Economists are fond of using a joke to describe the relative nature of economic health. 'A recession,' they say, 'is when your neighbor is out of work. A depression is when you are out of work.'
That same subjectivity appears to be the rule of economic recoveries, or in the case of the advertising business, forecasts for media spending growth.
Three-quarters of the way through 2002, perspectives for an advertising rebound appear to depend on who your neighbors are. If you live in the States and your business relies mainly on TV and radio advertising, then conditions may seem to be improving - at least compared to the dismal results of 2001.
If you are a multinational advertising holding company with interests across a variety of media in various regions, then apparently it is looking like a downer to you. At least that has been the consensus coming from the major publicly traded agency companies in the weeks leading up to this column. Based on their earnings guidance reports and the comments of top executives, they appear not only to have written off 2002, but much of 2003, as well.
'It seems unlikely that improved performance will occur in 2002 and that recovery will have to await 2003 or, perhaps, 2004, when the US Presidential election and the Athens Olympics will begin to have a positive effect, at least on media markets,' warned WPP Group in the guidance it offered shareholders in its second-quarter earnings release.
The Interpublic Group wasn't far behind, cautioning shareholders that economic conditions have made for 'uncertain visibility' in the advertising business. Interpublic financial chief Sean Orr described that advertising outlook as 'volatile and unpredictable'. This, despite the fact that Interpublic's own resident forecaster, Universal McCann's Bob Coen, had already predicted a 2.1% increase in worldwide ad spending in 2002 and a 5.5% gain 2003.
Apparently, not enough of that industry expansion is being realized at the bottom lines of the major ad shops. Or, as Interpublic explained: 'Although many clients have increased their forward commitments for network advertising time, Interpublic's agencies have yet to see a related change in demand for their services.'
WPP and Interpublic are not the only ones. Grey Global Group and Havas also missed their mid-year financial targets. Only Omnicom and Publicis reported strong enough results to please shareholders, but offered relatively little in the way of a long-term outlook.
This disconnection between the progressive upturn in some media markets and long-term prospects of the major ad shops is, to a large extent, a matter of perspective. While the network up-front looked like a harbinger for an advertising rebound, it may prove to be a shell game that simply moved money from one part of the year (the scatter marketplace) to another (the up-front).
That is a greater signal of uncertainty than the up-front bounty should indicate, according to Jon Mandel, chief investment officer at Grey Global's MediaCom unit. Speaking at a recent ad forecasting conference in New York, Mandel said the networks would not have sold so much of their advertising inventory, more than 90% in some cases, if they believed market demand would sustain itself or grow during the year.
Many agency executives expect demand to ebb later this year and that the networks could see their average advertising rates plummet. Meanwhile, a decline in their TV ratings could put the networks in the awkward position of having to give advertisers their money back. Because they have so little inventory in reserve, the networks may have a difficult time providing advertising time as make goods and may have to resort to cash.
Instead of being a harbinger for an up-turn in advertising demand, Madison Avenue sees the record network upfront market as a hedge by the networks against uncertain conditions during the upcoming year. As for mounting demand for advertising in local TV markets, those moderate single-digit ad revenue gains being reported by stations compare with double-digit losses each of the past two years. Moreover, improving results in the third quarter of 2002 compare with the third quarter of 2001, when stations lost millions of dollars due to pre-emptions and advertising pullouts following September 11 attacks.
'The reality,' said MediaCom's Mandel, 'is that both the overall economy and the advertising marketplace remain extremely precarious, and the recent momentum in so-called bell-wether media markets could evaporate very suddenly should something like a double-dip recession, new terrorist attacks or a war in the Middle East occur.'
'I think we've got big problems,' said Mandel, adding that it would not be until the second quarter of 2003, that he and his colleagues would know if the ad industry has truly gone back into expansion mode. 'I think that May will be the telling point, but frankly, we're getting a little scared due to some of the underlying issues.'
Even as MediaCom's Mandel was making these points, Publicis's Zenith Optimedia Group was preparing yet another revision of 2002 ad spending estimates. But unlike its peers, Zenith revised its ad spend estimates upward. The revision offered further proof that economics depend on where you live. In its adjustment, Zenith upgraded the outlook for US ad spending to essentially flat in 2002, but downgraded several European markets.
John Mandese, Admap. October 2002
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