THE AD ECONOMY: 'STORMY AND POOR'

Published on .

June 18, 2001

By Jon Fine

NEW YORK (AdAge.com) -- This year's Mid-Year Media Review, being held at New York's Essex House, started off on an appropriately down note from two people who personified the bad news coming from advertising and media companies last week.

"It didn't look like it would get extremely stormy and poor," Robert J. Coen, Universal McCann senior vice president, said today, explaining why he cut his forecast for total U.S. ad spending for 2001 from 5.8% to 2.5% last week. Mr. Coen thus kicked off the conference, which concludes Wednesday, by noting that ad growth would be the most sluggish since ad spending declined in the recessionary year of 1991.

Major marketers spending less
Mr. Coen, whose ad spending forecasts have long been a staple of year-end and midyear conferences, fleshed out the details behind his changed reasoning. For the first quarter of this year, Mr. Coen said, automotive, the largest ad category, was down 7%, and the next largest one, drugs and remedies, is flat.

"Too many marketers are up against real problems, and advertising is easily postponable," Mr. Coen said.

Mr. Coen expects overall national ad spending to rise 2.1%, and local ad spending to rise 3.1%.

Elsewhere, economic indicators led Mr. Coen to posit a 1.9% gross domestic product gain for the year -- down substantially from what he predicted in December. "That level of economic growth is not enough to sustain" levels of growth he originally foresaw, Mr. Coen said.

"The one thing that's hard for finance people to fake is revenue," said Interpublic Group of Cos. Chief Financial Officer Sean Orr, by way of describing how his company's cost-cutting efforts were chasing the tailwind of declining revenue.

An 'ugly' picture
On June 14, IPG cut its guidance for its second-quarter earnings estimates by about 25%. Said an occasionally tense Mr. Orr: "The short-term financial story is an ugly one. Period. Full stop."

Tommorrow's vote by True North Communications shareholders on the company's acquisition by Interpublic restricted Mr. Orr's comments, but he weighed in freely on how dreadful 2001 has been -- and will be. He said that Interpublic was in cost-cutting mode, but he warned analysts that it was impossible to cut costs as quickly and as cheaply as the company could in the U.S.

"I don't think anyone in this business has seen [as] rapid deterioration" in the ad market as what's going on today, Mr. Orr said, repeating what has become industry conventional wisdom. Among Interpublic's businesses, Mr. Orr said the ad market is "very, very weak," marketing services were "a mixed bag," and while public relations services are "holding up," that could slow down later this year.

The industry's rise and fall
The ad economy's rise and fall was perhaps best illustrated by one of Mr. Coen's presentations on dot-com ad spending -- a category Mr. Coen stressed was not among the ad world's largest. Still, the numbers were shocking. Dot-com ad spending showed triple-digit growth in every quarter of 1999 and in the first two of 2000, before tailing off to 77% growth in the third quarter of 2000, 15% growth for the final quarter of 2000, and a 40% decline in the first quarter of 2001.

A minor bright spot came when Mr. Coen took a crack at a 2002 ad spending forecast -- "What the hell, [previous forecasts] are all falling down, anyway" -- in which he suggested that the Winter Olympics and election-year-related spending would drive overall ad spending up 5%.

One trouble spot: The indicator newspaper publishers most closely monitor to temperature-check local economies -- classified advertising -- was down a sickening 8.6% in the first quarter of 2001.

Copyright June 2001, Crain Communications Inc.

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