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U.S. Ad-Spending Growth Slows Way Down

Pessimistic Outlook Offered by Universal McCann and PricewaterhouseCoopers

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NEW YORK (AdAge.com) -- Three new ad-spending forecasts out this week -- and even a report intended to gauge how consumers view various media -- paint yet another discouraging picture for traditional media.

Universal McCann's senior VP-director of forecasting, veteran Robert Coen, has dialed down his prediction for U.S. advertising growth this year from an already low 4.8% to 3.1% growth over last year.

The actual dollar amount of advertising growth will dip even further, to $290.3 billion from $298.8 billion, because the original forecast was based on a 2006 projected gain that did not materialize. Ad spending grew only 3.9% last year instead of 5.2%, despite bumps from elections and the Olympics.

"I can't deny it anymore," Mr. Coen said. "Things are pretty bad."

Spending by category
A more granular view offers relief to some. Drug-company spending in magazines was up 21% in the first quarter compared to the same period last year; food advertising in magazines was also up 11%. The auto industry, dealing with its own set of woes, however, cut spending 11% on national TV networks and 7% on spot TV. Automakers' spending in magazines was up only 2%.

The categories with bigger increases were computers, up 32% across national TV, spot TV and magazines; banks and savings-and-loan companies, up 53%; fitness and diet programs, with a 37% increase overall and an impressive 318% leap on national TV alone; and colleges and universities, up 27% including a 627% increase in national TV spending.

The media in which ad revenue increased in the first quarter were the internet, up 16.7%; direct mail, up 4.5 %; magazines, up 4.1%; the yellow pages, up 2%; and cable TV networks, up 1.4%.

Mr. Coen said the third quarter of 2006 saw a boycott-like drop in spending on the networks, perhaps in protest of rates rising much faster than inflation. Meanwhile, he said, cable had an uptick on better programs targeted to better audiences.

Emerging media
In conjunction with Mr. Coen's presentation, Brian Weiser, VP-director of industry analysis at Magna Global, offered predictions for emerging media, including search, digital billboards and social networking. The percentage gains there will be higher, Mr. Weiser said, but he cautioned that the absolute dollar amounts will remain low relative to traditional media and ad rates seem due for big shifts.

Keyword search advertising is likely to grow 29% to $8.8 billion this year and 26.5% to $11.1 billion next year, he said.

Revenue for out of home, especially digital billboards and digital networks on a local level, is likely to grow 25.8% to $1.4 billion this year and 24.7% to $1.7 billion in 2008.

Social networking also is expected to grow significantly, with revenue up 148% over last year, though that represents a rise to $685 million in 2007 from just $276 million in 2006. Spending has yet to match the interest or curiosity around online video, mobile marketing and gaming, Mr. Weiser said, attributing the disconnect to incomplete infrastructure; the prevalence of experimentation; and, in the case of mobile, the frustrations of working with multiple wireless carriers.

Hazarding a guess at combined traditional- and emerging-media spending growth, Mr. Coen estimated that 2007 would see a 3.5% expansion overall.

PricewaterhouseCoopers' outlook
Over at PricewaterhouseCoopers, the outlook for total ad-revenue growth in the U.S. is even worse than Mr. Coen's. The company predicts U.S. ad spending will increase only 2.9%, down from 5% last year.

Ad spending at broadcast and cable TV networks is expected to grow 4.9% this year, just off last year's 5%, according to its new Global Entertainment and Media Outlook.

Magazines can look for a 2.3% pop this year after a slightly better 2.7% expansion last year. Radio is in line for a measly 0.7% increase this year after a 0.1% rise last year. And newspapers can expect to lose 1.5% of their ad revenue this year after slipping 0.3% last year, the company said.

Faring better: out-of-home, which will grow 8.9%, and the internet, in line for 25.6% growth.

Perception problems
But don't just follow the money. The internet is passing radio, for example, not only in share of ad dollars but also in public perception, according to the recently released Internet and Multimedia 2007 report from Edison Media Research, a firm that specializes in radio research and exit polling.

Some 33% of consumers 12 and older called the internet the most essential medium, behind TV at 36% but way in front of radio at 17%. Compare that with the results of the same question asked in 2002, when 39% named TV, 26% named radio and only 20% chose the internet. (In both studies, Edison surveyed about 2,000 people who kept Arbitron radio diaries.)

Newspapers were named the least essential by 35% of respondents, enough to secure the medium that dubious title. The web was both the second-most essential and the second-least essential. Both radio and TV were called least essential by 18% of respondents.

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Contributing: Abbey Klaassen

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