LATIN AMERICA: A LATIN LEARNING CURVE

Agencies, media and advertisers are hopeful as confidence slowly returns to battered markets. Kate Burnett sees how global media brands are handling all the uncertainties.

Passion is a word often used to define the Latin temperament. Latin literature and even television confirms this stereotype as characters are consumed by the flames of their own passion and whole countries are gripped every evening by the melodrama of the telenovela. Perhaps it is not surprising then that the politics and economics of the region reflect the strength of these emotions.

The entire region from the US border with Mexico to Tierra del Fuego on the southernmost tip of Argentina seems to be on a non-stop economic rollercoaster. Argentina's collapse in 2002 was fast and furious, Venezuela still teeters on the brink of economic disaster and Brazil continues to struggle with the challenge of realising its own potential.

Of the major markets, only Mexico seems to be in a period of relative stability, possibly due to its growing ties to the US economy. Chile, too, is relatively untroubled at present. Elsewhere, Colombia has lived with bitter internal conflict for 30 years, which, despite American intervention, has yet to show real signs of resolution. Peru is still struggling to recover from continuing problems in government, which started with the fall of president Fujimori in 2000. Smaller markets such as Bolivia, Uruguay and Paraguay are only now beginning to show signs of development.

Not surprisingly, such fluctuations lead to a loss of confidence on an international level. Foreign investors stand back or even pull out of individual markets or the region as a whole if conditions become too unpredictable and this has a damaging effect on prospects for development.

Whatever the economic indicators may say, as soon as investors get cold feet, it can be hard for confidence to return.

"In terms of loss of confidence between regional and local advertisers, we've been hammered out of Europe," Ian McCluskey, the publisher of America Economia, a leading pan-regional Spanish-language weekly, says. "We've lost $1 million at least from advertisers such as Siemens, Rado and UBS, although Shell is still our biggest client. European advertisers don't care about Latin America, though they did two years ago."

McCluskey has responded to cuts in advertising from the US as well as Europe by careful pruning of wastage in circulation and distribution (the circulation is now 80,000, equal to Newsweek).

"I thought 2003 could not be worse than 2002 and, though a lot of advertising was postponed rather than cancelled, we should have broken even in 2003 with that positive momentum carrying on into this year," he says. Local advertising has become more important although it is a harder sell and the mix of local and international is now 50:50 rather than 35:65.

McCluskey's cautiously positive outlook is increasingly echoed by media and agency executives, reinforced by improving figures over the past few months.

Advertisers are said to be the first to respond to changes in any economic climate and the media in Latin America has struggled to cope with the decline in ad revenue. And advertising agencies in turn must struggle with the impact reduced spend has on their plans for expansion in the region.

"I thought 2001 was a mediocre year but 2002 was a good year and 2003 continued the positive trend," Peter Minnium, the president of Lowe Latin America and the Caribbean, says.

"In terms of the business climate in the region, I feel more comfortable now and that fear of the next crisis is a bit more remote. We have just launched a new campaign for HSBC bank and have launched two companies in Latin America: Draft Worldwide and Lowe Universal Media.

"In Latin America, the margin for error is much lower and we must act and respond more quickly. The most important seed for growth is a trusting client and, in Latin America, our large local clients have very trusting relationships with leaders of local agencies. Our local business is now more profitable than our international business with clients such as brewers and cellphone companies being the most important in smaller markets."

Because of the economic and political climate in Latin America, there has been a great deal of consolidation by international marketers, which penalises local markets in favour of international. The growth of agencies is often initially driven by large international clients seeking a presence in certain markets.

This trend has been behind the growth of the Initiative brand in Latin America, particularly with Unilever as a client.

Initiative is at the forefront of an increasingly visible independent media buying sector in Latin markets (the major exception is Brazil).

Traditionally, personal, face-to-face relationships are the key to business in Latin America and it can be hard to break through this barrier if you are a stranger in the market.

Initiative has overcome this, and the economic crises in the region, to build business and trust among local as well as international clients.

"Our growing presence in the market has been very interesting for media owners as they now realise they get more attention from advertisers through media specialists," Jean-Christophe Petit, the chief operating officer of Initiative Latin America, says.

In difficult times, Latin American media have inevitably been forced into creative ways to win the advertising dollar. America Economia has worked hard to develop its online business, including training staff to sell online advertising effectively. Sales grew from $15,000 in 2002 to $200,000 for 2003.

Disney too has been looking for ways to leverage opportunities across all its activities including theatrical and home video as well as TV.

Rita Ferro, the vice-president for international ad sales, ESPN, Latin America, who also handles ad sales for sister channels Fox Kids and Disney, explains: "To the advertiser, $1 spent with Disney may equal $3 in terms of exposure. The more difficult these markets become, the more integrated the packages continue to be."

When economies slow down, the strategic movement of budgets between media may lessen the impact of reduced overall spend and maintain a brand's visibility. "There is increasing interest in diversifying investment but in fact TV remains king of the media, especially during a crisis, when it suffers the least," Petit explains.

Economic problems also have a negative impact on the growth in distribution of pay TV, which in turn has put pressure on ad sales and revenue. Cable TV, in Latin America as elsewhere, offers a targeted upscale audience who still have disposable income to invest in consumer electronics and cars.

Michael Fox, the vice-president of worldwide ad sales for ESPN, talks about difficult and opportune times in Latin America in the same sentence.

"My meetings to discuss 2004 have been positive and cautiously optimistic. We can pick up market share in a downward economy - there's a historical precedent to that kind of movement of adspend. We have gained from terrestrial TV, which has historically taken 60 per cent, and sometimes more, of adspend in Latin markets. There has been a real growth in pan-regional spend and also in terms of new advertisers including cars, electronics and airlines."

Fox is part of the executive steering committee of the Latin American Multichannel Advertising Council created in October 2002. "A number of us have seen the business evolve to a point where it necessitated an organisation to speak on our behalf about the strengths of the pay-TV medium," he says.

Improvement - in Latin advertising, and more importantly economics and politics - is perceptible in the short, medium and even long term.

Rhona Murphy, Newsweek's associate publisher for Asia, Europe and Latin America, says Brazil has "definitely improved through president Lula", while Argentina is "back on the schedule". Mexico is the most promising market, Petit says, and is now the biggest in the region.

But recovery cannot be taken for granted. "I have to consistently remind myself that these were military dictatorships less than two decades ago," Minnium says. "These open democracies are so young. Some of the political success is a miracle - the Brazilian election was an amazing process.

The 90s were such a boom when the people in the region had blind faith in its leadership. Barriers to trade have been lifted through agreements such as Nafta and Mercosur and great things can happen.

"There is now a backlash against American economic leadership to find more local solutions, but the political danger is that the backlash will be too dramatic and that the region could close in on itself. In the medium term, this could threaten the process of political transparency and the strength of the institutions and deter the influx of capital."

Latin economies and people are working hard to bring stability and prosperity to the region but the highs and lows remain part of the picture for now.

ADSPEND IN LATIN AMERICA'S BIGGEST MARKETS

COUNTRY TV Radio

03* 03 vs 02 03* 03 vs 02

dollars USm (%) dollars USm (%)

Brazil 2,307 8.0 176.5 8.0

Mexico 1,897 10.2 269 6.7

Argentina 610 23.5 62 18.9

COUNTRY Press Outdoor

03* 03 vs 02 03* 03 vs 02

dollars USm (%) dollars USm (%)

Brazil 1,086 8.0 177 8.0

Mexico 324 8.6 266 20.0

Argentina 536 21.4 40 28.2

Source: Initiative.

*estimate.

THE MAJOR MARKETS: THEIR ECONOMIES AT A GLANCE

BRAZIL

In September 2003, the Brazilian central bank cut its growth forecast from 1.5 to 0.6 per cent, just a few weeks short of the president completing his first year in office. Luiz Lula da Silva (known universally as Lula) was elected with more than 60 per cent of the vote. GDP grew by 1.5 per cent in 2002 (despite the currency losing more than 20 per cent of its value) and growth was forecast to be as high as 3.6 per cent in 2004.

Economic instability continues to undermine the strength and potential wealth of Brazil's agricultural sector and its natural resources. Brazil is the region's most populous country with 160 million people.

MEXICO

Mexico is arguably Latin America's strongest economy, although poverty and inflation still hamper further development. Both inflation and price rises are expected to slow this year to about 3 per cent and 3.5 per cent, respectively. Oil and agriculture are the most significant sectors of the economy, the latter is vitally important financially. More than three-quarters of Mexico's exports go to the US and the Mexican economy is increasingly linked to the US thanks to its geographical proximity and participation in Nafta. President Vicente Fox came to power in 2000 ending more than 70 years of government by the PRI.

ARGENTINA

Argentina's "decline into hell" was one of the horror stories of 2002. The government defaulted on loans from the World Bank, many local banks collapsed and stories of starvation and suicide filled the media. Inflation was rampant, reaching 25 per cent and unemployment stood at more than 20 per cent. President Nestor Kirchner has been in power since 25 May 2003 and Argentina has shown some signs of recovery. Forecasts for 2004 suggest that inflation may drop to below 15 per cent and that unemployment will fall. However, the memories of 2002 are still fresh and no-one is breathing a sigh of relief just yet.

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