Local clouds in U.S. ad forecast

Sector cited in projected growth slowdown; outlook better overseas

Advertising spending growth in the U.S. likely will continue to underperform economic growth next year despite continued strong advances in Internet advertising, two industry prognosticators said Monday in their closely watched annual outlook presentations at the annual UBS Global Media & Communications Conference.

They project that the U.S. advertising market will expand at a slower rate than in 2006, which has been boosted by the Olympics and the elections. They also forecast that global ad gains will continue to exceed U.S. growth next year.

Bob Coen, director of forecasting at media agency Universal McCann, said U.S. ad spending should grow 5.2% to $285.11 billion this year, compared with a nominal gross domestic product improvement of 6.5%, and an additional 4.8% next year to $298.77 billion, compared with a 4.9% projected GDP gain.

He also estimates overseas ad spending gains of 5.5% to $314.4 billion this year and 5.8% to $332.6 billion for next year.

The updated 2006 figures are down from the 5.8% improvement in U.S. advertising Coen had projected originally, with the main culprits being local advertising and the biggest ad categories, like autos.

"Local is really pulling things down," Coen said. Among other things, "consolidations (of department stores, pharmacies, etc.) are killing things."

In addition, total U.S. auto ad spending was down 1% during the first nine months of the year, with the biggest ad categories up only about 2% overall. Movie ad spending, which is part of the top-tier ad groups, trended up 6% for the first nine months of 2006, according to Coen.

Secondary ad categories are "going gangbusters," he said, citing a 26% January-September gain in telecom spending and a 25% increase in computer ads.

U.S. local advertising spending will rise 2.2% for 2006 to $100.41 billion, compared with his original 4% target, with national advertising up 6.9% to $184.70 billion rather than the earlier 6.8% forecast, according to the prognosticator.

For next year, he predicts a 2.7% gain in local U.S. ads and a 5.9% gain in national amid a continued local sluggishness and what he called a "questionable" economic outlook.

Also at Monday's conference, ZenithOptimedia CEO Steve King projected 2006 worldwide ad growth for major media of 6.1% to $435.02 billion.

For next year, King expects 5.4% growth to $458.65 billion, thanks in larger part to the Internet, without which gains would hit only 3.9%.

His U.S. ad gain forecasts are for 5.2% in 2006 and 4.1% in 2007.

Both experts mentioned the Internet as key growth drivers, with Coen predicting a 20% gain for 2006 in the space to $9.32 billion and 15% for 2007. Coen doesn't include Web search ads in his calculations and often has underestimated Internet growth.

Spending on TV spot ads will be un-changed in 2007, with the Big Four broadcast networks boosting ads 3% this year, Coen projected, after gains of 11% and 5%, respectively. Cable TV should gain 4.5% this year and 6.5% in 2007, he said.

Both experts also said ad growth in China remains strong, with King saying it will be the world's fifth-largest ad market in 2007.

Meanwhile, at the Credit Suisse Media and Telecom Week conference, NBC Universal Television Group CEO Jeff Zucker said the broadcast scatter market has been "pretty strong" and cable "strong" in the current fourth quarter.

CBS Corp. chief financial officer Fred Reynolds said that scatter "looks pretty good, which probably means a better upfront" next year. Zucker, meanwhile, said he believes that few are ready to predict whether this year's strong scatter market will mean a higher percentage of upfront sales in 2007 than this year.

"The economy is OK," Reynolds added before cautioning that next year will see "a lot of pressure" on broadcast advertising after an "exceptional" political year in 2006.

At the UBS conference, CBS Corp. chief research officer David Poltrack predicted a 3% ad gain for the broadcast networks in 2007. However, adjusting for the lack of Olympics, the underlying growth rate will come to 5%, he said.

For 2006, Poltrack said growth will come to 3% rather than the 7% originally projected, amounting to an underlying gain of 1% instead of his original 5% estimate. He cited a softer-than-hoped-for scatter market and new-media spending as key factors for the shortfall.
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