Ad Spending Heads for New Peak

Forecasters see growth in 2003, record high in 2004

While differing on the magnitude of the growth, two widely followed ad-spending forecasters said last week that advertisers will spend more in 2003 than they did this year. By 2004, spending levels should reach and surpass 2000, when spending was at an all-time high.

Changes in TV Spending
Jan.-Sept. 2002 vs. Jan.-Sept. 2001
Category National* Spot
*ABC, CBS, Fox, NBC, Pax, UPN, The WB, cable networks and national syndication
Source: Universal McCann

But Robert Coen, chief forecaster at Interpublic's Universal McCann subsidiary, and John Perriss, CEO of ZenithOptimedia, qualified their predictions: If the U.S. goes to war with Iraq, all bets are off, both said. Perriss also said that there are questions about corporate profits and consumer spending: If one or both fall significantly, so could ad budgets.

Coen predicts a 5% jump in total ad spending in the U.S. next year, to almost $250 billion. Perriss forecasts a less rosy 1.5% hike, to a little more than $137 billion, among major U.S. media companies in the major markets. The two executives made their predictions at the UBS Warburg media conference in New York last week.

According to Coen, spending growth on the broadcast networks will be slightly lower than the average for all advertising and up about 4.5% for 2003. "The economy is not exploding, but few believe it will slip back into recession. Concerns about the stock market and Iraq have created caution about next year, but guarded optimism is indicated. Next year should be a better one" than 2002.

As for 2004, Coen said, "We expect advertising trends to improve further and to finally move above the 2000 levels."

For next year, said Perriss, "we continue to remain cautious about the U.S." Among the questions, he says, is "how long consumer spending can maintain strength when the fundamentals [of the economy] look shaky." Nevertheless, he believes that, by 2004, economic conditions will improve and the rate of ad-spending growth will once again be ahead of the growth rate for gross domestic product.

Clearly, gains achieved this year are being driven by TV: Overall ad spending this year in the U.S. is up an estimated 2.6%, while the Big Four broadcast networks are up about 7%. And national spot TV is up 12%.

Still, despite the strength of the TV side of the game, major ad buyers cautioned that the health of the overall ad market is deceptively weak. On a panel featuring three men who control 50% of all spending on broadcast television at CS First Boston's annual media conference, Magna Global Chairman Bill Cella was the most positive.

"One of the networks is going to proclaim they're sold out in the first quarter," he said. Cable networks are strong. Automotive spending continues to be strong, with strength trickling down to local stations.

But Jon Mandel, co-CEO and chief negotiating officer for buying giant Mediacom, disagreed: "Does one dot make a trend or not? TV is up. A lot of that up-ness came from print. Print is in a world of hurt. Outdoor is in a world of hurt." He noted that giant billboard spectaculars in Times Square used to require five-year contracts but now can be bought month by month.

"We would argue there's been a retreat to television," said David Verklin, CEO for Carat North America. "When we talk to our clients about second quarter of next year, they say, 'No, let's talk about tomorrow, let's talk about next week.' My clients believe that television is what turns the short term."

Others agree that it remains difficult to foresee revenue trends in today's economic climate. "Revenue visibility continues to be a bit of roll of the dice," said Sean Orr, chief financial officer at the Interpublic Group of Companies.

Coen predicts that the four major networks will post a 4.5% gain in ad sales next year to just under $16 billion, while national spot will climb 2%. If Coen is right, that's not bad growth coming off both an Olympic and political year that contributed close to $2 billion to TV coffers. "To be able to make all that up and add some to it is a definite sign that the TV market is getting healthy again," said one network exec.

Coen said that, while the networks won't have the Olympics next year, "the surge from a strong upfront should keep the expansion going. The strong upfront is elevating cable-network activity and prices to revenue levels that should be considerably above the levels of most months of this year. The second half 2002 up-turn trend is expected to help sustain reasonably good ad growth for most other consumer media."