Close-Up: Are the dark days of recession over?
campaignlive.co.uk, Friday, 02 October 2009 12:00AM
Some believe we're through it, but Sir Martin Sorrell thinks otherwise. Anne Cassidy reports.
After a year of doom and gloom and the over-use of words such as "downturn", "economic crisis" and "recession", phrases such as "green shoots" and "recovery" have started popping up everywhere.
Even those in the beleaguered advertising and media industries have been looking on the brighter side of late. Omnicom, Publicis, JCDecaux and even NewsCorp have publicly noted recent improvements in their businesses.
However, this slowly building mood of optimism has not been embraced by everyone, with the main critic being WPP's chief executive, Sir Martin Sorrell.
Talking to the Financial Times last week, he flew in the face of optimism by steadfastly refusing to be swept away by any bubbling talk of recovery. A July and August that aren't as bad as June does not a recovery make, Sorrell asserted.
While conceding confidence was improving, he says people are still not spending more on their brands. Rather than green shoots, he spies only a "deceleration of negatives" among the weeds. But does this mean he is correct or is a feeling of optimism the right one?
Some believe that there is a possibility he may be indulging in a bit of management expectation by proclaiming things are worse than they are, so any bad results that follow don't come as much of a surprise. As Don Elgie, the chief executive of Creston, puts it: "What's the downside of saying things are worse than they might be?"
Meanwhile, a senior executive at a media owner notes that Sorrell was overly optimistic earlier in the year and "now he's compensating for it". It was, after all, only in May that Sorrell predicted an L-shaped recovery and that 2009 would be positive in terms of growth for WPP.
This was before back-pedalling furiously after a number of poor results and making thousands of redundancies. Nonetheless, many agree that Sorrell's assessment is realistic. Paul Richards, an analyst at Numis Securities, says that, while there has been stabilisation, we are still "bumping along the bottom".
Elgie concurs with Sorrell's view saying that "one swallow does not make a summer", and believes that any recovery in the UK is going to be a very slow process. "Anecdotally, it has stopped getting worse. I don't think it's going to be a sharp recovery though, it's going to be a weak recovery," he says.
Most don't expect to see any signs of an upturn until the latter part of 2010 and predict that any return to growth will be very modest and definitely not at the same level of the boom years.
The pervading advice to businesses in the meantime is to get the cost-base right and not to cut too much, therefore allowing flexibility to pitch for new business and to gain market share.
Publicis Groupe's acquisition of Razorfish, the Cossette takeover proposal and Chime's record profits last month indicate that the market is stabilising.
However, while not wholeheartedly buying into Sorrell's undeniably pessimistic view, many in the industry agree that while things don't seem to be getting worse, it is still too early to make optimistic predictions - especially in media and advertising.
Elgie says: "The big test is the budgets clients sign off for the 2010 calendar." And Rupert Howell, the ITV managing director, brand and commercial, adds: "Anyone who looks at the slight recovery in the ad market in the fourth quarter and thinks that we are away to the races is being overly optimistic."
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AGENCY CHIEF - Lord Tim Bell, chairman, Chime Communications
"While it's true we're out of the bottom of the pit, we're nowhere near the top. What recovery there is, is very slow and patchy.
"If you define a recession as a decline, we're out of that. But we are not yet at the moment when the economy has started to grow. That will probably be next year.
"To get out of recession, people need to be confident and see growth, the stock market needs to be strong and buyers need to demand products. There are lots of noises about green shoots, but the real economy will very slowly go back to ground and it won't go to the levels it's been over the past ten years. We're talking up short-term pieces of information as though they are long term."
ANALYST - Marcus Anselm, partner, Clarity
"The past two to three months have seen the level of mergers and acquisitions activity picking up, evidenced by the various pending or completed transactions that are in the public domain.
"We seem to be in a period of relative stability, where people's decision-making has moved on from simply being focused on the day-to-day fire-fighting to now including looking at the various opportunities presented through corporate activity, be it disposing of non-core businesses or indeed expanding through acquisition.
"Financial institutions too are re-engaging. That is absolutely not to say that it is all over and 'business as usual' but rather that there is no longer a sense that we are staring into the abyss."
MEDIA OWNER - Rupert Howell, managing director, brand and commercial, ITV
"All I can say is that it is not getting worse. I remain convinced that the first half of next year is going to be difficult.
"Our view is that after the General Election, whatever the outcome, there will be a bit of optimism and spend will be marginally better.
"There will be some gentle recovery in the second half of next year, which will carry through 2011, and there will be acceleration in 2012.
"I would say it's definitely not getting worse but let's not get carried away.
"It's all about consumer and corporate confidence. I don't think consumers are ready to think the worst is over."
MEDIA CHIEF - Jerry Buhlmann, global chief executive, Aegis Media
"Whether the worst has passed will become clear in the next couple of months. It's still too difficult to call. At this point in time, we are not seeing any recovery towards the end of 2009.
"What we may be seeing is a reduction in the decreases year on year, but this is not necessarily the sign of a recovery - it could just be an easy comparative.
"The issue is whether clients are holding back or cutting adspend and we won't see the realisation of that until well into the last quarter.
"If we look at 2010, we see a modest return to growth in the second half of the year, but that is still lower than 2006."
This article was first published on campaignlive.co.uk
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