McCann’s Bob Cohen Ad Revenue Predictions for 2001 … How Are They Standing Up?

The first year of this new century has been better than expected for the U.S. economy and advertising. In year 2000 U.S. advertising has been growing at the highest rate since 1984, which was also a presidential election and Summer Olympic year.

The advertising trends overseas are now looking better than they have since 1995. Total worldwide advertising reached record levels in the first year of the century and is now approaching the half-trillion-dollar level.

The surge in year 2000 U.S. advertising spending has been due to a number of special conditions, including the very intense Presidential and Congressional election activity that began with the primaries early in the year and in many parts of the country intensified right up to Election Day. The Summer Olympics was another premier advertising event that commanded above-average prices that helped to sharply accelerate broadcast TV network advertising revenue levels in the month of September.

The first year of the new century began with considerable advertising spending related to the decennial census and in addition extra ad spending tied to millennium-year promotions. The high rate of growth in spending for Internet banner ads continued and, by the spring of this year, spending in traditional media by many new on-line marketers was building and affecting the new 2000/2001 TV season upfront price negotiations.

The accelerated growth in advertising spending continued for most media into the third quarter of this year although some signs of slowdown began to appear as the economic expansion moderated and the blistering pace of ad spending by new on-line marketers fizzled. Nevertheless, even assuming considerable moderation in advertising growth in some media in the fourth quarter, it is now clear that final year 2000 U.S. advertising revenues will be up nearly 10% over last year.

A year ago, in December 1999, we forecast a relatively good growth of 8.3% in U.S. advertising with projected ad expenditures of $233 billion for this first year of the new century. It is now clearly indicated that the unexpectedly strong demand for advertising time and space throughout most of the year has resulted in higher ad spending than expected a year ago. Now projected year 2000 expenditures are at $236.3 billion for a gain of 9.8% over 1999.

Worldwide advertising growth in the second year of the century cannot be expected to match the sizzling pace of 2000. Next year will not have as many special stimulative events in the U.S. as this year, and the ad trends overseas are expected to moderate a little.

In the U.S. the comparisons will be much more difficult with relatively little political activity and no Olympics in 2001. There will be fewer special events like the millennium-year promotions and the decennial census to help add to normal advertising momentum.

The economic expansion in the U.S. will continue in 2001 at a more moderate rate but it still will be a year of real economic growth. Aggressive competition will continue in a number of industries but the large increments of ad demand from new Internet companies will be much smaller than in 2000. On the other hand not all of the higher-priced upfront commitments can be cancelled so some advertising gains are already locked in place.

The cable and broadcast TV networks will have a difficult time posting comparative revenue gains again, but high-priced premier events should continue to command significantly higher prices.

In the year 2001 we expect a lower rate of advertising growth than in 2000, but we still feel that the above-average momentum in the expansion in advertising usage will continue next year. We believe U.S. advertising growth will match or slightly outpace economic growth next year. We expect U.S. advertising to grow by 5.8% next year with a projected total of $250.0 billion in the second year of the new century.

We look for a slightly better rate of ad growth overseas next year than we now project for the U.S., primarily because of the easier comparisons with year 2000 levels. The most threatening economic conditions in many parts of the world are beginning to brighten. The severe Asian region problems of recent years are being overcome; the economic and currency situations in the largest Latin American countries have firmed up; and the outlook for advertising in these regions is improved.

Economic growth and advertising spending trends have been lagging behind the U.S. in most industrialized Western European countries and, although some moderation in growth is expected in total ad budget growth for Europe in 2001, we do not expect the degree of moderation will be as large as what is now expected in the U.S. In addition many developing countries in Eastern Europe and other parts of the world are expected to continue to post above-average advertising growth again next year. Present indicators point to an overseas advertising increase in local currencies of 6.5% to $244.1 billion in the year 2001.

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