ZenithOptimedia has reduced its forecast for adspend growth to 4.3% in 2008, down from the 6.6% growth forecast that it had published in June earlier. It has also reduced its growth forecast for 2009 from 6.0% to 4.0%. The downgrade has been attributed to the financial shock caused by the bank failures during the latest phase of the crisis in financial markets. The agency says that the bank failures will have a fairly small direct effect on ad expenditure – since financial advertising contributes only about 4% of global ad expenditure – but adds that fears for the future will cause consumers to cut their spending, while companies carefully inspect their budgets to find cost savings.
Unlike in the periods leading up to the last two ad downturns, advertisers have not been increasing their budgets ahead of economic growth over the last few years. In the years preceding the downturns of 1990 and 2000, ad expenditure grew well ahead of the general economy, rising as a proportion of GDP and peaking at 1.07% in 1989 and 1.05% in 2000. This left the ad market vulnerable to sharp corrections when the economy slowed. In recent years, however, ad expenditure has roughly tracked the economy, and has remained at 0.92%-0.93% of GDP. There is no bubble in ad expenditure to burst, which is why ZenithOptimedia expects global ad expenditure to slow in 2008 and 2009 rather than to go into reverse.
Earlier this year ZenithOptimedia, in partnership with Business Week, had conducted a survey of US consumers to determine how their spending patterns would change in the event of a downturn. Asked where they would make cuts if they had to reduce their total spending, 56% said luxury goods, 50% said travel and 39% said entertainment. These are the categories most at risk as worried consumers tighten their belts, and will be under the most pressure to cut their ad budgets. Household goods, clothing and essential basics are least at risk: 23%, 15% and 6% of consumers said they would cut back in these respective categories. Spending patterns will vary between markets, but in general companies that provide non-essential goods or services are most likely to find their ad budgets under threat.
ZenithOptimedia has reduced it's growth forecasts for North America and Western Europe in 2008 and 2009. It now expects adspend in North America to grow 1.8% this year and 0.9% next year, while in Western Europe it forecasts 1.6% growth this year and 2.6% next year. In its last forecast ZenithOptimedia had predicted North America would grow by 3.5% then 2.7%, while Western Europe would grow 3.7% then 4.3%, so ZenithOptimedia's forecast for these years have roughly halved.
Consequently the agency has also reduced its forecast for all other regions, given that these are vulnerable to international budget cuts by multinational advertisers. However, for the most part developing markets remain fundamentally healthy. ZenithOptimedia forecast 6.6% growth for Asia Pacific this year and 5.2% next year; excluding Japan, these figures jump to 10.1% and 7.1%. Central & Eastern Europe continues to grow at double-digit annual rates. ZenithOptimedia expects Latin America to grow at about 10% a year, while the rest of the world accelerates from 8.1% growth this year to 15.2% in 2010. ZenithOptimedia expects developing markets (which the agency defines as everywhere except North America, Western Europe and Japan) to contribute 65% of new ad expenditure between 2007 and 2010. Over that period the proportion of global ad expenditure going to developing markets will rise from 28% to 32%. By 2010 ZenithOptimedia expects Russia and Brazil to be in the top-ten ad markets – sixth and eighth largest respectively, up from 13th and 11th in 2007 – pushing Spain and Australia out of the ranking. At a time when ad budgets are under pressure, the internet has the advantage over traditional media that it provides better levels of measurability. ZenithOptimedia now forecasts internet advertising to grow by an average of 23% a year between 2007 and 2010, and to increase its share of the world ad market from 8.6% in 2007 to 13.8% in 2010, up from 13.6% in our last forecast.
The agency forecasts newspaper ad expenditure to decline in 2008 and 2009, the first time any medium has shrunk since 2002 and expects newspapers to attract 23.3% of ad expenditure in 2010, 0.4% points less than in its previous forecast.