Is the ad industry finally back in growth?

Campaign asked industry figures whether the bigger marketing budgets detailed in the July Bellwether Report are translating into growth for the industry.

This week, accounting firm Kingston Smith W1 highlighted that ad agency margins are at their lowest level since 2008 in its analysis of the most recent filings at Companies House.

But elsewhere the numbers look good: marketing budgets have increased every quarter for nearly three years, according to last month’s IPA Bellwether Report. The IPA is also predicting that overall UK adspend will grow in 2015 by 4.5 per cent in real terms.

It all seems a far cry from the 2008 financial meltdown, the recession and the "austerity Britain" climate that led to a squeeze on marketing budgets for so long.

Nevertheless, despite there being causes for optimism, the mood music is mixed. The Bellwether Report also revealed that pessimism is growing and confidence is waning, both at company and industry level.

So Campaign asked the IPA, and the heads of an ad agency and a media agency, for their view on whether the industry is finally back in growth and what the future holds.

Nick Baughan, the chief executive of Maxus

Nick Baughan, the chief executive of MaxusIncreased advertising investment is always a driver of growth for agencies but is less critical now than it has been historically.

We are forecasting UK media investment growth in 2015 at 6 per cent, which if delivered means that by 2016 the market will have finally have matched its 2007 peak in real terms.

Between 2007-2015, however, the correlation between straight billings growth and agency revenues has weakened. This is driven mainly by two factors.

Firstly the media measurement industry’s struggle to accurately measure digital billings and secondly future-facing agencies have diversified their businesses into consultative, fee-based offerings in areas like content, analytics and consultancy.

These services can’t be measured or directly attributed to billings but are areas of growth for many agencies.

In short, we’re optimistic about media agency growth in part down to increased spends but more so because our industry has evolved beyond the billings yardstick and continues to increase its value to advertisers.

Matt Edwards, the chief executive at WCRS

Matt Edwards, the chief executive at WCRS
The growth in UK adspend for Q1 is particularly encouraging as it came pre-election.

This was a quarter in which the nation stumbled towards an unpredictable polling day with little idea of what life would look like on the other side. Clients could easily have adopted a "wait and see" approach.

For agencies, industry growth manifests as plentiful new business opportunities, fewer cancelled projects and existing clients expanding. This has been our recent experience at WCRS and we’ve had a strong first half as a result.

However, the latest IPA Bellwether report showed client confidence falling to a two-year low so let’s hold the champagne for now.

Tom Lewis, the finance director of the IPA

Tom Lewis, the finance director of the IPA

We are happy to see the continued growth from the latest IPA Bellwether Report, confirming that the industry is in a positive space with 11 quarters of successive growth in marketing budgets, an outlook echoed by other industry surveys.

But look beneath the headlines and a more mixed picture emerges. We are seeing an increase in short-term sales-activation activities (such as sales promotion and events) at the expense of brand-building activities, without a rebalancing over time.

This could become worrying for the longer term financial well-being of brands and their agents.

The very best clients and their agencies guard against this by brand building across the overall customer experience to deliver greater value for business.

The widening take-up of this strategy provides the greatest opportunity for agency and brand growth over the next 12-18 months.

Looking further ahead, our Future of Marketing report indicates that the level of customer expectation will only increase.

This translates into a demand for greater personalisation from consumers and a need for brands and their agencies to operate in multiple ways all at once.