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Two Forecasters Optimistic on Ad Spending

Predictions for advertising spending next year from two leading industry forecasters are surprisingly upbeat, as they project gains will be made even after the strong growth anticipated for 2004.

The unexpectedly optimistic predictions were offered yesterday morning by senior executives of two media agencies, Robert J. Coen of Universal McCann and Steve King of the ZenithOptimedia Group. In raising estimates they made previously for worldwide ad spending in 2005, they cited reasons that ranged from a continuing boom in online advertising to the growing list of major marketers planning to increase budgets substantially to generate demand for aging or moribund brands.

The forecasts are good news for Madison Avenue, which is worried that the robust growth it is enjoying this year may dissipate amid wavering consumer confidence and rising energy prices. And next year will not bring a reprise of the additional billions of dollars spent in 2004 on elections or ads for the Olympics.

But the battles for consumer favor in crowded categories like drugs, automobiles, entertainment, telecommunications and packaged foods will generate sufficient additional growth, the forecasters said, to make 2005 the fourth consecutive year of year-over-year increases since the 6.5 percent decline in 2001, the first since 1991.

"Momentum will carry over into 2005," said Mr. Coen, senior vice president and forecasting director at Universal McCann in New York, because big marketers will find it difficult "to turn around and cut ad budgets when competition is heating up."

Mr. Coen and Mr. King, chief executive of ZenithOptimedia, based in London, made their forecasts at the opening session of the 32nd annual Media Week conference in Manhattan, which is sponsored by UBS.

"They were optimistic," Brian S. Shipman, senior analyst for UBS, said of the presenters, "but the brand marketers need to continue to worry about market share, and without marketing they will not trigger consumer spending."

Not everyone, of course, agreed with the rosy predictions. In separate presentations at the conference, the chief executives of two large agency companies - David A. Bell of the Interpublic Group of Companies and Sir Martin Sorrell of the WPP Group - expressed caution in forecasting growth.

Leland Westerfield, managing director for media research at Harris Nesbitt, said that doubts about corporate profits and the health of the auto, retail and telecommunications industries "suggest a headwind in the face of advertising recovery rather than an upward cycle for 2005."

Also, Lauren Rich Fine, the advertising analyst for Merrill Lynch, has lowered her forecast for growth in ad spending next year in the United States, citing a belief that marketers may seek less-expensive media outlets for their campaigns. And Mr. Coen's prediction for growth in ad spending next year for newspapers in the United States exceeded the forecast also made yesterday morning at the conference by the medium's trade organization, the Newspaper Association of America.

Still, given that most estimates for ad spending growth this year turned out a shade or two lower than what now seems to have been warranted, perhaps Mr. Coen and Mr. King are on the right track.

If there is, as Mr. King predicted, "stable and sustainable global economic growth" in 2005, then it would not be going too far out on the proverbial limb to forecast that ad spending "will grow marginally ahead of gross domestic product," particularly with quickening demand for media like the Internet and direct marketing. ZenithOptimedia is part of the Publicis Groupe.

Mr. Coen now predicts a worldwide total for ad spending next year of $553.4 billion, up 6.1 percent from his revised final estimate for 2004 of $521.5 billion. In June, Mr. Coen, who offers predictions twice a year, forecast that 2005 global ad spending would increase 5.9 percent from 2004, to $550 billion. (The figure for this year, the first time global ad spending would top $500 billion, represents an increase of 6.4 percent from $489.9 billion in 2003.)

Mr. Coen's forecast for next year is composed of $280.6 billion in the United States, up 6.4 percent from $263.7 billion this year, and $272.8 billion overseas, up 5.8 percent from $257.8 billion this year. Mr. Coen raised his overseas estimate by $2.8 billion from June and his domestic estimate by $600 million.

The projected increases are warranted, Mr. Coen said, by continued growth in the advertising economies of countries like China, Indonesia and Russia, as well as in spending in the United States in categories like beverages and snacks, financial services and telecommunications.

They are also warranted, Mr. Coen said, despite the fact that results for next year will be facing tough comparisons with 2004, when totals were lifted by spending for election and Olympics ads.

While Mr. Coen did not offer an estimate of how large the gain was this year, Mr. King estimated that such spending added $3.1 billion to the ZenithOptimedia worldwide estimate of $369.7 billion for 2004, accounting for 0.9 percent of the 6.9 percent increase from 2003. (ZenithOptimedia's numbers vary from those of Universal McCann, part of the McCann Worldgroup division of the Interpublic Group of Companies, because the two agencies keep track of spending in different media.)

For 2005, Mr. King said he had raised his estimate of worldwide ad spending growth to 5 percent, or $388.3 billion, from a gain of 4.8 percent he predicted in October; ZenithOptimedia updates its forecasts about four times a year. Mr. King, like Mr. Coen, cited increased interest among advertisers in media like direct marketing and the Internet, which are more measurable than traditional media like television.

Mr. King also offered predictions for worldwide ad spending in 2006, up 5.8 percent from 2005 to $410.9 billion, and 2007, up 5.8 percent from 2006 to $434.6 billion. At the newspaper association presentation, James Conaghan, vice president for research and business analysis, forecast that ad spending in American newspapers next year would total $48.6 billion, up 4.1 percent from $46.7 billion in 2004. In July, he had forecast a 4 percent gain for 2005 from 2004.

The total for this year was revised downward to a gain of 3.9 percent from the $45 billion spent in 2003; a 4.1 percent increase had been forecast in July and last December.

"I still think I'm fairly conservative," Mr. Conaghan said, primarily because "I am a little cautious" about the ability of demand for real estate ads in newspapers to continue growing briskly if interest rates rise.


Stuart Elliott, The New York Times. December 7, 2004

Copyright © 2004 The New York Times Company. All rights reserved.