Merrill Lynch dims picture for ad biz

A major Wall Street analyst has cut its forecast for the advertising industry this year and next.

NEW YORK -- Merrill Lynch said Thursday said both global and U.S. ad spending would be down in 2006 and 2007 with declines in traditional advertising mediums. U.S. ad spending will be up only 4.7% in 2006 (compared to 5.1% predicted earlier) and up 2.8% in 2007 (compared to 3.5%), Merrill Lynch said. It lowered predictions for the global ad market to a 4.3% increase (vs. the previous 4.9%) this year and 3.5% (compared to 4.1%) in 2007.

Analysts said the cuts in the forecast were due to slower growth from traditional media and an economic slowdown, as well as the fact that in the United States there wouldn't be Olympics or significant political advertising as there has been in 2006 (and will be again in 2008).

While Internet advertising would remain with a 29% year-over-year increase, Merrill Lynch said newspaper advertising would be flat (instead of up 1.2%) and cable operators' advertising would be up only 5% compared to 6% previously forecast. Radio would also be flat compared to up almost 2% predicted earlier this year. Next year Merrill Lynch predicts newspaper advertising as well as broadcast TV ads would be down.

Newspapers are poised to have a tough third quarter, with Gannett telling Wall Street ad revenues dropped 3.9% in September and Media General's revenues also declined slightly.

"There is also no sense that momentum will improve anytime soon, with slowing help wanted and real estate classified advertising," Merrill Lynch noted. "These results suggest a difficult Q3 earnings season ahead for the newspaper group."