With 2007 Advertising Spend Numbers Revised Down, How Does 2008 Look? Not Great According to the Experts At The UBS Media Week

Both spoke at the opening session of the 35th UBS Media Week in New York and for Coen, vice president and director of forecasting at Universal-McCann, it was very much a cheerless presentation, not only for next year, but with a lot of mea culpas that his forecasts made a year ago were just too optimistic. And he thought then he was being conservative.

King’s presentation was more upbeat. Like Coen, he believes the Olympics, the US Presidential elections, and the European football championships next year will be a definite help to increase spend – King said those events would pump some $6 billion extra into global advertising -- but he agreed that without those extras next year would look very much like this year. With those additional events he expects the global spend to increase 6.7%, but without them it would be around 2.7%. In the US he forecasts the 2008 spend to grow 4.1%.

But he also emphasized that in making forecasts these days you basically have to split the world into two entities -- the industrialized world which is going to continue to see a sluggish spend, and emerging advertising markets such as China, Russia, India, Mexico and Brazil that will more than likely see large double-digit percentage gains. He sees the Asia-Pacific region, not including Japan, as the leading advertising growth area.

That’s very similar to previous forecasts for the newspaper business – that newspapers in the developed world are seeing declining circulations and advertising revenues whereas forecasts for the developing world are booming.

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Coen said he thought the total advertising spend in the US this year would be less than 1%, probably around 0.7%. “Not a very good year,” he said rather dryly. A year ago he had forecast 2007 growth at 4.8% which he then lowered in July to 3.1%, so obviously the second half of the year has been pretty much a disaster in advertising growth spending, much of it brought on by the real estate credit fiasco.

He now forecasts 2008 growth at 3.7%, but only because of the Olympics and US Presidential elections, otherwise it would be pretty much the same as this year. “I don’t see an awful lot of good expectations although at present I don’t think there will be a recession,” was about the best he could say for next year.

In fact if there is a US recession – and many analysts seem to be divided – then all these numbers get thrown out of the window. For instance, Goldman Sachs believes there is a near 50-50 chance of recession and one of its analysts, Anthony Noto, told a Reuters Media Summit in New York last week that if there is a recession then ad revenue at traditional media companies could fall as much as 10%. Without the recession he said growth would be around 1%.

Coen said he expects to see marketers continue to shift advertising away from more traditional media to other media that may be perceived as giving better value for money, saying part of the reason for that is “stress by marketers to keep their profits up”.

That pricing softness has already been felt in US network TV where, he said, for the first eight months of 2007, revenues fell by 1% at the networks because they found they had to lower prices to fill inventory. The US networks are actually carrying more commercials than before, he said, but the cost per commercial has declined.

In making his 2008 forecasts he said that all the information available “doesn’t make me very optimistic.” He, too, sees emerging markets “offsetting the sluggishness in other parts of the world”, and he expects the 2008 global spend to be up some 4.6%, a positive view supported by King who believes the global spend will increase by 6.7% because of “an accelerated shift away from developed markets to the emerging markets.”

According to King by 2010 China will become the world’s fourth largest advertising market and Russia, which is now 14th, will be sixth.

FTM has often noted how western money is flowing into emerging markets to buy up media and the ZenithOptimedia presentation showed why. It said that between now and 2010 the fastest growing ad markets will be, in order, Kazakhstan, Belarus, Serbia, Egypt, Russia, Moldova, Indonesia, United Arab Emirates, and Ukraine.

As for how various sectors in the media will fare, the general view seemed to be that TV would remain stable, newspapers in the industrialized world would fall while in the emerging markets they would gain, and online will continue its merry way upwards even though the rate of growth is slowing.

According to ZenithOptimedia, “We predict Internet advertising to pass three milestones over the next three years. We expect it to overtake radio advertising in 2008 (9.4% share) , to attain a double-digit share of global advertising in 2009, and to overtake magazine advertising in 2010, with 11.5% of total ad spend.”

King and Coen differ in the percentages of their forecasts because Coen doesn’t include Internet paid search advertising. Coen is probably the most respected forecaster in the advertising industry – at least he has been around the longest -- and during his entire 20 minute presentation he had nary a good word to say about this year or next, except for the 2008 special events that should help the spend.

It rather makes one wonder what all those financial analysts who attended this meeting hosted by a bank will take away with them. There was really nothing in Coen’s presentation to give them much reason to recommend US traditional media investments to their clients, but find a fund that invests in Chinese, Indian, Russian and other emerging markets media, and you could well be on to a winner.