Forecasts: Why No Two Are the Same

And Why It's Worth a Couple Billion Dollars, Give or Take

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NEW YORK (AdAge.com) -- U.S. ad spending next year is set to grow a dismal 2.4%. Or maybe a rosier 4.8%, according to another forecast. What's the difference? A couple billion dollars, give or take.
 <a href='http://adage.com/directory/universal-mccann/139' class='directory_entry' title='AdAge Directory'>Universal McCann</a>'s Bob Coen spending figures are on the rosier side.
Universal McCann's Bob Coen spending figures are on the rosier side.
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point bug Pass the Bucks Chart


Last week's annual crop of ad forecasts from media agencies was, as usual, all over the board. Interpublic Group of Cos.' Universal McCann and Publicis Groupe's ZenithOptimedia made headlines last week with pronouncements that spending next year will grow 4.8% (Universal McCann's Robert J. Coen) and 4.1% (Zenith). WPP Group's Group M forecast just 2.4% growth.

Covering different media
But the agencies are measuring different things. Mr. Coen's oft-quoted estimate covers all media plus direct mail. The headline numbers for Zenith and Group M cover only major media, though both include direct mail in their comprehensive reports.

Agencies count numbers in different ways. Universal McCann and Zenith try to measure what advertisers spend-media costs, commissions and production costs. Group M, on the other hand, strives to report what media companies actually pocket as revenue, so its figures exclude commissions and production costs.
Adam Smith, Group M's futures director, says the best way to compare forecasts is to focus on growth rates, not dollars.

"Investment analysts, our principal audience, are I think most interested in growth rates, which would be the same whatever flavor the numbers," he said.

Based on the broadest measure of media reported by the firms (see "Pass the Bucks" chart above), ad-growth forecasts for next year are 4.1% (Universal McCann), 4.4% (Zenith) and 2.4% (Group M). Merrill Lynch predicts media growth of 2.7%.

Apples-to-apples measures
The best apples-to-apples measures come by comparing growth figures for the same collection of media. For a broad old-and-new-media pie-TV, radio, newspapers, magazines, internet-here's how '07 growth forecasts stack up:

  • Universal McCann: 3.8%
  • Zenith: 3.9%
  • Group M: 2.8%
How do forecasts track with reality? "They are not perfect," acknowledges Mr. Coen, who has been tracking ad spending since 1950. He believes his final spending figures for a given year are "probably within plus or minus 10% of what the truth is." Forecasts are a best guess.
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