Media Pros Fear Client Cutbacks

NEW YORK Media agency executives expressed concern today that the impact of Hurricanes Katrina and Rita on oil prices could force some advertisers to cut or consider cutting their marketing budgets in the coming months.

Their comments came at a panel discussion here sponsored by the International Radio and Television Society.

In the wake of Katrina, which devastated New Orleans and environs three weeks ago, oil prices shot up, boosting the price of a gallon of gasoline above $3 per gallon. The current belief is that Rita, now in the Gulf of Mexico and bearing down on the Texas coast, will wreak further havoc on oil production, forcing prices even higher.

“We haven’t seen the full impact of that yet,” said Havas’ MPG North America CEO Charles Rutman.

Even so, rising oil prices will be felt across the economy and result in higher costs for manufacturers and the production of goods, said Rutman. “Money will be moved from marketing to fund those costs,” he said, although to what extent remains unclear at this time.

Donna Speciale agreed. “Oil is a problem for manufacturers,” she said, adding that fourth-quarter marketing and sales activity may provide some clues on just how big a problem. Scatter sales and to what extent advertisers opt out of fourth-quarter spending commitments are two indicators to watch, she said.

But the full effects may not be known until next year, said Tim Spengler, evp, director national broadcast, Interpublic Group’s Initiative. There will be a “lag effect” between the current oil price activity and ad spending that won’t play out until 2006, he said.

The panelists differed on what effect a round of inflation would have on TV ad prices. “Inflation won’t run up CPMs,” said Bill Koenigsberg, president and CEO of Horizon Media. “There are too many other choices out there.”

Spengler said that “if the ratings fall apart this season, there could be inflation” in ad prices because there would be fewer gross rating points available for sale.

But Peggy Green, president of broadcast and entertainment, Publicis Groupe’s Zenith Media, said that going forward there would be less emphasis on ratings as the yardstick. “ROI [return on investment] is the metric” advertisers care most about now, she said.