CAMPAIGN REPORT ON GERMANY: Reversing the slowdown - Britta Bergemann, managing director of the largest media agency in Germany, HMS Carat, analyses trends in media for the past year and speculates on the year ahead

The latest forecast growth figure for 2002 is 0.6 per cent, which indicates that the economy is far from a quick recovery. The main spur for recovery will come from the highly expansionary stance of economic policy in the US. Investment spending shows little likelihood of rising in the circumstances, with expenditure in 2002 expected to remain stable, at best.

The advertising market has got off to a slow start, with January being especially weak. TV has had a particularly poor showing and revenues are down 10 per cent, according to AC Nielsen. Statistics show that the only medium not to suffer a loss was outdoor. There has, however, been some recovery going into spring and many media are reporting healthy booking levels. It is clear that the first half year will show a fall in advertising spend on traditional media. Much depends on economic news for the second half of 2002, as well as feel-good factors - such as Germany's performance in the World Cup - and, of course, the election. For 2002 as a whole, a 1 to 2 per cent growth in adspend to about 35 billion euros is forecast.

Long term, though, the market has developed. Total advertising spend, including traditional and newer media such as sponsorship, direct and interactive, has grown continuously for the past 50 years. The mid-term scenario indicates a stable advertising environment and total advertising volume has increased by almost two thirds since 1990 to 34.4 billion euros in 2001.

Against all odds some categories, such as banking and insurance, mail order and beverages, have experienced good growth while the telecommunications industry lost 33 per cent compared with 2000, followed by detergents, financial consulting and travel. However, telecommunications is still among the top five spenders, which are: mass media, automotive, retail, telecoms and confectionery.

Procter & Gamble continued to reduce its spend, as it did in 2000. Deutsche Telekom has also slashed budgets. Conversely, E-Plus, a rival to Deutsche Telekom, has boosted its spend. The car industry shows similar inconsistencies; for instance, Volkswagen is down, but Peugeot is up.

Two big factors for change in the media sector are the future of the Kirch Group and the entry of Liberty into the cable market. The monopolies commission looks likely to stop or at least delay Liberty while the German financial, political and media groups seem determined to prevent News Corp from taking over Kirch.

Media has reacted to the lower demand by reducing supply. This is partly because it was operating at capacity until 2001 but also because there is a perceived need to keep the system stable. All in all, TV advertising prices have softened compared with 2000. Most sources do not expect falling TV advertising prices during 2002 to have a significant effect on advertising budgets. Lower prices are based on a reduced demand.

The crash has not taken place as feared, but a wave of consolidation and rationalisation is moving across the industry. This especially applies to print publishers who are suffering from the effect of a downturn in core business and of non-sustainable investment in online projects.

Concentration among media and also among traditional media agencies is high. The top five media groups (Bertelsmann, Kirch, Springer, von Holtzbrinck, WAZ) account for 80 per cent, while the top five media agencies (HMS Carat, MediaCom, Interpublic, OMD, CIA) account for 75 per cent of the total media market.

For traditional advertising, the first quarter of 2002 is expected to bring some improvement on 2001 figures. For the total year, however, experts predict only a moderate growth. TV prices are expected to drop still further, although a slight improvement is forecast.

Non-traditional media such as sponsorship will continue to grow in 2002. This builds on the slow but general shift towards the more direct and live communication, which has been characteristic of the past couple of years.

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