Light at the End of the Tunnel?

Following relatively cheery forecasts for the online ad industry’s performance next year, recent reports peg the overall ad industry as poised for a rebound in 2003.

According to London-based ad agency ZenithOptimedia, the two-year ad recession will finally end next year, when the industry will post its first positive gain since the boom year of 2000. The slight 1 percent global growth, to $320.7 billion, will set the stage for another quadrennial ad bounce in 2004, buoyed by another round of U.S. presidential elections and the Olympics.

ZenithOptimedia’ optimism is shared by another agency, New York-based Universal McCann. Yesterday, the agency’s director of forecasting, Robert Coen, laid out the company’s bullish forecast for 2003, predicting worldwide ad spending to increase nearly 5 percent to $469.8 billion. In the following year, Universal McCann expects ad spending will consolidate its growth, surpassing the level set in 2000.

Both agencies took a positive view of the U.S. advertising industry’s 2002 performance, compared to other countries’ ad industries. ZenithOptimedia even called 2002 “a banner year” for the industry, with ad budgets holding steady in a weak economy.

ZenithOptimedia and Universal McCann warn that the incipient ad recovery could be thrown off-track by a prolonged war with Iraq inhibiting consumer spending.

The agencies’ forecasts for a rebound in the overall ad market echo recent predictions for online advertising’s growth next year. Last week, New York-based eMarketer said it expected online advertising would grow 5 percent next year, hitting $6.7 billion. By 2007, eMarketer expects Internet advertising will grow to $8.1 billion.

“We’re seeing that traditional companies are finding a place for Internet [advertising] as part of their marketing campaigns,” said David Hallerman, an analyst with eMarketer, adding that the medium had finally begun to move beyond direct response and into branding, thanks to work done by the Interactive Advertising Bureau and others.

The Online Publishers Association has also given a cheery assessment, saying last month that major publishers’ online ad sales had grown an average of 36 percent in the third quarter.

Still, unlike ZenithOptimedia and Universal McCann, eMarketer’s report does not expect the online ad industry to claw back levels seen during the dot-com-fuelled boom days of 2000 anytime soon.

“By 2005, we will be close to 2000 but not quite there,” said Hallerman.

The rebound for the Internet ad industry follows sharp declines in 2001 and 2002. eMarketer pegs the decline for 2002 at 11.5 percent, while Universal McCann forecasts a 5 percent drop. However, Universal McCann pegs interactive advertising as a smaller slice of the media pie, estimating online ad spending for 2002 at $5.5 billion.

The ad industry suffered a sharp downturn in 2001, as the sluggish economy was further slowed in the aftermath of the Sept. 11 attacks. However, Coen said that the economy proved resilient in 2002, with a moderate 2.6 percent growth rate now expected for the year. Advertising, however, did not bounce back as quickly as the economy, as businesses remained cautious in the face of continued economic uncertainty and the stock market’s slide brought on, partially, by Enron’s collapse and other corporate scandals.

Coen also noted that the plunge in dot-com businesses’ ad spending has finally leveled off. In 2000, dot-com branding spent $5.6 billion on advertising, before falling 52 percent in 2001 and a further 20 percent projected for 2002.

“The evolution of the Internet and dot-com marketing has not been a smooth and easy process,” Coen wrote in Universal McCann’s “Insider’s Report.” “But now, in less than a decade, there is a new marketing segment which should, in the future, become an additional and more important user of mass advertising.”

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