Tags: Profits | Driving | Ad | Spending

Profits, Not Optimism, Seen Driving Ad Spending

Friday, 19 Nov 2010 07:39 AM

A recovery in advertising spending is being driven by profits, not optimism about the economy, as companies which have cut costs to the bone have some cash to spend again, media executives said this week.

Ad spending has improved this quarter to an extent that has surprised many in the industry, leading to cautious optimism about 2011, but six weeks before the end of the year ad agency bosses and media owners are still reluctant to make predictions.

Their uncertainty has several causes: much ad buying is being done at the last minute to drive harder bargains, corporate financial results for 2010 are not yet known, and European government austerity measures are about to bite.

Advertising is often seen as an indicator of the health of the wider economy, but two years into the recession that general rule is less relevant.

"Most large corporations made a lot of savings because of the recession and now margins are back and that's why they are spending more money and that's why we enjoy this recovery," Dominique d'Hinnin, finance chief of French media group Lagardere, told journalists.

"When we talk to advertisers they are cautious, and they tell us they don't know. In fact, we are reasonably optimistic," he added, speaking on the sidelines of Morgan Stanley's annual technology, media and telecoms conference in Barcelona.

This month, companies including home improvement chain Home Depot, German retail group Metro and U.S. office supplies retailer Staples have reported strong profits thanks to cost cuts.

Retailers, who must keep themselves at the front of consumers' minds, are media companies' bread and butter. In other sectors, carmakers' profits have been lifted by strong growth in emerging markets although the sales outlook is still uncertain in Europe, and banks are beginning to recover from major losses resulting from the credit crisis.

Positive Direction

"Everybody's in the market. Autos are in much bigger than we've seen them in the last few months, financials, almost across the board, so right now it feels very good," David Zaslav, chief executive of U.S. cable network operator Discovery, told the conference.

"Assuming things continue the way they are right now we're going to have a very good year. But, again, we're going to have to see whether the volume and whether the amount of people in the market stay," he said. "You wonder, is it going to continue and how long will it continue?"

The world's top three advertising agencies by revenue, Britain's WPP, France's Publicis and U.S. agency group Omnicom, concurred.

"They've wrung all the costs out of the business and now they're looking for topline growth," said Omnicom CEO John Wren. "All the conversations are moving in a positive direction."

But he added: "Some companies are spending their budgets at the end of the year so they don't lose it for next year — different motivations for different companies...we really won't know for another two weeks."

His European counterparts, both of whom have large emerging markets operations, were more bullish.

"Company profits are very good, I will not say an all-time high but very good, and this gives them confidence to invest," said Publicis CEO Maurice Levy.

He predicted that the growth trend would continue into next year, although he declined to predict at what rate.

WPP CEO Martin Sorrell tweaked his 2011 outlook slightly higher to 3-4 percent growth, despite U.S. market strength he described as unsustainable, saying that Asia and other regions would take up any slack.

Thomas Ebeling, CEO of Germany-based European broadcaster ProSiebenSat.1, came closest to summing up the mood.

"I think the market can grow again. I am cautiously optimistic," he said. "A double-digit bonanza is beyond my imagination, though."

© 2017 Thomson/Reuters. All rights reserved.

   
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A recovery in advertising spending is being driven by profits, not optimism about the economy, as companies which have cut costs to the bone have some cash to spend again, media executives said this week. Ad spending has improved this quarter to an extent that has...
Profits,Driving,Ad,Spending
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2010-39-19
Friday, 19 Nov 2010 07:39 AM
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