US advertising spend is expected to recover in 2003 driven by key consumer categories such as the au...
US advertising spend is expected to recover in 2003 driven by key consumer categories such as the automotive and entertainment sectors.
Principal and manager of economic analyst group Global Insight's media practice, John Rose believes after a disastrous 2001 and a mixed 2002 there is good news ahead for the sector.
Rose says although the economy may be sluggish, he feels 2003 will be an outstanding year for media companies as advertising recovers. He sees the chief factors pushing the recovery as being increased corporate profits, solid retail sales and growing consumer income.
Between 2001 and 2002, the S&P 500 US Advertising Index fell 49.53%, in dollar terms, compared to a fall of 31.34% in S&P 500. A study conducted by Global Insight concluded radio, cable television, and the internet will be the major beneficiaries of increased spending on advertising. The market analyst predicts these media outlets will experience annual average increases of 10%, 7%, and 16%, respectively, between 2003 and 2006. Newspapers, outdoor advertising venues and television will also benefit, but at more modest rates of growth, Rose says.
The survey attributes increased advertising spending by the entertainment, wholesale trade, and other services sectors as the primary sources driving this growth.
Rose says: 'This is very good news for the advertising market in general, and a ray of sunshine for the economy as a whole. Hard-hit media companies such as AOL Time Warner, Disney and Viacom will feel substantial relief in 2003, as corporate profits improve with increased retail sales driving advertising spend throughout the year and on into 2006.'
Chris Lees, manager for Baring American Growth Trust believes the consensus for 2003 is for moderate growth in advertising spending, somewhere in the 3% to 5% range.
Lees says most analysts are making relatively conservative assumptions given the Iraq situation. According to Lees, the automotive, entertainment and pharmaceutical industries should be the leaders in advertising spend.
He says: 'Media companies will continue the trend of being confident with regards to a slow recovery, so as not to give the upper hand to advertising buyers, while at the same time being conservative and cautious with Wall Street.
'Automobile advertising is going to show above trend growth in 2003 driven by strong new product introductions. There are no signs this category has weakened. Pharmaceutical advertising is also on the rise but magazines and newspapers are losing share to television.' Lees warns that although the advertising industry is recovering it is still fragile and several major media companies still have succession and management issues to resolve.
He adds: 'ABC has been stabilised but is still far from profitable, stock is expensive on a free cash flow basis and the balance sheet is ugly. Newspaper stocks are trading at all time high valuation levels with rising newsprint costs and they look vulnerable.'
Lees believes the dichotomy between niche content providers and general audience networks is widening, with advertisers paying up for the former.
Growth expected in future.
Improving corporate profits aiding recovery.
Retail sales picking up.
Potential impact of Iraq war.
Sluggish economic growth.
Modest advertising spend expected.
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