Merrill Trims Ad-Spend Forecasts

NEW YORK Merrill Lynch has downgraded its outlook for U.S. ad spending for 2006 and 2007, lowering its growth estimate this year to 4.7 percent from 5.1 percent and dropping its forecast for next year to 2.8 percent from 3.5 percent.

In a note to investors issued Wednesday, Merrill analyst Lauren Rich Fine said that the rate of advertising growth now trails the overall rate of inflation. The trend “supports our belief that media no longer enjoy the benefit of above average rate inflation, rather the opposite where increased competition and measurement is putting pressure on rates,” Fine said.

Merrill did not change its estimates for broadcast TV, forecasting 5.5 percent growth in 2006 and a drop of 1.2 percent in 2007. This year’s cable network growth also went unchanged, standing firm at 6 percent, although Merrill downgraded its prediction for 2007 to 6 percent from 7.5 percent. While Fine noted that cable had a “lackluster” upfront, she said that scatter “seems to be stronger now” for both cable and broadcast.

Magazines went unchanged at plus 2.5 percent for this year, while Merrill revised its 2007 forecast to 1 percent from 2 percent.

Radio took a big hit, as Merrill downgraded this year’s estimate to flat from 1.9 percent growth and dropped its 2007 growth projection to just 1 percent from 2.2 percent.

Merrill was optimistic about one sector in particular, characterizing the Internet and other digital platforms as bright spots in an otherwise underwhelming market.

The firm projected Internet ad growth to soar nearly 30 percent in 2006 and another 22 percent next year.

“With the law of large numbers starting to have some effect on advertisers’ budget allocations towards the Internet … [there are] some indications that advertisers are putting some money towards new digital initiatives (i.e., mobile advertising, games, video-on-demand) rather than just online,” Fine said.