LONDON (Reuters) - Some of the world’s top advertising and marketing chiefs will meet in Moscow this week to exchange ideas on the best ways for the $450 billion industry to capitalize on a still fragile economic recovery.
Although the picture is mixed worldwide, the major economies of the United States and parts of Europe are returning to growth and with them the fortunes of ad agencies and media owners, which trail but closely mirror gross domestic product.
The two-day conference of the International Advertising Association starting on Tuesday evening comes at a time of cautious optimism for the industry — first-quarter results reported in recent weeks have shown improving trends.
But the fact that a dire early 2009 makes almost anything look good by comparison, combined with the fact that many advertisers are still driving hard, last-minute bargains, mean that predictions for the second half of the year are scarce.
Current turbulence in the euro zone is adding to the uncertainty of recovery there.
“Booking is late, so visibility and confidence into the second half, where comparatives stiffen, is low. Beyond the bounce, to see whether there is growth, we may have to wait for 2011 estimates,” Citi analysts wrote in a recent note on Europe.
Global advertising spending is expected to rise 2.2 percent this year, driven by online paid search ads, according to leading media buyer ZenithOptimedia, which is part of the Publicis agency group.
Advertising on television — a cheap form of entertainment during a recession — together with cinema and outdoor ads are also expected to improve, but in general the Internet is sucking money from other media.
“The downturn probably accelerated the shift of budgets from traditional media by focusing advertisers’ minds on the importance of measurable return on investment,” ZenithOptimedia wrote in its most recent forecast.
Below the surface, another structural change has been taking place, which predates the recession: organizations have been spending an increasing proportion of their marketing budgets on their own websites instead of on external media.
Technology is enabling companies to communicate in ever more sophisticated ways directly with their customers, while social networks like Facebook and Twitter offer ways for users to multiply the effect of corporate messages.
Chuck Richard, lead analyst at information advisory and research firm Outsell, says companies now spend more than half their online marketing budgets on their own sites. “It’s been 50 percent or more for the last three years,” he says.
As the proportion of total marketing budgets spent online increases — ZenithOptimedia estimates online will account for 13.9 percent of all ad spend this year and 17.1 percent by 2012 — the money available to spend on external ad space diminishes.
Richard reckons that U.S. companies will spend about $63 billion this year on their own websites — roughly equivalent to the total size of the U.S. television advertising market.
“For the media companies, this is critical, because they’ve been the ones selling the space,” he says.
This week’s meeting will bring together not only chief executives of top ad agencies including WPP and Publicis but also the marketing chiefs of the likes of Procter & Gamble and Hewlett-Packard on whom they depend.
Consumer goods giant P&G, the world’s biggest advertiser, cut its advertising budget to $7.6 billion last year from $8.6 billion in 2008.
The company has started to use more non-traditional approaches to advertising and promoting its household products, such as having pages on social media sites such as Facebook and reaching out to bloggers with new product samples.
Many ad agencies can adapt to this new order, but media groups need to take more radical action: for example, Hearst, whose publications include Cosmopolitan, is said to be buying digital marketing company iCrossing for about $375 million.
“Advertisers are beginning to adopt a two-pronged view of the world,” says Richard. “You can buy or sell media, or you can buy an audience, and those are different.”
Editing by David Cowell