Expansionary Institute

Dotcom Ad spending to remain strong for 2001 and beyond

Dotcom Ad spending to remain strong for 2001 and beyond

Thanks For the Ride: Dotcom Ad Spending Moves On; Zenith Media Forecasts Worldwide Advertising Expenditure Up 8% in 2000 to $332 Billion; Only 6% Sustainable for 2001 and Beyond

NEW YORK & LONDON--(BUSINESS WIRE)--Dec. 4, 2000--

-- US adspend growth peaked as expected in 1999 at 8.9%: dotcom

momentum takes 2000 growth to 8.1%. Quadrennial/dotcom void

cuts 2001 growth to 4.6% but setback temporary as economy

soft-lands with plenty of consumer demand on board.

-- Europe growth also peaked as forecast in 1999 at 8.8%. 2000

close at 8.6% with robust consumer confidence and strong

demand from most advertiser categories. Dotcom has less far to

fall than in the US leaving 2001 growth predicted at 6.7% and

Europe supplying 30% of global adspend growth next year

(2000=29%) to North America's 34% (2000=45%) contribution.

-- Emerging Asian adspend rising 19% in 2000 but heavy exposure

to slowing global economy underlies 2001 prospect of 16% and

falling. Advertising growth in Japan remains effectively

dormant: Japan share of Asian ad sector expected to fall from

56% today to under 50% in 2003.

-- The ad-spend cycle typically runs ahead of and exaggerates the

economic cycle. Economic activity is expected to slow in these

forecasts. But advertising expenditure is remarkably stable.

It is still cyclical but appears to be less volatile i.e. it

is becoming more of a fixed cost of doing business.

-- This is consistent with its steady rise as a percentage of

GDP, suggesting the marginal utility of advertising is growing

in free economies. The new medium of the internet accounts for

2% of global advertising spend but does not alone account for

this apparent rise in advertising effectiveness.

-- We assume a robust but slowing global economy containing

plenty of consumer impetus, but recommend a close watch be

kept on weakening corporate profits, a mainspring of

advertising demand. Lower profits will eventually mean lower

investment and weaker productivity gains. Even good profits

could not sustain the present rate of productivity

improvements in the USA.

-- Why a soft and not a hard landing? Risk is diversified across

a more closely integrated, generally better-governed global

economy. Lasting productivity gains will help absorb

potentially inflationary consumer demand. Unemployment is a

lagging indicator', and may take a while to adjust to a

slower global economy.

-- There are however obvious things which could accelerate the

landing - principally a sharp depreciation in US assets and/or

the dollar - but in our view the risks are not materially

greater than a year ago.

World advertising expenditure summary

Major media (TV, press, radio, cinema, outdoor)

(US$ million at current prices)

1999 2000 2001 2002 2003

North America 134,890 145,684 152,470 160,416 168,613

Europe 80,559 87,462 93,353 99,201 104,732

Asia/Pacific 62,139 65,782 69,758 73,587 77,578

Latin America 22,248 24,244 26,573 28,787 31,175

Africa/M. East/ROW 7,739 8,575 9,508 10,495 11,434

Total 307,576 331,746 351,664 372,486 393,531

Internet 5,357 7,668 10,919 14,293 17,874

Year-on-year change (%)

Major media (TV, press, radio, cinema, outdoor)

2000 v 1999 2001 v 2000 2002 v 2001 2003 v 2002

Cur- Con- Cur- Con- Cur- Con- Cur- Con-

rent stant rent stant rent stant rent stant

Prices Prices Prices Prices Prices Prices Prices Prices

North

America 8.0 4.8 4.7 2.1 5.2 2.8 5.1 2.7

Europe 8.6 5.9 6.7 4.5 6.3 3.9 5.6 3.1

Asia/

Pacific 5.9 5.1 6.0 4.3 5.5 2.9 5.4 3.2

Latin

America 9.0 - 9.6 - 8.3 - 8.3 -

Africa/

Middle

East/

ROW 10.8 - 10.9 - 10.4 - 8.9 -

Total 7.9 5.2 6.0 3.3 5.9 3.1 5.6 2.9

Global summary

All being well, the US will celebrate ten straight years of growth in February 2001. It has not been a great decade for pessimists. Since that last, distant recession, the totality of global advertising spend has marched ahead of economic growth despite ample opportunity to falter.

Yet advertising spending in traditional media rose 6.1% in real terms in 1999, and will we think rise a real 5% more in 2000 to $332 billion. The proximate cause is naturally the US economy - or more precisely, America's stunning productivity gains which have allowed this growth to overcome one assumed constraint after another.

Productivity underpins sustainable growth. But a future of perpetual growth is fanciful. So these forecasts are fundamentally about hard and soft landings. The vote from our global network is 'soft'. With this comes the warning that all landings look soft at the outset.

USA

Our prediction for 2001 comes down by one and a half points to 4.6% current (2.1% constant), and 2002 comes down by a half-point to 5.2% current (or 2.8% in constant prices).

At the peak in the first half of 2000, dotcom spending probably accounted for 10% of all display advertising and half of the 8% market growth across the whole year compared to third of Europe's 9% growth this year. We therefore believe the US is therefore more highly geared to a dotcom downside.

We estimate 2000 banner-ad and related internet spending at US$6 billion, at 5% of the display total. We see headroom for the medium to take 7% of the market in 2003, noting that the USA will still account for over two-thirds of the world's internet advertising by then.

Asia Pacific

Our forecast growth rates - 5.9% current for 2000 and 6.0% for 2001 - are barely changed since the last edition, and though positive, it seems underlying economic growth is no longer sufficient to propel regional advertising any faster than sideways relative to the rest of the world.

Post-crisis media revenue growth recovered to 17% in 1999 (current price 15-country average excluding Japan, Australia and New Zealand) with 2000 predicted to peak at 18%, beyond which we expect growth rates to trend downwards to 10% in 2003. Economic growth in the hardest-hit countries such as Indonesia, Thailand and the Philippines still lags behind the developing-Asia average, but advertising has responded well to restored, if still modest, consumer demand.

Japan's economy is showing signs of life: we have real GDP growth in at 1.5% for 2000, but adspend is still shrinking. We do not expect resurgent consumer confidence any time soon, and our forecast for 1% real ad growth in 2001 is unchanged in the two years since we first made it.

Europe

We expect Europe to turn in major-media spend of US$87 billion this year, 8.6% ahead of 1999 (5.9% in constant prices), which is a half-point uplift on our last forecast.

Our outlook on European growth rates in 2001 and 2002 is practically unchanged, but the 2000 revision brings an additional US$1.5 billion into the market, most of it from Germany and Spain's bubbling economies.

European advertisers will spend US$935 million on internet advertising this year, over twice the 1999 total, and in total 56% of world internet spend excluding the USA, a big upweight to Europe's 48% share of all non-US advertising. We can expect this figure to double again next year to just under US$2 billion, which would accelerate Europe's ex-US internet share to 64% and leave the internet accounting for 2% of the total European display spend.

John Perriss, chairman and chief executive of Zenith Media Worldwide, commented:

We have seen the peak of an extraordinary advertising expenditure cycle which has been driven by real economic growth and unprecedented innovation in marketing and media. This has laid the foundations for consolidation. Slowdown would be an overstatement. We are returning to sustainable robust advertising expenditure growth in line with the prospects for economic growth.'

Tue Dec 5