At long last, optimism. Sort of. A little bit. Well, OK, the prognosis for 2004 is positive but very guarded. Which is the best it's been this century.
As the worst ad economy in six decades recedes—slowly—media agency executives are looking ahead without trepidation for the first time in three years. And what they see is a mixed bag. There's the revival: All concur that online advertising will be back with a vengeance. The lucrative: Almost every media agency exec is hopeful that 2004 will be the year of the planning review. The evolutionary: This could be the year clients make branded entertainment a measurable part of mainstream campaigns. And the happily obvious: An improving economy, the Summer Olympics in Athens and the November presidential election will combine to hoist spending.
Not that old problems won't malinger into the new year. Case in point: Asked whether media buyers, sellers and Nielsen will find those missing young male viewers in 2004, Bill Tucker, evp and managing director at Publicis Groupe's MediaVest, says with a chuckle, "I don't have that answer."
But the prognosticators are painting rosy pictures, most notably at last week's UBS Warburg media conference, the annual corporate show-and-tell, at which Bob Coen, svp of forecasting at Interpublic Group's Universal McCann, and John Perriss, CEO of Publicis Groupe's Zenith Optimedia, handed down their fortunes for the industry.
This year, Perriss' usually muted prediction was bullish: He foresees U.S. adspend rising more than 5 percent from 2003 to $156 billion, vs. a 3 percent increase this year. The more optimistic Coen, who looks at all media including Yellow Pages and direct mail, was positively ebullient, predicting U.S. spending to rise 7 percent next year to $266 billion, vs. 5 percent growth this year. And that, if it happens, would be the first time U.S. spending tickled its high-water mark—$250 billion—since the boom-boom year of 2000. (See our reader's opinion about a spending revival on page 18.)
Much of this fanfare is due to the Olympics, which add to national TV's coffers, and the election, which mostly fattens local TV's share of adspend. The majority of Olympics time is already spoken for, as is 75 percent of network time in 2004, courtesy of a $9 billion upfront.
"Nationally, the robust upfront shows the ad community's response to the 'quadrennial effect,' " notes Ray Warren, managing director of Omnicom Group's OMD. "People locked in schedules well in advance, as advertisers' media plans called for broadcast and cable networks in a year when inventory was down, ratings were up, and upfront spending was up."
Underneath the good mood, the caution that accumulated during 36 difficult months lingers. For one thing, while NBC says its Olympic package is two-thirds sold, and it did well selling the Games in the upfront, the bump-up in spend may not be as great as it has been in the past. One buyer cautions that "there is less money funding the Olympics from incremental budgets than in years gone by. Advertisers are funding their Olympics expenditures from their ongoing budgeting." And sources expect major advertisers to scale back on some of their Games commitments, with the buyer suggesting that "there isn't this pot of gold at the end of the rainbow that says, 'Go buy the Olympics and spend what you want.' "
Tucker, whose responsibilities at MediaVest include oversight of Kraft's $800 million North American media business, warns that the good news isn't guaranteed for the longer term. "Our gurus are calling for sustainable economic expansion through '04," he says, "and the Olympics and elections are clearly a boon to the media economy. ... [But] we got so excited during the last boom, and it wasn't sustainable. There's a feeling that there may be a void in 2005."
The driving force of the last boom, the Internet, will be hot again next year, say media agency pros. "The bubble is back, baby!" exults Laura Caraccioli-Davis, svp and director of Publicis Groupe's SMG Entertainment. Both Perriss and Coen cited the Internet as a factor in their upbeat outlooks, and PricewaterhouseCoopers predicts online adspend will reach $7 billion next year, up 6 percent.
"The Internet age has come—three years late for all those business plans," says Paul Woolmington, CEO of independent agency The Media Kitchen. "But it truly is an awesome, underexploited opportunity." He says this on Dec. 8, the day his client Sci-Fi Channel notches more than 63 million hits on the Yahoo! home page for its Battlestar Galactica miniseries. "So what would you rather buy?" he asks. "Whatever's on TV tonight or the home page of Yahoo!?"
It won't be display ads helping online growth but paid search—which Jupiter Research says will total more than $1.5 billion this year—and broadband, with its ability to deliver rich, streaming video to consumers. "That goes back to content," says SMG's Caraccioli-Davis. "If advertisers are going to get embedded and own content, broadband allows us to own our own distribution. That is going to be big in 2004."
While clients aren't yet shifting ad dollars away from traditional TV, "anything nontraditional, including cinema and targeted Internet buys" will get a lot of play in 2004, says Robin Kent, CEO of Interpublic Group's Universal McCann. This is not just because of the industry's obsession with "integrated communications" but because of its frustration with network TV's rising costs and decreasing viewers.
Media executives agree that the climate will be right in 2004 for buyers and clients to pressure the national broadcasters. "Network TV is going to be hard-pressed to realize the spending levels it has enjoyed," says Marc Goldstein, president of WPP Group's MindShare North America. "Advertisers and media agencies are going to have to deal with justifying why network spending should be as high as it has been. This is the year there will be some pushback."
Liz Marks, chief marketing officer for Havas' MPG Group USA, says she sees a year of "long, tough" negotiations. "The continued inflationary pricing by the broadcast networks is becoming a very real and very serious issue for advertisers," she says. "Broadcasters are on the verge of killing the golden goose. Advertisers could easily shift budgets to spot, print or promotions."
OMD's Warren notes that advertisers are gaining the upper hand. "Broadcast network television, with the apparent loss of younger viewers and no bona fide hits or 'water cooler' shows, will continue to lose luster," he says.
Then, of course, there's TiVo. Not only is network TV "being beaten up because it is less powerful than it has been, but it doesn't appear to have stepped up to address the two-horned devil called disintermediating technology," says Media Kitchen's Woolmington.
While a few media execs cast votes for direct response and even print (as part of integrated communications plans) as the hot media of 2004, there is universal acclaim for cable. Universal McCann's Coen predicts national advertisers will spend almost $16 billion in 2004, a jump of 12 percent over this year, the same increase as the four major networks (which Coen says will hit $17 million).
Nevertheless, judging from the praise they heap on cable, expect planners and buyers to pitch a lot more cable TV plans to their clients next year. "They've reinvented themselves, figured out how to ingratiate themselves into pop culture with very niche, cheap-to-produce programming," says Caraccioli-Davis about the cable channels. "Monster Garage, Queer Eye, Joe Schmo on Spike TV, Rich Girls on MTV, Kid Notorious on Comedy Central—for some reason, cable continues to hit it out of the park."
Cable definitely has "buzz," agrees Warren, which he finds "rather amazing" considering the medium's relatively low audience totals. And as digital cable expands nationwide, advertisers will jump on new technological opportunities, says Alec Gerster, CEO of IPG's Initiative Media Worldwide. Bill Koenigsberg, president of independent Horizon Media, notes that "enormous sums of money are being spent on program development, and eventually that is going to pay off for both the cable networks and the advertisers." (On the flip side, Koenigsberg was the only media exec to single out radio as a medium that will lose ground, because of its "inability to break through in any meaningful way.")
Media execs say product placement, or the marriage of content and commerce by any other name, will mature next year. "All this attention has added to clients' enthusiasm for branded entertainment," says Caraccioli-Davis. "Of course, now that they are enthused, they're asking for ROI."
"We are all learning how to do it smarter and better," says Goldstein, whose agency earlier this month negotiated a deal to develop content with ABC, not strictly a branded-entertainment deal but another aspect of the new relationship between storytellers and sellers. "I think there's a bigger issue here as it relates to media and marketing ROI."
That means more attempts to create measurement devices that go beyond the data provided by the product placement firms, which show where a product appeared and how it was used but not whether its appearance in a TV show or movie actually motivated viewers. The launch this fall of Intermedia Advertising Group's product placement service and the February debut of a similar service from Nielsen are good beginnings, media agency leaders say, but in 2004, the field will get more sophisticated. One exec predicts that several agencies will develop proprietary measuring software.
Looking at their new-business prospects, media execs say signs are good for an active year. Several predict more media planning reviews in particular. Tucker predicts that "clients are looking harder at the strength of agencies' strategic work and media planning, and will get the best out of that area. It's an area more and more clients are going to look at."
Giant media-consolidation reviews reappeared in the media picture late in 2003, and executives say big-budget free-for-alls have not run their course. "Consolidations will continue," says MPG's Marks. "It's the underlying business trend of the decade. There are only [a few] credible agency holding companies, three or four retailers and around six global media conglomerates. ... Clients are going to have to get over the conflict issue. They can do it with the Big 5 consulting firms—why not advertising?"