Let's keep this in perspective," Mr. Peeler said. "Two-point-five percent up is still down 6.7 percent from 2000," the record year for ad spending, "but it's better than last year," when ad spending tracked by CMR fell 9.8 percent from 2000.
"Someone asked me, `Should we break out the Champagne?' " he added, laughing, "and I said, `Yes, but not the Cristal.' "
"If consumer spending were to start to fall off, advertising spending would fall off right behind it," Mr. Peeler added. Consumer spending accounts for about two-thirds of economic activity, and marketers will often reduce their ad budgets if they think consumers are beginning to keep their wallets and purses closed.
The Conference Board reported yesterday that consumer confidence declined to a four-month low in June, impaired by worries over employment and corporate scandals. Though such a decline was expected, further declines could start to slow consumer spending.
Also, "some devastating event in the Mideast or along the lines of 9/11 could potentially derail what we're seeing now," Mr. Peeler said.
"Sept. 11 caused $300 million to leave the marketplace in one week," he added. That is the estimated value of commercial time and ad space canceled by marketers immediately after the terrorist attack.
One of those attending the Adwatch conference, Christopher Dixon, global strategist for media at UBS Warburg in New York, said he was struck by Mr. Peeler's "categorization of the movie industry as constantly creating new brands, as each new movie that comes out accounts for $10 million, $20 million, $30 million in ad spending."
"The movie business has been pretty strong so far this year," Mr. Dixon said, pointing to the strong box-office performances of films like "The Bourne Identity," "Lilo and Stitch," "Minority Report," "Spider-Man" and "The Sum of All Fears," "and the power of the box office is having a little more impact on advertising" than had been anticipated.
Mr. Dixon also said he was impressed that, according to CMR data, almost $100 million has been spent year to date on political advertising, with the bulk - an estimated $900 million or more - still to come in September, October and November.
"Political advertising is a big stimulus for several media," he said, "particularly spot television" in local markets.
In terms of specific media, results vary widely.
For instance, in April, radio enjoyed its largest monthly increase in revenue, 4 percent, according to the Radio Advertising Bureau in New York. Until that gain, radio revenue had trailed results from 2001; now, they are even with last year.
The good news continued the next month.
"Our discussions with management teams across the industry indicate May, a traditionally strong month, was up approximately 4 percent," Paul Sweeny, an analyst who follows the radio industry for Credit Suisse First Boston in New York, wrote in a report released yesterday. "We also see indications that June and July will also be strong."
As a result, Mr. Sweeny said, he expects radio revenue this year to rise 4 percent to 5 percent from 2001. Mr. Peeler's estimate is even higher, calling for a gain of 6.7 percent.
Among other media, CMR now predicts the largest gains in ad spending in 2002 will come for Spanish-language TV networks like Univision and Telemundo, up 10.4 percent; spot TV, up 8.9 percent; radio; local newspapers, up 5.7 percent; and the Internet, up 5.3 percent.
At an annual conference last week for publishing executives and investors, top managers said they thought that ad spending was improving for newspapers, but that they were worried about how strong the recovery would be.
Among media that CMR projects will take in less ad revenue than last year are business-to-business magazines, down 11.4 percent; consumer and Sunday newspaper magazines, down 2.8 percent; and national newspapers, down 1.7 percent.
As for Sir Martin, he repeated remarks he made at the WPP annual meeting on Monday: that the rebound in ad spending would be slow through 2002 and 2003 and would not gain momentum until 2004, when results would be stimulated strongly by spending for the Summer Olympics and the presidential election.
Mr. Dixon of UBS Warburg characterized Sir Martin's forecast of a shallow recovery as "a more somber outlook than some others," adding, "He's trying to be very cautious and manage down expectations."
Stuart Elliott, The New York Times. June 26, 2002
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