Ad spending recovery appears further off

'What
also keeps changing is the forecasts in the economy. Generally you don’t see this many GDP revisions in a year as we’ve seen in a quarter. An ad forecast from yesterday is out
of date.'

Ad spending recovery
appears further off

Forecasters trim expectations in ailing economy

By Elizabeth White

    As if to put to rest anyone’s doubts that this would be a rough year for folks in the media industry, Wall Street analysts have spent the last week reducing their ad spending growth forecasts from earlier this year.
    Now many think that the predicted advertising slowdown during the first quarter of this year will probably last at least until the third quarter and probably through the fourth.
    Morgan Stanley is expected to release a report today reducing its 2001 overall ad spending forecast from January of 3.3 percent growth to 1.5 or 2 percent growth.
    "What also keeps changing is the forecasts in the economy," says Mike Russell, an ad industry research analyst with Morgan Stanley Dean Witter. "Generally you don’t see this many GDP revisions in a year as we’ve seen in a quarter. An ad forecast from yesterday is out of date."
    On Wednesday, both Merrill Lynch and Mindshare lowered their forecasts for ad spending growth for 2001. Merrill Lynch revised its forecast for online spending to 2.5 percent from a 4.5 percent prediction earlier this year. While Mindshare wouldn’t release numbers, they did confirm that they had cut their growth forecast since December.
    "We revised on March 14, down from December," says Jean Pool, president of operations at Mindshare. "This will be a revision year. We’re going to need a lot of very sharp pencils."
    And these revisions came on the heels of a reduction last Friday by Thomas Weisel Partners. The firm lowered its ad growth forecast for 2001 to 2.8 percent from January’s forecast of 4.4 percent.
    "We’ve been revising down as we’ve been going," says Gordon Hodge, media analyst at Thomas Weisel Partners. "The feedback continues to be negative. In some cases we’ve seen a freeze; in others, they’ve pushed things back from the first half of the year to the second half."
    "I would look for stabilization in the third quarter and then a gradual improvement from there," says Hodge. "2002 should be a strong advertising year because of the even year advantages of the Olympics and an election."
    Some agree that the third quarter might be when things start to look up.
    "At earliest, the ad dollars will stabilize in the third quarter, and then just as with the market and the economy, it’s anyone’s guess," says John Rash, senior vice president and director of broadcast negotiations at Campbell Mithun. "All the estimates will be a moving target and be a reflection of if and when the stock market stabilizes and if and when the upfronts transpire."
    But many think that even the third quarter of 2001 is too soon to expect an ad turnaround.
    "There will be another revision as soon as they are sure that a recovery won’t happen by fourth quarter," says Aaron Cohen, director of broadcast at Horizon Media. "I don’t see anything happening until second quarter 2002. I think it’ll take that long for the bad taste in consumers’ mouths to go away."
    "I think [the ad spending growth percentage] is going to end up a negative number. I don’t see where growth occurs after an extraordinary boom year in 2000," says Cohen.
    Russell and Pool agree.
    "This is the first time we’ve seen an inflation-adjusted ad growth decline since 1991," says Russell. "This probably won’t turn until first quarter 2002. We’re looking at 2001 as a lost year."
    Pool says, "I don’t think things are going to stabilize this year."
    Those that haven’t revised their forecasts say that there is not yet a need to do so.
    "We’re not revising our figures now, but we were conservative to begin with," says Jack Myers, chief economist and CEO of Myers Reports. "We’re still holding our numbers, but we may be coming back with a revised outlook based on new findings."
     "Things may stabilize in the fourth quarter, provided that the general economy turns around by early summer," says Myers.
    Bob Coen, senior vice president of forecasting at Universal McCann, says he won’t revise his numbers until this June.
    Coen predicted in December that overall ad dollars in 2001 would increase by 5.8 percent and spending would reach $250 billion.

-Elizabeth White is a staff writer for Media Life.

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