Throughout the past six months, global ad spending forecasts haven’t been revised down that much. Meanwhile, online ad growth has continued to look resilient. With stock market indexes plunging — the Dow Jones (NSDQ: NWS) industrial average fell 512.76 points (4.31 percent) yesterday and the Nasdaq dropped 136.68 (5.08 percent) — fears that the U.S. economy might be heading for a double-dip recession have increased.
The painful jolt of the past nine trading sessions would appear to suggest that even the relatively anemic global ad spending projections — and the increasingly rosy online forecasts, such as eMarketer’s recent call for a 20.2 percent gain this year — appear a little too sanguine. But with economic signs having been so lousy all year long, maybe it’s the stock market that’s catching up to the reality that advertisers and agencies have already absorbed. In other words, it’s very possible that even in the face of a worsening economy, online advertising will not experience much of a reversal.
Last month, sensing the chillier economic winds, ZenithOptimedia pulled back on its ad forecast for the same reasons that the stock market has been battered the past few days: no end to high unemployment and the seeming inability of governments to solve their respective debt crises.
Revising downward: Zenith revised its global ad spending outlook downward ever so slightly to a decent 4.1 percent rise from April’s prediction of a 4.2 percent gain. In addition, global internet advertising was also dialed back just a bit to a still robust 14.2 percent from 14.4 percent three months ago.
Other recent projections, such as WPP’s GroupM expects global ad growth of 6.8 percent in 2012 called for slowing growth, while online was still expected to grow even faster than previously thought, rising between 15- to 16 percent a year through 2012.
Vulnerable ad categories: That’s not to say that certain bellwether ad segments won’t be doing some retrenching. Among the categories that look the most vulnerable at this point: autos, which have fueled the comeback in ad spending since last year, along with financial services, naturally enough. Tech and fashion/cosmetics are also expected to experience a downward drift. Despite the continued high unemployment, newspapers had been seeing help wanted and real estate declines ease somewhat in the past several months — that half-turnaround is now in jeopardy as well.
Weak expectations factored in: Unless the past few days market volatility was just a pent up reaction to the unsatisfying conclusion to bitter debt ceiling negotiations in the U.S.
So far, at least one forecaster says that the fragility of the recovery this year has led to extra circumspection in terms of the projections.
“The market makes the news,” said Magna Global manager Alex Feldman in an e-mail message when asked if the current events have changed the IPG forecaster’s outlook. “I think many people underestimated the extent to which this recovery was built on shaky foundations but Magna’s forecasts have consistently been cautious. The stock market plunge is simply a function of the economic fundamentals catching up with investors. When I was interviewed earlier this year by another publication, I said that weak retail sales and poor manufacturing surveys were pointing to first signs of weakness in the economy, leading to a downgrade of our growth expectations for the advertising economy.”
Online still looks okay: Though advertising as a whole is a cyclical business, the secular trend of online capturing a greater share of total revenues will continue, Feldman added.
In 2011, Magna maintains that online advertising is expected to account for 17.3 percent ($30.1 billion) of total ad revenues and we expect this share will grow to 22.4% ($47.4bn) in the next five years. The average growth per year will be 9.5%, which is quite strong in an economy expected to grow in the low single digits, on average.
Silver linings: Even with this latest economic scare, online still looks pretty secure, Feldman said. “The pace of innovation is strong and consumption of entertainment tends to remain healthy during recessions,” he said. “For a growing number of people, the Internet is their entertainment hub. Advertisers realize this and in terms of building awareness, online ranks second only to TV for key verticals. For other verticals, especially those that don’t involve big ticket items, the Internet user is closer to a purchase decision than a consumer of any other medium.”
One of the silver linings in the execrable economic recovery has been that it hasn’t felt like a recovery to many people. Feldman argues that consumers, in addition to marketers, agencies and media companies, have adopted a more frugal stance, in part because so many have remained underemployed or jobless. This “DIY economy” can actually spur innovation and that puts online at the center.
“Young people are less defined by careers now than in the past and more by their interests and experiences,” Feldman. “If we have an idea we can use the Internet to implement it and if we want to communicate with our friends or those with similar interests, social media makes that possible. This is an economy where people want and I think, more importantly, need to be inspired by experiences, images, people they know, trust and can identify with. Advertising will still play a prominent role, it just needs to work within a new set of rules.”
Not worse, but not better: It all sounds pretty reasonable. After all, ad spending decisions are mostly made months in advance. Though they can be changed, it’s safe to say that there will not be an abrupt cut in campaigns. But within online, display has been the growth driver. Much of that new money has come in the form of branding dollars, as display has finally started to move beyond static banner ads to formats that offer a larger, more creative canvas and greater interactivity. Still, it’s a truism that marketers tend to shift dollars aimed at “awareness” to direct response, which is generally cheaper and based tightly on return on investment.
The memories of negative online ad spending numbers of 2009 are still fresh. And if the recession proved one thing, it’s that online is not immune the wider movements of the economy. So for now, things are not likely to change drastically. And while things may not look all that much than two months ago, it sure isn’t looking any better.