Message to media: ad scenario remains bleak

The slump in global advertising is accelerating faster than first thought and will lead to double digit declines in ad spend across the battered newspaper and radio sectors as cash-strapped companies slash spending, a report has warned.

Global advertising spending will decline 6.9 per cent in 2009, the most in at least 29 years, according to a ZenithOptimedia report which contains some of the most pessimistic forecasts so far for the struggling sector.

A part of Paris-based Publicis Groupe, the world's fourth largest advertising group, ZenithOptimedia has revised its forecast for the year steeply downward, having predicted a decline of 0.2 per cent in December last year. The worldwide drop in 2009 will be the sharpest since Zenith started to track the data in 1980. 

Spending in Western Europe is expected to drop by 6.7 per cent, with Spain showing the steepest drop at 10 per cent, followed by the UK at 8.7 per cent. US outlays will slump 8.7 per cent, compared with a previous estimate of 6.2 per cent, according to the group, which advises companies on ad purchases. 

The drop will be 8.3 per cent in North America, 7.3 per cent in France and 5.5 per cent in Germany. "Since we released our last forecasts in December, the global ad market has taken a substantial turn for the worse," says the report.

Global spend on advertising across all mediums will fall from $486.7 billion in 2008 to $453.3 billion this year. Newspapers will see ad spending slump by 12 per cent year-on-year in 2009, while magazines are facing an 11 per cent decline and radio 10 per cent.

The report suggests that firms are treating advertising as a "discretionary expense - and one they find convenient to cut", with a recovery in spend possible only if profits start to pick up again.

This year's spending levels also suffer in comparison to last year because 2008 was boosted by such special events as the Olympics and the presidential election, the report notes.

According to the study, a slight recovery is due next year and will continue in 2011 - with global ad spend going up 1.5 per cent and 4.5 per cent respectively - but a bounce-back to the levels seen in 2007 is unlikely. Outlays in the US will drop 1.7 per cent in 2010 and gain 1.1 per cent the following year, it said.

This is the third time that Zenith has cut its estimates in about six months. While Zenith anticipated declines in the US and Western Europe in December, it didn't account for plunges in Brazil and Russia. 

''Since we released our last forecasts in December the global ad market has taken a substantial turn for the worse,'' ZenithOptimedia said. ''Ad expenditure correlates strongly with corporate profits, and the ad market is unlikely to start its recovery until profits start to pick up again.'' 

Internet rules
Internet will be the only medium to see increasing spending, boosted mainly by search advertising provided by companies such as Google Inc, the market leader. Online spending may gain 8.6 per cent to $54.3 billion. In the US, search advertising will rise 9 per cent, while display ads will shrink 1.8 per cent, Zenith estimates. 

However, it also points out that in the past few years, the number of sites has risen about twice as fast as online spending, most of which goes to the largest Internet companies. 

Television ad expenditure is projected to fall 5.5 per cent worldwide, but will at the same time increase its market share to 38.6 per cent from 38.1 per cent, as marketers seek to reach consumers who spend more time at home.

"Advertisers that cut budgets across the board will often cut television last, since they know it best and are convinced of its effectiveness. Some advertisers are taking advantage of reduced prices to build their brands and market share while their rivals concentrate on promotions and sales," says the report.

However, newspaper spending will shrink 12 per cent to $107 billion globally and magazines will drop 11 per cent to $49 billion.

Indian spend growing, but more slowly
Spending will fall in Russia and Brazil, compared with a December prediction for gains of 5 per cent and 30 per cent respectively, according to Zenith. Even the reliably faster-growing Asia-Pacific region is expected to see declines as trade falls off rapidly. The region is projected to decline by 3.4 per cent, as increases in China and India are offset by a slump in Japan, which comprises 38 per cent of ad spending in the region. Central Europe and Latin America also should see declines.

Singapore is seen declining 17 per cent and South Korea 20 per cent. Spending may gain 5.4 per cent in China and 6.4 per cent in India, down from previous estimates of 9 per cent and 13 per cent gains, it said.

Auto ad spending remains grimly weak with some pockets of optimism, such as in France and Germany where government incentives boosted auto sales and thus, advertising. Ad spending from the financial sector has fallen off sharply, but retail and packaged goods are holding up as they advertise good deals to cash-strapped shoppers, says the report.