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Veronis' Advertising '03: Steady As She Goes

Date: August 11, 2003

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It's predicted ad-spending rebound may never have materialized in 2003, but Veronis Suhler Stevenson (VSS) is again forecasting sunnier days ahead for the media business.

 

The firm's just-released Communications Industry Forecast is predicting 3.8% growth in ad spending in 2003 to $177.6 billion from $171.1 billion in 2002 (which represented a 1.2% climb over 2001 levels). And while last year's report predicted growth that was ultimately not realized - VSS forecast 2.9% growth in ad spending and 4.4% in marketing services/specialty media spending; the actual results were, respectively, 1.2% and 2.2% - managing director Jack Clarke believes that the current projections will prove more precise.

 

"Last year, most prognosticators were looking for a second-half rebound, but there was a much slower return to normalcy," he explains. "You had the corporate scandals and the threat of war. Then, there were lots of reasons for companies to hold off on spending. There aren't quite as many now."

 

According to the VSS report, compound annual growth in ad spending between 1997 and 2002 was 4.3% - meaning that dot-com bubble or no dot-com bubble, spending has been on a steady upward climb. "Some very, very unusual things happened over the last few years, and as a result we haven't had normalized comparisons for quite awhile," Clarke notes. "The so-called media recession was nowhere near as deep and dramatic as everybody was led to believe."

 

Between 2002 and 2007, VSS sees continued escalation in ad spending: 6.3% compound annual growth, including across-the-board gains for every medium. The steeper percentage increases likely won't kick in until 2004 - during which the report anticipates 6.6% overall spending growth and improvement even in downtrodden mediums such as business-to-business magazines and outdoor - but signs of the eventual recovery will probably become more apparent as 2003 rolls onward. "The confidence factor seems to be there," Clarke says. Overall ad spending in 2007 should reach $231.9 billion.

 

Set for the biggest boom during the next few years is box-office advertising, which generated a mere $301 million (less than 0.1% of all ad spending) in 2002. VSS predicts the medium to more than double that figure - to $704 million - by 2007, with a compound annual growth rate of 18.5%. The report attributes this potential gain to the favorable demographic profile (read: young) of the average moviegoer, as well as to the formation of a marketing alliance between theater owners and advertisers. VSS describes this alliance as "akin to the function of a rep firm in the broadcasting industry."

 

Of the other mediums examined in the report, radio (8.2% compound annual growth between 2002 and 2007), consumer Internet (7.4%), newspapers (6.3%) and consumer magazines (6.2%) are poised to show the biggest percentage gains between 2002 and 2007.

 

Clarke went out of his way to highlight the firm's findings about Internet ad spending. While the report repeats the usual revisionist mantra about "unrealistic expectations and valuations," he is quick to label the Internet as an "incredibly powerful" ad medium with the most room for potential growth.

 

"During the Internet boom, most of the money spent [on ads] was designed to build the appeal of IPOs, not build brands," he explains. "Now you're seeing people doing so many more creative things with [Internet advertising] - like search-based messaging, which is the capability du jour. Marketers are only beginning to scratch the surface."

 

Other predictions made in the report range from lethargic TV ad spending in 2003 (the reason, not surprisingly, is the lack of Olympic games and major elections) to continued accelerated spending on radio (comparatively low cost plus high selectivity equals marketing nirvana). Outdoor advertising should grow within the next few years thanks, in part, to what the report describes as "small boards in areas with heavy foot traffic," while consumer mags will lag behind the overall recovery due to the medium's longer lead times.

 

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from Mediapost, by Larry Debow

 

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