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No Armageddon for Advertising Economy

04 Nov 2009

Consumer and corporate confidence has recovered somewhat from the panic levels of the fourth quarter 2008, and first quarter of 2009 stated WPP Group, the world's largest advertising and marketing services company, in its latest earnings release.


WPP Group, the parent company of media services agencies such as GroupM's Mindshare, Mediaedge:cia, Mediacom and Maxus units, reported that its advertising and media investment management revenues declined greater than the group as a whole, falling 9.8 per cent from the third-quarter of 2008, as reported in MediaPost.


Joining the major advertising holding companies in reporting especially weak third-quarter results, WPP Group nonetheless said overall conditions in the advertising economy have grown "less worse," and that an outright "Armageddon" has been averted in the media industry. "People feel better, their hearts and minds are better but it hasn't been reflected in increased spending yet," said WPP Chairman-CEO Martin Sorrell.


WPP attributed some of the easement to easier comparisons with tougher quarters a year ago. In the U.S., for example, WPP said its "like-for-like" revenues declined only 6.1 per cent during the third-quarter of 2009, which compares with declines of 9.4 per cent in the first-quarter and 11.3 per cent in the second quarter of this year. Total worldwide revenues declined 8.7 per cent during the third-quarter, on a like-for-like basis.


However, WPP's "advertising and media investment management" operations performed relatively weaker than the company's overall revenues, "reflecting reductions in clients' traditional media spending and media deflation," the company said.


The third-quarter appeared to be a low point for advertising industry, and the sector has actually tracked relatively evenly with overall company revenues on a year-to-date basis.


WPP's advertising and media revenues declined 8.5 per cent through the first nine-months of 2009, while total revenues fell 8.4 per cent.


While WPP did not explicitly break out its Internet advertising and digital media revenues, that sector appears to be performing better than the advertising industry average.


WPP said combined "direct, Internet and digital" revenues total US$2.6 billion for the third-quarter of 2009, or 26 per cent of WPP's total revenues, which is a point greater than the company had been attributing to the sector's share recently.


"Whilst the hearts of CEOs and CMOs are stronger and their minds clearer, increased confidence is still not transferring to their check-writing hands. Brand investment is still in check, particularly in the West, despite most statistical evidence pointing to the opposite of this current conventional wisdom.


"Companies that invest in brands during recessions, emerge with higher sales trajectories, profits and profit margins in better times. As many clients' earnings results show, increased or maintained profits or margins are being achieved by cutting costs, not through increasing revenues." Concludes Sorrell.



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