Carat: Modest Ad Growth to Return in 2010

October 5, 2009

Though the 2009 ad market decline has been worse than expected and global ad spending is now forecast to be down nearly 10%, Aegis Carat predicts that there will be a very modest return to growth in 2010.?

Carat’s latest revised prediction for 2009 now stands at -9.8%, a downward revision of 4.0 percentage points from -5.8% in its estimate in March 2009. This decline, Carat said, comes with a significant reduction of forecasts in all regions, with the exception of Asia Pacific where the 2009 forecast has been revised marginally upward to -0.3%.

Only online advertising is expected to show growth this year; reaching 10.0% of global adspend, while the only region forecasting positive overall growth this year is Latin America (0.5%).

Slight Return to Growth in 2010

Although global spending for 2009 has been cut back considerably, Carat still predicts a slight return to growth in 2010, at 1.0% globally, driven by much more stable conditions in the West and recovery in developing markets, particularly China.

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“These significant revisions are not unexpected in the context of the recent volatility of the market, and represent a cautious attitude towards adspend this year, most significantly in the US and Europe,” said Jerry Buhlmann, CEO of Aegis Media.

Buhlmann said that China remains the most resilient of the major economies, resulting in an upward revision of Carat’s March estimate, to 6.9% for 2009.

“We expect the market to bottom out in North America and Europe, and to improve further in developing markets,” Buhlmann added.? “Even after that initial recovery, however, the global advertising market will still be below its absolute 2006 level.”

Ad Spend by Country/Region

Of the world’s largest advertising markets, the most notable revisions have occurred in the US, Russia, Italy, Germany and the UK. Lesser downward revisions were made for Spain, France and Canada, Carat noted.

In the US, advertising spend in H109 was well below H108. Previously committed activity was scaled back while significant incremental spending never materialized. The current full year projection for 2009 is – 16.3% (March 2009 forecast of -9.8%) with significant recovery now not expected until the second half of 2010 at the earliest. Moreover, all major media categories are tracking below last year:

  • National TV and radio have been holding up better because of their ability to drive strong reach and awareness.
  • Newspapers continue to be hard hit by both the weak economy and consumers spending more time online. At the same time, the real estate and automotive categories have cut back sharply and classified advertising is weak.
  • Digital losses have been softened by some traditional media spend shifting over and the continued strength of search advertising. Online video has also experienced growth; however online display has been much more negotiable in terms of price.

In the UK, Carat is predicting a reduction of -11.7% (vs. a previous March 2009 forecast of -7.1%), with hopes of a Q409 market recovery now unlikely. With the exception of internet and cinema, all other media are forecast to suffer a double digit decline year on year:

  • TV (-11.9%), radio (-12.6%) and outdoor (-12.2%) have all been hit by roughly the same decline.
  • Newspapers and magazines have been hit the hardest, -20.3% and -16.3% respectively.
  • Modest growth is forecast for 2010, with the World Cup expected to benefit the market, however a recovery is not forecast to be properly underway until 2011.

In Italy, ad spend is expected to decrease by -12.4% this year, almost twice the pace of decline of the March estimate of -6.5%. The forecast for 2010 is for a smaller negative drop of -1.0%, with a possible recovery in 2011 of +1.9%. The print market has been hit badly, with newspapers down 20.4% and magazines down 24%. TV reaffirmed its leadership and although it is also experiencing a decrease in spend for 2009 (-10.2%), its losses will be lower than the market average.

In Russia, market volumes are now expected to decrease by 21.9% (vs. a March 2009 forecast of -8.6%). Print and radio ad spends are expected to show the most significant declines, followed by OOH. TV and the internet are expected to be more stable.

In Germany, ad spend is forecast to decrease by -7.0% (vs. a March 2009 forecast of -2.2%) this year, with declines in the H1 of the year not seen since 2002. Cinema saw the strongest declines, followed by consumer magazines. Newspapers have revised down forecasts, however in comparison with other media and bucking the global trend, the losses have been limited.

On a brighter note, the gloomy outlook in the US and Western Europe is not repeated in Asia Pacific and Latin America, where revisions since March have been less severe. In China, the forecast for 2009 has been revised upward from 4.6% to 6.9%, even though advertisers are proceeding with caution and adjusting spend on a quarterly basis.

The outlook for the smaller markets of Central and Eastern Europe has deteriorated from a forecast decline of 8.2% to 18.4%; and in the Nordics from -5.6% to -19.2%.

Ad Spend by Sector

Online advertising remains the only area of the media that will see growth this year, estimated at 1.0% globally, Carat said.

Online growth remains in double digits in the markets of Asia-Pacific and Central and Eastern Europe this year. However, low single digit growth in Western Europe and a decline in the US have led to a downward revision in forecasts. Online growth should continue to make significant progress in 2010.

Of the sectors, TV and cinema continue to hold up best, reflecting the relative popularity of cinema and home entertainment during the downturn.

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In terms of the projected share of global advertising by sector, online is set to meet the 10% of spend level for the first time during 2009-2010. TV is also predicted to grow its share in both 2009 and 2010, with newspapers and magazines losing out and other categories remaining broadly flat.

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