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Outlook for Ad Business Grim, Execs Say

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NEW YORK The housing market has been sluggish for over a year, and the stock market's been on a roller coaster ride over the last month. But for the advertising business, the real pain is just about to start.

At least that was the collective wisdom among a panel, which included prominent industry executives, as well as a rather blunt analyst, which gathered on Oct. 14 at the Media & Money conference in New York to discuss just how the media business will cope with the current economic downturn. During the rather bleak session, the group warned of a tough year to come in the business, which is already showing signs of softness. (Related: Zenith trims its ad-spending forecast.)

According to Jessica Reif-Cohen, managing director, Merrill Lynch, the past 18 months have been colored by a housing recession, while the past several quarters have seen businesses rein in spending. But coming next: a "long and deep" consumer recession, which is likely to hit the media and ad industries hard, resulting in a "really negative" outlook. 

"I'm so sorry to say that I agree," said Wenda Harris Millard, president, media and co-CEO, Martha Stewart Living Omnimedia.

In past recessions, said Reif-Cohen, ad spending has been a "lagging indicator" -- meaning that typically the business doesn't take a hit until a quarter or two after a consumer recession starts and doesn't recover until a quarter or two after it ends.

That may explain why agencies and vendors have yet to experience several cutbacks in spending. Instead, what's been happening is "a lot of just-in-time buying," observed Millard. Lately, agencies and clients have been waiting until the last minute to commit to media plans, leading to more uncertainty than usual, even in media segments like magazines where that sort of buying is not par for the course. "I think we'll continue to see that in all the channels," she said, making it very difficult to forecast future spending.

Millard, however, predicted that her company's diversity (MSLO is involved in print, TV, the Web and other segments) would be an asset during a prolonged recession. Plus, as Americans are likely to scale back on discretionary spending, "the consumer is going home," she said. "They are looking for comfort anywhere they can find it."

John Squires, evp, Time Inc., agreed with that assessment, saying that magazines' low out-of-pocket cost, coupled with the emotional connection readers have with many titles, should help the industry during a rocky economy. "Fortunately, our consumer base is strong," he said, while acknowledging that the company anticipated "a pretty challenging ad marketplace."

The ad marketplace should be less challenging for the more measurable channels, particularly digital, according to Jack Klues, managing partner of Publicis Groupe Media's recently formed VivaKi. Among his company's various agencies Klues said he is seeing "a measured and mixed response" to the downturn, with clients in some categories like travel bearing down for tough times while some even considering increased spending.

Klues predicted that many agencies and media companies would use this period to reshape their businesses to become more efficient and more focused on data and precise targeting. "There's an opportunity to change," he said. "The paradigm is totally shifting ... to a place where you focus on your best prospects."