Germany, Europe's largest economy, is like a punch- drunk boxer struggling to get back on his feet. With zero growth in the second quarter of this year, consumer angst on the high street and close to 12 per cent unemployment, it's rather hard to believe that Germany last year regained its lofty position as the world's largest exporter.
The country's business sector, not to mention the advertising and media industries, has been restlessly waiting for political and economical change to allow it to bounce back off the ropes. This may come sooner than anyone expected.
In May this year, the German chancellor, Gerhard Schroder, was beaten in state elections in the crucial North Rhine Westphalia region. Schroder responded to this dramatic defeat by calling federal elections a year early. Unsurprisingly, this month's elections (on 18 September) and political party campaigns have dominated German public life this summer.
Most observers believe (and hope) that Schroder's gamble will fail. His opponent and the leader of the conservative Christian Democratic Union, Angela Merkel, is most likely to take over his premiership. The business community has its fingers crossed that she will head a coalition cabinet formed by the CDU, its Bavarian sister, CSU, and the Free Democrats. But their lead has begun to shrink.
"Up until election day, it will be a waiting game," Uli Veigel, the chief executive of Grey Global Group Germany and the vice-president of GWA, the German association of advertising agencies, says. "Hopefully, the outcome will be one that can give the economy a much-needed boost."
Pre-election debate has, of course, raged about how the election winner should tend to the country's sickly economy. Will a change in labour laws and corporate tax cuts help to tackle unemployment? How can the former East Germany's lagging economic development be brought up to speed?
There's no doubt that uncertainty about how to solve these problems is hurting spending on the high street. A hike in consumer confidence in the run-up to the elections this month does not reflect a long-term positive change in consumer mood, believes the research institute GfK.
According to Margret Buhse, the head of communications at one of Germany's largest advertisers, Beiersdorf (the maker of Nivea), and the chairman of the advertiser body OWM, weak consumer spending affects the willingness of companies to invest. "Consumer spending also makes companies cautious about investing in advertising," she adds.
It is therefore hardly surprising that Volker Nickel, the secretary of ZAW, the umbrella organisation for associations of the German advertising industry, admits: "Our expectations for the first half of 2005 were not fully met. For the most part, advertising budgets remained stagnant."
Nickel predicts an increase in net advertising revenue of up to 1 per cent for 2005. But even this is too bullish for some industry observers.
"I don't think we'll see any real growth in the advertising market this year," Manfred Bosch, the managing director of Redblue Marketing, the in-house advertising agency of the electronics retailing giant Media Markt and Saturn, argues.
A sputtering economy and ever more tight-fisted clients have made a bloody cockfight out of Germany's agency business. "Since the advertising market is still falling, an agency can only win business by snaffling it from others. This means you have to be that much better than your competitors," Olaf Gottgens, the chief executive of BBDO Germany, says.
It's a sink-or-swim environment. "We are very pleased with our business this year," Veigel asserts. Grey Global has already won several big brand clients, among them Deutsche Bank, the energy services provider Eon and Porsche Design.
While some smaller and midsize independent shops posted losses of up to 27 per cent last year (as in the UK, the Sarbanes-Oxley Act keeps a lid on the numbers of the international networks), some did pretty well.
The top independent, the Munich agency Serviceplan, reported earnings growth of 15 per cent for its full financial year.
As in previous years, traditional media have suffered in a weak advertising market. Although Nielsen Media Research reports that gross adspend grew by 3.6 per cent for the first half of the year, heavy discounting in the market means that, year on year, net adspend will be down by the end of 2005. According to Nielsen, gross adspend in TV rose by just 2.3 per cent during the first half of the year, while magazines managed to lose 3.7 per cent of their ad revenue, and that's before discounts.
Radio, a medium that has lost appeal for many young listeners, seems to be finding favour with advertisers, however. For the first half of the year, gross adspend for the medium grew by 20 per cent, Nielsen reports.
According to Wilfried Sorge, the managing director of RMS Radio Marketing Service, the marketing body of a large group of private radio stations, low consumer demand and competitive pressures have encouraged advertisers to focus on short-term sales campaigns - for which radio is the most appropriate medium - rather than branding.
Even so, Sorge predicts no more than single-digit net growth for the radio medium by the end of the year.
As for 2006, Germany's adland is strangely upbeat. It recognises that there are plenty of potential banana skins ahead before growth can return to the market, but problems such as next year's expected ban on tobacco advertising in print, on radio, the internet and at sports events are the least of its worries.
"The funds will go into other channels," Gottgens insists. Even the threat of terrorism is being viewed with typically Teutonic defiance. We will not be intimidated, is the general feeling in adland.
Cautious optimism, that weary recession-time phrase, prevails. Various studies show that the expectations of companies are, in fact, more positive than those of consumers. And if the federal elections turn out as the business community would like them to, the advertising community can expect a modest recovery.
And, of course, there's next summer's Fifa World Cup, hosted by Germany, to cheer everyone up a bit. Even the most scrimping marketer imaginable is likely to loosen their wallet as one of the world's largest media events approaches. The feel-good factor of the World Cup party is needed to lift the nation's spirits, said to have withered steadily since reunification in 1990, and get Germans spending again.
THE GERMAN ECONOMY: IS IT ALL DOOM AND GLOOM? GDP Zero growth in the second quarter of this year, with just 1.3 per cent GDP growth predicted by 2006 (The Economist) Unemployment 11.6 per cent of the workforce (five million) are out of work, although it's starting to fall at last Consumer spending Consumer confidence surprisingly crept up this month ahead of the elections (GfK). Most still fear for their jobs, but as unemployment falls consumer confidence could rebound Elections The outcome not only matters for Germany, but for the rest of Europe, especially the eastern economies. A stronger Germany will mean a stronger Europe, particularly in the euro zone Advertising spend TV: $4.8 billion (-1.3%); Radio: $0.7 (2005 vs 2004, billion (-2.7%); Press: $8.9 billion (-2.5%); Initiative) Outdoor: $0.9 billion (-0.4%); Internet: $0.3 billion (1.9%); Total: $15.8 billion (-1.9%)
GERMANY'S ADVERTISING RECESSION BEATERS
SERVICEPLAN - A RECORD YEAR
Germany's biggest independent is the less-than-exotically-named Munich agency Serviceplan. Last year, its gross income grew by 15 per cent. "We are rather proud of these figures," the managing director, Florian Haller, says, "because we got where we are without the help of an international network." Its secrets of success? Haller points to innovation - he cites the agency's novel work for the Child Health Foundation; integration - it keeps all its departments under one roof, and a flair for unconventional media.
KEMPERTRAUTMANN - A FLYING START
The Hamburg agency was launched in a whirlwind of publicity in July last year. The founders, the creative big-hitter Andre Kemper and the marketing guru Michael Trautmann, have had to recruit fast. The headcount has grown from seven to 20, with 40 expected by next year. Clients include the electronics retailer Media Markt (left) and the confectioner Ferrero. According to trade press rumours, the agency will soon join the Audi roster. So what's the secret? "Hard work, hard work, hard work," Trautmann insists. "But being well known and having a cracking team helps."
COMBERA - THE SPECIALIST
Specialisation has been one way of beating the economic doldrums. Especially if you're in below-the-line media. No wonder, then, that Philipp Riediger, the general manager of the Munich agency Combera, considers the agency's 30 years in point of sale as "a competitive advantage". During the first half of 2005, Combera's gross income rose 10 per cent to X5.2 million. Ten new clients aided growth, among them Hakle-Kimberley. "We're profiting from the fact that the focus is shifting from above- to below-the-line communications," Riediger says.
STROER - RAPID GROWTH
2004 was a big year for the Cologne-based Stroer Out-of-Home Media. At the beginning of that year, the company acquired Germany's largest outdoor media concern, Deutsche Stadte Medien, becoming the market leader. This, plus some shrewd business abroad, saw Stroer end 2004 with a 32 per cent climb in turnover to X412 million. June 2005 was its best summer month ever. "Because of our wide product portfolio and our marketing strength, we will continue growing," Jorg Lammers, Stroer's director of corporate communications, promises.
PREMIERE - THE TURNAROUND
In the first half of this year, Germany's leading pay-TV operator, Premiere, entered the black for first time. The company was part of Leo Kirch's eponymously named empire that collapsed in 2002. In early 2003, Georg Kofler became Premiere's chief executive and rescued the company from the brink. Subscriber numbers have climbed from 2.5 million to 3.3 million and keep growing, and the company's flotation in March was well received. Innovation in programming and technology is credited for the turnaround. "We have set the course for dynamic growth," Kofler says.
ANTENNE BAYERN - AUDIENCE WINNERS
Radio stations are losing listeners fast in Germany. But not the Bavarian station Antenne Bayern. According to the audience tracker Radio MA, Antenne Bayern piled on 160,000 listeners in a single quarter of this year. It now boasts a total audience of 847,000. Company turnover growth has followed the audiences, up 5.2 per cent in the first half of 2005. A clearly defined brand that offers entertainment for the family has proved a successful formula. "We are obviously doing the right things," the general manager, Karlheinz Horhamme, comments.
DIE ZEIT - GOOD TIMES
Germany's most respected weekly newspaper, Die Zeit, has shown remarkable powers of recovery. In the late 90s, the paper was deeply in the red, it had an old-fashioned image and didn't look capable of facing up to the challenges of a new era in publishing. But the artful modernisation of its content and design, and some canny recruiting in sales and editorial, have brightened its fortunes. Rainer Esser, the managing director, says: "It's the editorial quality that has driven our success." The title's circulation has increased to 1.43 million, and revenue from brand advertising alone surged by 40 per cent in 2004.