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In the print and broadcasting media, we know well enough about the effects of the advertising downturn. There are far fewer ads available so, naturally enough, revenues are in decline. That threatens the viability of some newspapers, and is making life tough for some broadcasters — especially as online revenue growth is not making up the shortfall.
But what's the situation like from the other side, from the advertising companies themselves? The simple and straightforward answer, unsurprisingly, is bleak. That needs context though because none of the world's Big Four players — Omnicom, WPP, Interpublic and Publicis — appear to be facing the kind of crises affecting papers, TV and radio.
One obvious similarity is cost-cutting. Last month the largest of them all, Omnicom, based in New York, announced that it was axeing just under 5% of its workforce, amounting to some 3000 jobs. Interpublic, also based in New York, revealed a 5% cutback in employees.
Following those decisions, London-based WPP had to issue denials that it was also planning to chop several thousand jobs from its worldwide staff. But rumours have persisted, not least among its own employees, that there will be losses in its European and the US divisions, where the ad prospects for this year look very gloomy indeed. Then again, WPP chief executive Sir
Martin Sorrell can rightly point to the virtues of running a global operation because he hopes to increase staff numbers in areas where print and TV media are thriving, such as South America, eastern Europe and Asia.
WPP has also pooh-poohed claims that shareholders are worried about the company's debt levels following its £1.1 billion acquisition in October of market research firm TNS. Investors do not appear too concerned. WPP's shares are trading at 415p, about midway between the 52-week high point of 649p and the 299p low.
Analysts seem relaxed too, arguing that WPP is well-placed to beat the recession, not least because many of its employees are on temporary or part-time contracts. Laying off such staff does not amount to redundancies, of course, so that might explain the company's denials. I doubt that Sorrell is smiling anyway because he is an expansionist and these are times for battening down the hatches. He also knows that the profits his company may make in emerging markets are unlikely to match those lost in the developed countries, where the financial crisis is hitting advertising far harder than expected.
According to ZenithOptimedia, the media buying division of French group Publicis, this year will not only see no growth in worldwide marketing spending, it will decline by a fraction. It is also unconvinced that developing countries will ride out the storm.
Maurice Levy, the Publicis chief executive, said yesterday that neither the growth in emerging market revenues nor its rising digital business — even at a double-digit rate — would compensate for a fall in sales from traditional media. “Realistically speaking,” he said, “if we make up for a large part of what the market is going to lose, I will have done a good job.”
There was the usual corporate bragging about his company outperforming rivals and his belief that Publicis would emerge stronger from the recession, but he could not deny reality. In an interview with the French daily Le Figaro, he said he expected advertising spend to drop between 5% to 6% in the United States this year while in Germany he forecast it could drop between 3% and 5%.
All the ad companies have been affected badly by their links to the ailing US car industry, where ad spend revenues have been dropping like a stone for the last year. Publicis, with 15% of the revenues, is thought to have the largest exposure while Omnicom has about 14%. Ford is estimated to represent almost 5% of WPP revenues while Interpublic and Publicis agencies are used by beleaguered General Motors.
In such circumstances, it is improbable to believe that there will be no effect at all on the Publicis bottom line. Nor can we be sure that current predictions of the downturn are the last word on the matter. As Jonathan Barnard, head of publications at Zenith, has pointed out, his company's own revised annual forecast quickly changed by a factor of four percentage points, indicating “a massive increase in volatility and uncertainty in the market”.
The overall British perspective looks far from welcoming. Total advertising spend is set to fall by almost 6% year on year, according to a forecast from WPP's media buying subsidiary Group M. Again, this is a forecast that has been dramatically revised in order to take account of the downward spiral.
All is not gloom, however. With backs to the wall, there are signs of innovation, not least from media-buyers anxious to do business, and newspapers prepared to put some sacred cows to the sword. Note, for example, how this newspaper is now accommodating front-page adverts.
Similarly, the New York Times is doing the same, more than two years after it thumbed its nose at the Wall Street Journal for daring to carry them. These may seem like relatively small matters, but they do indicate a willingness to experiment, a clear sign that the fate of both traditional media and their biggest paymasters, advertisers, remains everlastingly linked.
