"We don't think there will be a recession, but it seems to be remotely possible," said Robert J. Coen, senior VP-director of forecasting for media agency Universal McCann at the UBS Media & Communications Conference Dec. 3 in New York.
Steve King, CEO of London-based ZenithOptimedia, said, "Unlike in the periods leading up to the last two ad recessions, advertisers have not been increasing their budgets faster than warranted by economic growth." He said in the last few years, ad spending has roughly tracked the economy, remaining at 0.92% to 0.93% of GDP, whereas before the last two ad recessions, that proportion increased rapidly and peaked at 1.08% in 1989 and 1.06% in 2000.
Global advertising to rise 4.6%
U.S. advertising is expected to grow 3.7% to $294.4 billion in 2008, and global advertising is expected to rise 4.6% to $653.9 billion, Coen said.
"Economies of most of the biggest, most important markets are doing a little bit better than the U.S.," he said.
King predicted global ad spending will grow 6.7% to $485.5 billion next year. He forecast a 4.1% increase in U.S. ad spending to $194.9 billion.
A third forecast, from media agency GroupM, came out the day after Universal McCann's and ZenithOptimedia's. It predicted worldwide ad expenditures would increase 7% to $479.0 billion, and U.S. ad spending would rise 3.7% to $168.6 billion.
The forecasters agreed that important drivers of ad spending next year will be the Summer Olympics, U.S. presidential elections and Euro 2008 football championship, as well as continued investment in online advertising.
Developing markets have become the main contributors to global growth, compensating for slow growth in developed markets, according to ZenithOptimedia.
Emerging markets booming
King said North America typically grows 3% to 4% every year; Western Europe, 5% a year; and Japan has hovered between 0% and 2% growth. By contrast, developing markets—Central and Eastern Europe, the Middle East and Asia-Pacific—are growing at double-digit rates.
"The ad market's center of gravity is shifting to the east," King said, adding that by 2010, China will be the fourth-largest advertising market and Russia, the sixth.
GroupM agreed. In his "This Year, Next Year" study, GroupM Futures Director Adam Smith reported that "5% of global advertising investment is expected to shift from developed to emerging economies in 2008, the largest such shift ever recorded."
While overall forecasts for next year are muted, the story for this year is grim. In December 2006, Coen forecast that U.S. ad spending would rise 4.8% this year, a number he called "cautious." He adjusted his growth forecast down to 3.1% in June. Now that 2007 numbers are close to being finalized, he pegged the increase at a scant 0.7% to $283.8 billion.
"It's not going to be a very good year, no matter how those finals turn out," he said. "The state of the advertising industry right now is not too great."
Coen noted the desire for growing corporate profits has intensified and marketers have fiercely opposed media price increases. "I think generally marketers are putting a real squeeze on their budgets," he said.
The Internet played a role, too, siphoning off money from advertising in traditional media. In fact, Internet spending was the only bright spot this year, as online budgets grew 20% to an estimated $10.9 billion, according to Coen. All other media measured grew by single digits or not at all.
ZenithOptimedia said Internet spending grew 32% this year, while all other media measured grew by single-digit percentages. It also predicted Internet advertising will pass three milestones in the next three years: It will overtake radio advertising in 2008, attain a double-digit share of all global advertising in 2009 and overtake magazine advertising in 2010.
"The Internet last year overtook outdoor as a category," King said.