NEW YORK Publicly traded holding companies have good reason not to broadcast dire projections on ad spending: The worse the prognosis, the harsher the impact on the parent company's share price. A bleaker forecast, however, is now coming from owner-operated Worldwide Partners Inc., which has released a report suggesting that current industry projections greatly underestimate the actual degree to which marketers are cutting budgets. (Download a PDF of the report.)

"We have no horse in the race. We don't need to protect our stock price," said Al Moffatt, CEO of WPI, whose partners handle a total of $3.9 billion in billings. "When others were projecting a 5-6 percent cut, I said the industry should expect a 15-20 percent cut in 2009 in overall U.S. ad spending and our partners agreed."

Seventy percent of the WPI agency partner CEOs taking part in the company's latest survey, conducted in January, said their clients would cut 2009 budgets, with over 83 percent of that global group saying those cuts were at least 15 percent. Separately, 48 percent of them said it would take at least 18 months for business conditions in their respective markets to improve.

In addition, the study confirms that an increasing number of clients are moving to  shorter billing cycles, or per-project contracts. "Anytime you have that level of cuts, you have more pay-as-you-go compensation," said Moffatt.

Although 38 percent of global WPI member CEOs said marketers presented traditional annual budgets for 2009, a full 52 percent said their clients had put in place project-based compensation to augment or replace annual budgets.

Such pay-as-you-go systems are not uncommon in emerging markets, but what was striking to Moffatt was the response from North American CEOs: Thirty-four percent of respondents said such remuneration schemes are in place, while 62 percent of non-North Americans reported the same.

"We're seeing more clients wanting to work more on a project basis, less so with an agency of record," Moffatt explained. "Budgets used to be annual, then quarterly. Now clients are almost budgeting month by month. It's driven by fear about the economy and the client response is not to spend money."



WPI's members are smaller independents, many of which offer more project-oriented marketing disciplines. But some members say the current change among marketers is clearly a response to the economy and not the nature of the brand assignment.

"We have two or three clients who have said, 'Let's look at '09 in three-month increments or six-month increments.' They're not willing to commit to a full-year budget," said Paul Knapp, CEO, Young & Laramore, Indianapolis. "If that continues, it will be a real challenge. It's hard to commit talent if we're going to get 60-90 days of business and in the long run, it hurts clients. ... Everyone's still very cautious and conservative."

Jon Bond, co-chairman, Kirshenbaum Bond + Partners, New York, said he doesn't see current clients switching to project payments, but is seeing more of it in new business. And while there is a lot of those pitch opportunities out there, the pressure on compensation is immense, he said.

"There's tons of new business out there, but fee negotiation is the real pitch," said Bond. "How do you make it work? During the last 10 years, even during economic growth, with the emergence of procurement people, clients have been reducing agency fees. It's not like there's not a lot of fat in the business."

Among the 70 percent of WPI respondents who said client spending would decline in 2009, 3 percent think expenditures will decline by 5 percent; 13 percent expect a drop of 10 percent; 30 percent foresee a decrease of 15 percent; 40 percent believe spending will fall by 20 percent; and 14 percent say their budgets will decline more than 20 percent.