Marketing services to grow less than ad spending in '04

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Advertising spending in 2004 will finally top 2000's record, but traditional advertising will outgrow marketing-services spending for the first time in years, according to the annual forecast by media merchant bank Veronis Suhler Stevenson.

Veronis' annual "Communications Industry Forecast & Report" projects advertising spending will rise 6.3% this year, to $336.7 billion, the first time overall spending has topped 2000's $319 billion. Advertising growth will outpace the gross domestic product for the first time in four years, helped along by the economic recovery, as well as the added surge of spending surrounding the summer Olympic Games and the November presidential election.

For the first time since the start of the recession in 2001, traditional media spending will increase faster than spending on marketing services. Traditional media will jump 7.2%, while marketing services will be up 5.1%. Marketing services has outpaced or declined less than traditional advertising in the last three years.

The difference is a factor of the economic cycle, said Jim Rutherfurd, exec VP, Veronis. In recessions, when companies are more focused on the bottom line, they lean toward spending on marketing services, which can be targeted and measured more easily than traditional media, he said.

Traditional advertising is benefiting from the effect of the Olympic games and the election, but the trajectory should continue next year, as the economic recovery takes over for those one-time events.

Growth will come across all media, but business-to-business magazines will continue to lag. According to Veronis' analysis, the Internet is luring away advertising with targeted searches and other tools.

increased media use

Marketing services will tick up, thanks to increased spending on event sponsorship and public relations by advertisers looking to stand out in cluttered media while getting more for their money. "If you're an automotive advertiser, everybody in Nascar is an auto enthusiast," he said.

Mr. Rutherfurd noted user spending is overtaking advertising as a revenue source for the media companies, thanks to increased media use among consumers. New cable channels and new media such as interactive TV are raking in subscription revenues. Those new media face an interesting challenge, since they want to lure advertising revenue, yet their advertising-free nature is a big draw for the early adopters who make up their subscriber base right now.

"The pie itself is getting bigger. [But] there is continued reallocation of the pieces of the pie," Mr. Rutherfurd said.

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