With no improvement in sight for the rapidly deteriorating U.S. economy, media-agency executives and their clients are now bracing for possibly two consecutive years of curtailed ad spending -- this year and next.

Forecasters at media shops including Zenith Optimedia and Magna made initial predictions late last year for advertising expenditures in 2008, but quickly began scaling back their estimates. The projections weren't that rosy to begin with -- predicting percentage gains in the mid single digits, not great for a year with the Summer Olympics and a presidential election. By July of this year, both shops had downgraded their expectations to the low single digits.

But privately, some industry executives now believe this year's ad spend might actually end up in negative territory, and might not improve at all in 2009. They point to figures just released by Nielsen Monitor-Plus that show a first-half U.S. ad spend decline of 1.4 percent, compared with the same period in 2007, to $67.6 billion, with significant drops in spending in major ad categories including automotive (down 8 percent to $5.3 billion), pharmaceutical (down 5 percent to $2.6 billion) and movie studios (down 5 percent to $1.7 billion).

And there are signs that the fourth quarter will be very tough for the nation's retailers, which already trimmed ad budgets in the first half of the year by almost 10 percent. Two weeks ago, TNS's retail tracking unit issued a forecast predicting that holiday sales this year will be the weakest in 17 years.

Last month, the Association of National Advertisers reported that among members it polled, a little over half said they expected to cut their media budgets in the next six months. And 87 percent said they had been asked to identify cost savings or reductions in current marketing and advertising efforts.

Meanwhile, marketers are more focused than ever on achieving maximum return on investment from their ad spending. In a recessionary climate, that could mean a double hit to budgets, as companies cut spending overall but also buy cheaper media, such as cable or digital, which are seen as more efficient and accountable.

General Motors' strategy illustrates the point. The company cut its budget by 11 percent to $2.03 billion last year, according to Nielsen Monitor-Plus, shifting more dollars online as it dealt with poor sales. And while new data from TNS indicates GM raised spending by 13 percent in the first half of this year, compared to the same period in 2007, to $1.04 billion, a rep there said spending would be down slightly overall this year, and in 2009 it will dip again, following a directive from the automaker's CEO, Rick Wagoner.

Speaking at a marketing conference in May, Mark LaNeve, vp of vehicle sales, service and marketing at GM, said the pursuit of greater return on investment from its media spending would increasingly steer the company away from traditional media, with more dollars being allocated to online and emerging digital forms such as interactive and addressable TV advertising.

LaNeve said consumers interviewed in recent focus groups showed little awareness of ads that had blanketed the airwaves for the new Chevrolet Malibu -- or any car ads for that matter. "That was a wake-up call," he said. "There are so many media choices today that it's almost impossible to gain critical mass."



Just last month, GM confirmed that it was opting out of advertising in big TV events that had been major venues for years, including the 2009 Academy Awards and the Emmy Awards. And two weeks ago, the carmaker confirmed it was bailing out of the biggest TV advertising showcase of them all, the Super Bowl, because it couldn't justify the cost of an in-game unit (close to $3 million for a 30-second spot) given its marketing goals with tighter budgets for the year ahead, a rep confirmed.

Of course, GM is far from the only marketer on a quest for better ROI against its media spend. According to ad tracker TNS Media Intelligence, the top 10 U.S. advertisers continued to shift dollars to cheaper and more accountable media during the first five months of this year.

In the TV realm, for example, the top 10 spenders shifted a combined $170 million out of network and spot TV and into cable, which tends to cost less on a cost-per-thousand-viewers basis. The same 10 advertisers cut their combined radio budgets by 15 percent, or $60 million, while pumping close to $20 million more into the Internet.

And with the fragile economy, which seems to get hammered with more bad news with each passing week, many clients are now telling their agencies they will likely cut their spending budgets for 2009.

"This year has been challenging, and spending has flattened," said Rino Scanzoni, chief investment officer at GroupM, the management arm of WPP media agencies MindShare, Mediaedge:cia, MediaCom and Maxus. "But the real test will be 2009," he said, as marketers factor into their ad budgets the economic realities of soaring fuel costs, the mortgage crisis, the credit crunch and the resulting dip in consumer spending. "We're assuming 2009 will be flat at best," Scanzoni said. And it could be down by a low-single-digit percentage, he added.

No matter how you slice the data, spending is clearly trending downward. But as of last week, forecasters at Zenith Optimedia and Magna were sticking by revised predictions they issued at mid-year that spending for 2008 would climb by 3.5 percent and 2 percent, respectively. A rep for Magna said the shop's top forecaster, svp Bob Coen, would likely stick to his usual revision timetable and not issue a new forecast until December. Bruce Goerlich, evp of strategic resources at Zenith Optimedia, said his shop was currently revising its forecast but was not prepared to disclose new findings yet. "We're certainly not dancing in the streets about the numbers," he said.

Others agree that things may well get worse before they get better. "I think 2009 is going to be a very difficult year," said Steve Lanzano, chief operating officer at MPG North America. Clients are very nervous, Lanzano said, and many are looking at budget cuts for next year. "None of them want to cut budgets, but they have their own [profit] numbers that they need to hit. It's very daunting out there."

The top 10 advertisers were down a combined 3 percent in ad spending through the first six months of this year, to $8.7 billion, according to TNS. Six of the 10 curtailed their ad spending during that time, while four spent more. Procter & Gamble, the nation's top spender, was down 8 percent to $1.6 billion. The others that cut back were AT&T, down 16 percent; Time Warner, down 9 percent; Johnson & Johnson, down 12 percent; Walt Disney, down 9 percent; and Kraft Foods down 7 percent.

Those spending more were GM, up 13 percent; Verizon, up 8 percent; News Corp., up 11 percent; and PepsiCo, up 5 percent.

The automobile advertising category, like the industry itself, has been hit particularly hard this year. For the first half of the 2008, per Nielsen Monitor-Plus, U.S. ad spending by carmakers was down 8 percent to $5.3 billion. Through May (the latest company data available at deadline), Ford had cut spending by 35 percent compared to the same period in 2007, to $437 million. Chrysler was down 30 percent to $327 million, and Toyota was down 6 percent to $443 million.



Retail ad spending is down 6 percent through June, a reflection of slack consumer demand, agency executives said. And the sector is likely to get very little help from this year's holiday season, normally the category's biggest sales period. TNS Retail Forward is predicting holiday sales growth in 2008 of just 1.5 percent, the weakest gain since 1991, when sales climbed an anemic 1.2 percent.

"The holiday sales forecast represents a weakening from modest third-quarter growth as the boost from tax rebates runs out," said Frank Badillo, senior economist at TNS Retail Forward. "The benefit from a letup in gasoline prices will be overwhelmed by the impact of rising unemployment, tighter credit and other hardships on households. And unfortunately, the trends in economic conditions offer no sign of an impending recovery."

Pharmaceutical spending was down 5 percent during the first half, to $2.6 billion, and movie-studio spending was down 5 percent to $1.7 billion.

But some advertisers expect to weather the storm relatively unscathed. "Companies that make everyday products are less vulnerable to a down economy," said Laura Klauberg, svp of global media at Unilever. "We're feeling it a little less."

The latest available TNS figures show Unilever's ad spend up 3 percent this year.

While traditional media aren't going away anytime soon, agency executives say clients will continue to shift significant resources over the next year to digital platforms -- first and foremost, to paid search, spending on which eMarketer projects will climb 18 percent this year to $10.4 billion and another 14 percent next year to $11.9 billion.

ROI-focused media such as direct response and in-store will also see gains, executives say, as clients seek ways to maximize return on every marketing dollar.

"Search is huge," said MPG's Lanzano. "Those are people raising their hand and saying, 'I want to take a look at you.'"

Lanzano said another big growth area is behavioral targeting, where marketers try to profile consumers based on media consumption and purchase habits.

Another promising area in the down economy, said Lanzano, is barter advertising, where clients exchange unsold goods for media time. Specialists in the field include independent Active International, Omnicom's Icon and Aegis Group's Carat Trade. "Barter will definitely play a bigger role," Lanzano said. "CFOs love it because underperforming assets can be written off at full value and exchanged for media."



GroupM's Scanzoni said packaged-goods clients would shift some ad dollars to retail promotion budgets and slotting allowances -- money paid to retail stores in exchange for good positioning on store shelves. The strategy there: to boost sales at the point of purchase, where studies show consumers increasingly make their buying decisions.

Scanzoni also said agencies would place a renewed emphasis on diversified services to drive revenue growth during the downturn. Among the services with strong appeal: market mix modeling, which applies complex mathematical formulas to show how different media affect sales. Other growing services include entertainment and sports marketing.

Scanzoni also expects major progress next year on the addressable advertising front, where clients can make a single national buy and distribute different ads to different households. GroupM will participate in a major test of this in the second quarter with satellite programmer Dish Network, tech firm Invidi (in which GroupM has a financial stake) and a number of clients. Ads will be transmitted to and stored in set-top box DVRs, based on the unique interests of each home, Scanzoni said. "It's easier to move it along if there is some malaise, because it increases ROI and efficiency for clients," he said.

Consultants are divided over the extent to which the poor economy might trigger more review activity. "My gut tells me it will stay steady or go down," said New York-based consultant Steve Fajen. "I think people are just cautious, and it costs money to make a change."

Search consultant Joanne Davis, also based in New York, believes that will be the case with creative shops. It could be a different story with media shops, however. "On the media side there will be more," as clients strive for better ROI on media buys, Davis said. But Scanzoni doesn't think so. In tough times, he said, "people tend to hunker down, and reviews take up a lot of time and energy."

The big question, of course, as Scanzoni points out, is how long the bad times will last.

Crystal ball, anyone?