Special Report: The US - America bounces back

The global advertising industry can breathe again - the world's biggest ad market, the US, is returning to growth.

It should come as a relief to us all that the world's largest advertising market is going great guns this year, buoyed by the Olympics and the presidential elections. But similar increases in 2005 and their knock-on effects in Europe and beyond are harder to predict because of a number of headaches that do not seem to be going away: the economy, political uncertainty and the war in Iraq to name the big three.

All the top economic ad forecasters in the US (Robert Coen at Universal McCann, TNS Media Intelligence/CMR, ZenithOptimedia and Veronis Suhler Stevenson) agree: in 2004, adspend will grow by 7 per cent to 10 per cent to $263.3 billion. And while forecasters predict adspend in 2005 will grow by around 6.5 per cent to $280 billion, not everyone on Madison Avenue is laughing into their lattes just yet. "In 2004, I was cautiously optimistic, but I'm more guarded going into 2005," Bob Jeffrey, the worldwide chief executive at J. Walter Thompson, says.

"2004 will be a good year for us - and probably for a lot of others in the industry, because we had a tremendous amount of new business," he explains.

"But I don't get the same sense of cautious optimism going into 2005. There's a high level of anxiety among clients and I think it's fuelled by a number of things. With the tight presidential race, there are a lot of economic issues. What's going to happen in Iraq? Is it going to become a bottomless pit in terms of military spending? What will the economic philosophy be regarding tax cuts and interest rates? There's a huge amount of uncertainty. I have a somewhat bearish view because I'm seeing clients cutting back. They're holding budgets really tight."

Persistent political uncertainty and economic woes all could have an impact on advertising spend: high oil prices, a sluggish economy, poor stock-market performance, higher interest rates - take your pick. According to a September Gallup poll, 61 per cent of Americans said they rate the economy as only fair or poor.

Others, however, are more bullish. "We would expected a bit of a bump in 2004 because of the Olympic Games and the presidential election," Ken Kaess, the president and chief executive of DDB Worldwide, says. "But with the economy holding, we are seeing clients increasing their advertising spend across the board and across all media - there are no dead categories. The telecommunications, retailing and electronics sectors are all doing particularly well."

Chuck Porter, the founder and chairman of Crispin Porter & Bogusky, says: "I don't see any big trends, apart from clients being more selective and flexible when it comes to advertising budgets. Nothing is set in stone. There is no one-year plan. It's not necessarily a wait-and-see attitude - it's clients being more nimble."

Whatever happens in 2005, in 2004 advertisers were definitely flasher with their cash. Coen, whose annual predictions in his Advertising Outlook Report are regarded as an industry bellwether, struck the first note of optimism. "We are on an uphill trend. The recession is over," he announced.

The fastest-growing sectors, according to Coen (who has made predictions for Universal McCann since 1948), are the internet (up 20 per cent), cable TV, (up 14 per cent) and syndicated TV (up 13 per cent).

As for next year, Coen predicts spend on cable TV will jump 14 per cent to $16 billion and the four major TV networks will rise 10 per cent to 16.5 billion. Radio will grow 7 per cent to $5 billion, newspapers 6.5 per cent to $8 billion and magazines will rise 5 per cent to $12 billion.

"Despite the war in Iraq and a slow job market, the broad-based recovery in the communications industry has gained momentum, driven primarily by another strong year for consumer spending on media and accelerating growth in advertising spending," James Rutherford, the executive vice-president of Veronis, which predicted a 7.2 per cent rise in 2004, says.

Helping to boost 2004 figures were political advertising and the Olympics.

Political advertising's final tally is expected to be around $1.6 billion for 2004, according to TNS. From January to June 2004, an estimated $244.4 million was spent on behalf of the two major presidential candidates.

Advertisers scrambled for airtime in some hotly contested states, with some stations charging 20 per cent to 25 per cent premiums. For the second quarter of 2004, an estimated $128.7 million was spent on TV ads.

The Olympics contributed around $850 million - despite fears of terrorism and the usual drugs scandal stories - with unexpectedly strong ratings attracting many advertisers, such as movie studios armed with last-minute budgets. Thirty-second spots on NBC were going for around $600,000, with takers including Kodak, Anheuser-Busch and General Motors.

The one medium everyone is watching is television. Rising prices, falling audiences, concerns about the veracity of audience research and the threat from personal video recorders lead clients and agencies alike to question the medium. Upfront, the famously frenetic week in May where media buyers and sellers lock horns over prices of TV programmes, rose by only 3 per cent, compared with 15 per cent last year. Many media buyers, it seems, have turned to cable TV. While some cable networks predicted that in 2004 the sector would overtake broadcast in primetime ratings for the first time, with some $1 billion moving to cable, others suggest the final tally will be a modest $400 million to $500 million. "So many cable networks have much better programmes and are a lot more innovative," Brad Adgate, the director of research at Horizon Media, says.

As for clients pulling money out of television and spending it on other media, that is not happening ... yet. "The internet is growing the fastest, so clients are obviously putting their money there," Kaess says. "If you want to appeal to certain targets, you would be missing an opportunity if you ignored the internet, but network TV is holding its own and it's still an important medium."

"It will happen," Jeffrey predicts. "When I go into clients' offices, they all talk about the huge inflation with network television and the declining ratings. The more enlightened business leaders have a more informed view of technology - they are all terrified of TiVo and they believe they have to have more diversity in their portfolio of media.

"The second issue is what is going on with packaged-goods manufacturers, who are under siege by store brands. Now more than ever, building deeper, more holistic relationships with customers is vital. Packaged-goods manufacturers have traditionally been very conservative when it comes to media. Now, all of my packaged-goods clients want a big idea above and beyond advertising. They want to know how they can do stronger integrated programmes. The view that we need to be less dependent on TV is a very positive one - I don't see it as an issue."

In 2004, the networks took in $9.3 billion and ZenithOptimedia reported the top-ten US advertisers increased their broadcast spend by as much as 11 per cent in the first quarter of 2004, fuelled by General Motors, Toyota and Nissan. ZenithOptimedia projects broadcast network ad revenue for 2004 will reach $17.4 billion, up 7 per cent from 2003. A good portion of that will come from the $1 billion NBC took in for its telecast of the Olympics. In 2005, without the boost from the Olympics and the election, ZenithOptimedia projects that the broadcast network ad revenues will grow only 2 per cent to $17.9 billion.

Product placement represents about 1 per cent of all TV revenue, Coen says. "Half of it is off the ratecard and it could take years before we see it making an impact," he says. According to Kaess, product placement is evolving into branded content. "That makes cable more attractive, because it is easier to get programmes on," he says.

There is no doubt, however, that advertisers are exploring alternatives. Brad Simon, the vice-president of media services at Unilever, publicly stated that he expects to cut network TV this year, and McDonald's and Ford have also voiced concerns.

"It's too soon to tell whether it's advertisers just making a lot of noise, particularly with the Olympics and the election," Adgate says. "A telltale sign is how strong the scatter market is in the upcoming quarters. It does look as if Procter & Gamble and Coca-Cola and the car marketers are starting to siphon off TV budgets, though. Every year, the choices are getting more niche and it's hard to tell if it's a negotiating ploy or whether they mean business. TV is still the best medium to build product and brand awareness."

Measurability is another factor, with Nielsen launching products to measure smaller media, such as cinema. "You can also expect more dollars to go into media such as guerilla marketing," Adgate says. "It all comes back to accountability and advertisers wanting to get closer to consumers."

Cable TV will continue its strong growth through 2005 and spending is expected to hit $13.8 billion in 2004, according to Veronis Suhler. Spend across all cable is expected to grow at 11 per cent to $27 billion by 2008. "So many cable networks have much better programmes and are a lot more innovative now," Adgate says.

The internet's evolving creative capabilities continue to attract advertisers. For example, following in the footsteps of BMW's "hostage" internet series, in March American Express launched a four-minute "webisode" featuring the comedian Jerry Seinfeld, aimed at encouraging more users to interact with the brand.

And Burger King's "subservient chicken" website, launched earlier this year, became a huge cult hit almost overnight. "The internet is a major factor because advertisers know the medium's accountability," Adgate says. "That, plus the continued roll-out of broadband, will only increase its strengths."

In the business-to-business worlds, paid search is huge and growing, accounting for around one-third of future spend. The internet research company eMarketer says total online adspend will grow by 15 per cent to $8.3 billion this year, up from last year's $7.2 billion. One of the big drivers is the booming paid-search lists market, which is expected to triple in size by 2008.

The magazine sector is sluggish by comparison. In 2005, total magazine spend will creep up by 3.3 per cent, to $22.5 billion. On the positive side, one factor likely to fuel adspend is the continued roll-out of new products. "Every time there's a new product category or a change of position, there's going to be advertising," Adgate says.

Products, and the demand for them, have certainly fuelled one magazine category and hot trend: shopping. When Vogue created the Shop September Vogue website so its readers could buy the products advertised in its pages, it helped Vogue to publish its biggest-ever issue, with 647 ad pages. "What is really going to help magazines is creating more accountability, which this does," Adgate says.

Advertisers, meanwhile, watch and wait. "As long as the economy continues to grow, then advertising will too," Kaess says. Adgate adds: "All the marketing rules are changing but one thing remains the same: dollars follow eyeballs and always will."


2002 2003 2004 2005 2005 vs 2004

(pre- (pre- (year-on-year

dicted) dicted) % change)

Current Constant

prices prices

Television 51,640 51,610 55,504 57,403 3.4 1.1

Magazines 20,903 21,712 22,757 23,913 5.1 2.7

Newspapers 45,320 46,227 48,538 50,479 4.0 1.7

Outdoor 4,945 5,093 5,297 5,536 4.5 2.2

Internet 7,250 7,758 8,688 9,514 9.5 7.0

Cinema 275 303 339 379 12.0 9.5

Direct mail 40,330 41,540 42,869 44,498 3.8 1.5

Total 230,010 234,944 247,863 258,285 4.2 1.9

Source: ZenithOptimedia.

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