Merrill Lynch Cuts Ad Forecasts for 2005, 2006

Pressure on rates in traditional media, along with potential weakness in the automotive and entertainment industries, will slow down ad spending this year and next, according to industry analyst Lauren Fine of Merrill Lynch, writes MarketWatch (via MarketingVOX). Fine lowered her U.S. ad spending forecast to 3.2 percent growth in 2005 from the previous 3.7 percent, and reduced the 2006 estimate to 4.5 percent from 5.2 percent.

“If realized, our 2006 forecasts would imply a second consecutive year of underperformance of ad spending relative to GDP growth, despite the expected influx of political and Olympics advertising next year,” she said.

According to Fine, TV will be hit hardest. Broadcast TV ad spending is now projected to decline 6.1 percent versus an early forecast of 3.8 percent, MediaPost reports. Major broadcast networks are now expected to take a 5.0 percent hit on 2005 advertising sales versus an early prediction of a 1.2 percent increase over 2004. Cable TV drops to 8.2 percent growth from an earlier forecast of 10.5 percent.

Fine’s forecast cuts come on the heels of RAB figures released earlier this week that show radio revenue plummeted in October, down seven percent compared to a year ago with local revenue declining two percent and national 19 percent.

Fine remains optimistic about the agency side, however: “We continue to think that the ad agency group is a preferred way to play media,” she said. “As ad agencies are mostly compensated on fees, not commissions, they are not impacted by the absence of media rate inflation and they benefit from the increased usage of new channels, such as the internet.”

Omnicom Group is her top pick in the sector, which could also benefit “from faster-growing overseas economies.”