Old 04-30-2008, 11:20 AM Offline   #1 (permalink)



 
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Default Recession? Not in the Advertising Business

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You don't need to be all doom and gloom about it.
Sure, the U.S. could be in a recession. Consumer confidence is declining. Food and gas are so expensive it's more cost-effective to stay home and diet.
But the advertising business (of all things!) is actually benefiting from the painful spectacle of the traditional media landscape fragmenting into shards. The internet is continuing to oust broadcast TV, print and radio from their once-secure position as the automatic repository for ad dollars, and the complex environment thatís been rattling the advertising and media industries could actually function as an economic buoy during these hard times.
Here's how it works. Advertisers and the companies that service them now need a multitude of ways to drill their messages into the public consciousness. That desperation plays right into the hands of the giant holding companies that now own everything from traditional ad agencies to media planning and buying businesses to PR firms to promotions specialists to digital advertising agencies with expertise in hot, new areas like search-engine optimization.
Clearly there's pain; but it's not being evenly distributed right now.
Just compare Google's results and those of The New York Times Co. Google recently reported a 42 percent jump in revenues in the first quarter of 2008 over the same period in 2007. Nearly half of the revenue came from the U.S. and the figures arenít inflated by the acquisition of DoubleClick. Meanwhile, the Times saw revenue slip 4.9 percent and advertising revenues drop 9.2 percent.
Now looking ahead, Google and the rest of the digital-advertising world are expected to grow just a little slower this year than they would have otherwise. But for Google, a bodacious 42 percent rise in revenue appears lackluster compared with the 63 percent year-over-year pop it saw in 2006 and 2007.
A market-research company, eMarketer lowered its 2008 growth forecast for online ad spending from whopping 29 percent in October 2007 to measly 23 percent in March 2008. You get the gist.
Marketers are still spending online and will continue to, whether it's through paid search, banner ads, video, viral ads, email, or even coupons. Spending on online promotions, which includes tactics like contests, coupons and rebates, will triple over the next five years to $22.8 billion from $8 billion in 2007, reports a new study from research firm and consultancy Borrell Associates.
Online marketing and advertising also has a leg up in a stressed economic environment, because the return on investment is significantly easier to track and explain to the boss.
Meanwhile for the newspaper industry, the weakened economy and the rise of the internet is a perfect storm. A report from Deutsche Bank on Gannett said, "The ad trends remain weak, and there are no positive catalysts in sight."
U.S. newspaper circulation has been on a downward slide for the last 20 years and it drops more significantly in areas of higher broadband penetration, according to global ratings agency Fitch Ratings. Just Monday, a Reuters analysis of a new release from The Audit Bureau of Circulations shows that U.S. newspaper circulation fell 3.6 percent during the six months ending in March 2008 compared with the same period a year earlier.
Circling back to the ad industry: Those holding companies who have reported their first-quarter results all have shown good organic revenue growth in the United States, in part because of the diversity of their services, says Alexia Quadrani analyst at Bear Stearns.
Omnicom, the largest marketing-services holding company by annual revenue, just announced organic growth in the U.S. at 6.7 percent in 2007, just 1 percent lower than in 2006. Randall Weisenburger, Omnicom Groupís executive vice president and C.F.O., characterized Omnicomís outlook for the year as "cautiously optimistic," in his February conference call announcing annual results to analysts. "Weíve been to this movie, and weíll weather it very well, I think," he said.
Last Friday, WPP Group, Omnicomís closest competitor, announced 5.1 percent like-for-like revenue growth for North America, as opposed to 3.9 percent in 2007. "North America remained relatively strong and better than last year, and global revenues were in line with budget," materials for its first-quarter trading update stated.
Most recently, holding company Publicis Groupe announced organic growth in North America to be 5.3 percent after registering just 3.1 percent last year.
Havas, another holding company, saw 6 percent organic growth in the U.S. compared with -0.8 percent in 2007 over 2006. "North America saw a significant increase in growth across all our businesses," the company announced.
Underlying the health of these companies is that the advertising market may be slow to grow, but it's not declining. And if there has been a flash freeze, it started closer to the beginning of 2007, says Jon Swallen, senior vice president of research at TNS Media Intelligence.
Both Nielsen Media Research and TNS have reported U.S. ad spending grew under 1 percent in 2007. Meanwhile, marketers are known to believe that cutting back advertising in a time of economic unrest only exacerbates their inability to sell product. When you throw in this year's Olympic Games and presidential election, the advertising market is likely to grow faster than it did in 2007.
In the media space, however, these special events are likely to benefit the few: NBC, which is airing the Olympics; specific local broadcast stations located in areas of the country where candidates need to fight for votes; and 24-hour news networks. Unlike advertising companies, who can easily diversify their services by acquisition to meet the newest demands of their clients, TV networks are still TV networks.

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