The executives spoke on Monday at the start of the 40th annual global media and communications conference, sponsored by UBS, in Midtown Manhattan. They addressed the possibility of a fiscal crisis in January as part of discussions about issues that could significantly curb growth in ad spending, among them the continued economic difficulties in the euro zone.
Widespread gloom about an inability to avert the fiscal crisis is one of four “gray swans” that are roiling markets, and marketers, said Martin Sorrell, chairman of WPP, the largest advertising holding group by revenue. The phrase is a play on the expression black swans, meaning highly improbable like the global financial crisis of 2008.
“I would err on the side of caution at the moment,” said Mr. Sorrell, whose hundreds of agencies include Grey, JWT, MEC, Mindshare, Ogilvy Mather and YR.
“Whichever way it comes out, it creates tremendous uncertainty,” he added. “It’s much tougher sledding.”
For instance, Mr. Sorrell said, “clients used to look at calendar years” in their planning processes, but “now they look at quarters.”
“We had lunch with the C.E.O. of one of our major packaged-goods clients in New York last week,” he said, and the executive talked about “how hard it is to predict the behavior of consumers month to month.”
“This is packaged goods, not capital goods,” he added for emphasis, almost shaking his head in wonderment.
As a result, Mr. Sorrell said, as WPP agencies go through their fourth-quarter planning for the new year, they are “being told to be cautious” and to budget smaller gains in revenue for 2013 than might otherwise be expected.
Another gray swan influencing Mr. Sorrell’s outlook for next year is, of course, the tumult in the euro zone. He seemed more sanguine about that problem, saying, “By and large, we’ll muddle through.”
Mario Draghi, president of the European Central Bank, has “done a brilliant job,” Mr. Sorrell said, quoting approvingly a remark Mr. Draghi made on Friday that European governments had been “living in a fairy world.”
Mr. Sorrell expressed optimism for the year after next, pointing to a “strong ray of hope” that could shine on the ad industry in 2014 as a result of spending related to the Winter Olympics, the World Cup and, he added, laughing, “would you believe, we have another U.S. Congressional election.”
Another speaker, Michael I. Roth, chairman and chief executive of the Interpublic Group of Companies, repeatedly used the word uncertainty in his remarks, but also said he saw opportunity amid the question marks.
“When clients are faced with this economic uncertainty,” said Mr. Roth, whose agencies include Deutsch, Draftfcb, Initiative, Lowe Partners and McCann Erickson, it is a chance for Interpublic to demonstrate that “we have the resources to move the needle” in selling goods and services for them.
Also, the current environment is not like the fourth quarter of 2008, Mr. Roth said, when the financial crisis led marketers to sharply and quickly cut their ad budgets.
“In this environment, our clients have plenty of cash,” he added. “The tone right now is O.K. and hopefully, we’ll see a good, vibrant December.”
“We don’t see a wholesale cutback in 2013,” Mr. Roth said, “at least so far,” adding that growth in American ad spending in the low single digits compared with this year “is a fair assumption to make.”
The Magna Global unit of Interpublic forecast on Monday that ad spending in the United States next year would increase 0.6 percent from 2012. That prediction assumes “we don’t fall off the fiscal cliff,” said Vincent Letang, executive vice president and director for global forecasting at Magna Global.
Also on Monday, the GroupM unit of WPP predicted a gain of 2.7 percent for American ad spending in 2013 and the ZenithOptimedia division of the Publicis Groupe forecast an increase of 3.5 percent. By comparison, their predictions for worldwide ad spending in 2013 compared with 2012 were somewhat stronger: Magna Global, up 3.1 percent; GroupM, up 4.5 percent; and ZenithOptimedia, up 4.1 percent.
Steve King, worldwide chief executive of ZenithOptimedia, said that in addition to the potential for a fiscal crisis, he was worried about “continued unrest in the Middle East and its impact on oil prices.”
Mr. Roth said that a possible fiscal crisis loomed larger as a “challenge” for Interpublic because Interpublic derived more of its revenue from the United States than did competitors like WPP, the Omnicom Group or Publicis.
To help insulate Interpublic, he said, “we will continue to invest in emerging markets” and “make sure we have powerful offerings” in fields like advertising, media services and digital marketing.
In a research note last week, Brian Wieser, an analyst at the Pivotal Research Group, estimated that an inability to resolve the fiscal crisis could result in American ad spending declining next year by 4 percent, or $9 billion, rather than growing by 1 percent as he has forecast.
“While economists’ consensus and our model speaks of optimism that this won’t happen,” Mr. Wieser wrote, “our brain increasingly thinks it just might.”
The UBS conference continues through Wednesday afternoon.
Article source: http://www.nytimes.com/2012/12/04/business/media/stalled-budget-talks-cast-long-shadow.html?partner=rss&emc=rss
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