Advertising Forecasts Call for Mild Gains

With the holidays approaching, it’s time for advertising prognosticators to proclaim their sector forecasts for the new year.

From what they’ve predicted so far, it looks like there will be some coal lumps in spending stockings during 2007, with growth expected to be lukewarm at best. And spending on TV ads could be particularly soft.

Predictions from agencies Universal McCann, Group M and Zenith Media, as well as Wall Street analysis from Merrill Lynch, differ somewhat on the particulars. But their consensus is that advertising spending growth in the U.S. will slow in 2007 from levels in 2006, a period that benefited from the Winter Olympics in Torino, Italy, and from a hotly contested midterm election cycle.

U.S. advertising expenditures also are expected to lag behind global gains.

Speaking at the UBS conference in New York on Dec. 4, Robert Coen, senior vice president and forecasting director at Universal McCann in New York, projected total U.S. ad sales would total $285.1 million in 2006, a 5.2% advance from 2005.

That’s down from Coen’s initial annual forecast (in June) that called for a 5.6% improvement in 2006, because spending within some large categories, including automotive companies and local marketers, have not measured up to expectations.

As for 2007, Coen now believes U.S. ad budgets will improve at a 4.8% clip, to $298.8 million. That’s a full point below the 5.8% growth rate that Coen predicted in June.

“We expect quite modest growth in U.S. advertising in 2007 with a gain of only 4.8% for a forecasted total of $298.8 million,” Coen said. “It will probably not be until 2008 or later until a significant improvement in ad activity reappears.”

Steve King, worldwide chief executive of ZenithOptimedia, also revealed his shop had pegged its domestic forecast for 2007 downward from 2006 growth.

King said U.S. advertising growth would improve 4.2% in 2007, versus 4.8% this year.

He pointed to softness in the TV sector overall as one of the key reasons for his shop’s revision. Indeed, Zenith is predicting only a 0.5% uptick in television ad spending, with broadcast television sales off 1.5%.

Group M, in its “This Year Next Year” marketing forecast series, indicated media budgets in the U.S. would grow 2.7%, to $161.4 billion, when ledgers are closed on 2006. Next year, that total could increase 2.4% to $165.4 million.

Merrill Lynch advertising and publishing analyst Laura Rich Fine issued an upward revision for next year — albeit at lower growth levels than forecast by the advertising agencies.

“We are maintaining our top-down U.S. advertising growth forecasts [excluding direct mail] at 4.5% in 2006, but are slightly raising our 2007 outlook to 2.7% from 2.5%,” she wrote.

Measured around the world, advertising expenditures could grow 5.5%, to $314.4 billion, according to Coen, who predicts that total will increase 5.8%, to $332.6 billion, in 2007.

Group M’s projections call for a 5% gain to $394.5 billion this year, with that rate likely to be matched in 2007, pushing international ad spending to an approximate $414.1 billion.

In breaking down its 2007 U.S. forecast, Universal McCann estimated spending on national cable networks would grow 6.5% to almost $20.4 billion.

That growth rate leads all TV sectors.

Coen predicted ABC, Fox, NBC and CBS would collectively score a 3% gain in 2007, to $17.4 billion, while syndicated fare would notch a 6% increase to $4.3 billion.

His agency expects ad spending on local TV to expand 4% to nearly $15.6 billion.

Conversely, advertising on syndicated fare is likely to be flat, at just over $11.1 billion.

The growth in Internet advertising by national advertisers will moderate, according to Coen. After posting an anticipated 20% jump in 2006 to $9.3 billion among that group this year, national advertisers are only expected to up the ante on that medium by 15%, to $10.7 billion.

Group M has a higher estimate. It projects Internet media spending will rise at 28% on a global basis next year, following a 27% gain in 2006.

In its report, Group M said Internet spending accounts for 6% of global ad spending. “Including search [engine advertising] in all major markets, it is at least 8% and adding a point each year,” the report said. “On this basis it is already 14% in the U.K. and conservatively 12% in the U.S.A.”

Merrill Lynch’s Rich Fine analyzed prospects in various advertising categories, pointing to 2% growth in both 2006 and 2007 for automotives, the ad industry’s top spender.

“After rising for eight of the last 10 years, we forecast 2% growth this year and next as we expect continued growth in spending per unit, but we are forecasting a 3% decline in U.S. light-vehicle demand for both years,” she wrote in the report.

Elsewhere, she projected airlines, given strong demand and capacity, are not looking to increase their advertising spending. And she doesn’t foresee significant growth in the entertainment realm.

“The majority of studio-generated advertising is related to new film releases, which are unlikely to grow in the coming year,” Rich Fine said.

While there was positive news relative to ad spending by hotels — Rich Fine estimated it would advance 8% to 9% next year — there are changes afoot that could have an effect on cable.

That medium, and periodicals, could see dollars diverted to the online arena, a sector where marketers could earmark as much as 20% of their budgets, she said.