One of the advantages that offline media like magazines, out-of-home TV have over online is this: budgets tend to move slowly. With most ad spending locked in for major media for the magazines and TV, Deutsche Bank analysts don’t expect the wild swings of the stock market to have much of an impact for the rest of 2011. But with the debate mainly centering on whether we’re at the start of a double-dip recession or just a mid-cycle slowdown, ad spending will likely be restrained.
With every day bringing a new shift in the stock market — plummeting on fears of a further European debt crisis one day, rising triple digits the next on better-than-expected jobless numbers — marketers are not going to automatically start cutting.
For now, the major ad holding companies, which have been emphasizing their shift to digital, is a good place to get a sense of where the rest of the year is headed. For the most part, WPP Group, Omnicom and Interpublic had pretty decent quarters. Nevertheless, Deutsche Bank analysts Matt Chelser and Patrick Kirby have cut the outlook for the ad industry from 5-to 6 percent organic growth rate to 1.5 to 2 percent, which they described as a pre-emptive move, given the lack of optimism about any major economic improvement and the increasing likelihood that things will get worse.
Given that whether its the Standard & Poor’s downgrade of the U.S.’ credit rating, or the stock market gyrations of the past two weeks, it all has to do with uncertainty, as opposed to economic conditions like housing or unemployment looking substantially worse. Given that the economy has remained horrible since the recession “officially” ended several months ago, the weakness has largely been factored in by marketers.
the speed and flexibility of online ad buys, especially considering the increased use of ad exchanges and real-time bidding, represents blessing and curse for web-based advertising. But so far, the momentum has been good, with most forecasters pegging online ad spending to the high single or double digits. That will probably be scaled back as marketers exhibit more caution.
In a conversation with eMarketer senior analyst David Hallerman, he told me the forecaster is not backing off its June prediction that online advertising 20.5 percent this year. Next year, however, is a little harder to predict.
In addition to factoring in weakness, the negative economic climate is not about to halt the migration from traditional media to digital, so while next year is looking uncertain, online is not likely to experience much of a pullback in ad spending.
As for Deutsche Bank’s outlook for the individual agency companies:
— WPP: Reducing 2011 organic revenue growth from 6-to 5 percent and 2012 growth from 4.9-to 1.8 percent. Among the risks it faces, aside from economic softness: failure to get the most out of its connection to analyst unit Kantar and overpayment for acquisitions.
— Omnicom: Target price lowered to $47 from $52. Overpaying for M&A is also a risk as well as losses of major clients.
— IPG: Target price lowered to $11 from $14.