Media economy
Dark clouds over the U.S. ad economy
By Heidi Dawley
Mar 31, 2008 - 8:34:53 AM

There was the hope, a few months back, that the credit crunch would come and go without taking too big a bite out of the ad economy.

That hope is looking slimmer and slimmer.

Or at least that’s the word from a new report out today from respected forecasters at ZenithOptimedia, which has downgraded its forecasts for ad spending growth in the U.S. through 2010.

Back in December the forecasters had predicted 2008 ad spending growth in the U.S. at 4.1 percent. Now they reckon it will be 3.7 percent.

“The credit crunch definitely looks like it is having an effect,” says Anne Austin, senior publications executive at ZenithOptimedia.

This forecast comes as part of ZenithOptimedia’s global forecast. While ad spending growth rates in the U.S. and in Europe have been downgraded, developing markets remain strong.

Strong growth in those regions means that overall the global ad growth forecast has only been marked down marginally from the December forecast.

ZenithOptimedia is now forecasting global growth this year of 6.5 percent, down from the forecast of 6.7 percent it made previously. Global growth will continue above trend growth, which is 5 percent, for the 2009 and 2010.

“Developing markets are very healthy and are growing very fast. It is definitely the developing markets that are starting to contribute more to global growth than the more mature western markets. That’s what is holding up global growth,” says Austin.

In fact, developing economies will contribute 63 percent of new advertising expenditure between 2007 and 2010, while North America and Western Europe will contribute just 37 percent.

Growth in the developing regions is now so marked that by the end of the forecast period, ZenithOptimedia expects the Asian Pacific region to have overtaken Western Europe as the second largest when it comes to ad spending.

The U.S. is quite a different story.

The downgrade this year comes thanks to the impact of the credit crunch, particularly on ad spending from the financial sector and on real estate classifieds.

And it doesn't look like the U.S. will pull out any time soon. ZenithOptimedia has also downgraded growth to 2.1 percent in 2009 and 2.2 percent in 2010. In December, the forecasts had been 3.0 percent for both.

These downgrades mean that after stripping out inflation, ad spending growth will be essentially flat in 2009 and 2010. Without inflation in 2008 there would be 1 percent real growth, yet in 2009 and 2010 that figure would be -0.4 percent.

But in downgrading 2009 and 2010, ZenithOptimedia is looking past the credit crunch to other ills in the media economy, much of them in the newspaper sector as it takes even deeper hits from the internet in terms of readership and advertising. “That is behind the downgrade for the overall ad economy,” says ZenithOptimedia head of publications Jonathan Barnard.

ZenithOptimedia’s forecasts U.S. newspaper ad revenue will be down 2.9 percent this year, followed by a decline of about 4 percent in each of the next two years.

Looking at other sectors, the internet is forecast to continue its double-digit growth, up 23.4 percent in the U.S. in 2008, followed by 15.8 percent and 12.3 percent in 2009 and 2010 respectively.

Television is forecast to be up 3.3 percent this year, followed by 0.2 percent in 2009 and 0.9 percent in 2010. Meanwhile, outdoor, internet and cinema are forecast to grow strongly.