WPP Group PLC (WPP.LN), the world's largest marketing company by
revenue, Wednesday cautioned that as sentiment in the world economy
improves it isn't yet translating into rising orders for expensive
advertising campaigns, echoing recent comments from industry
figures that suggest a return to growth remains some way off.
While most ad executives now agree that the worst of the
recession is over, opinions vary as to when and to what extent
growth will return, as clients get used to paying lower fees as
advertising firms look to retain their business.
And even when growth does return, the ad industry will look
drastically different, as marketers increasingly move spending to
digital media and as the shift in economic growth makes emerging
markets the future growth drivers.
"[The advertising industry] can return to what it was, but it's
not going to be the same," Sorrell said in an interview with Dow
Jones Newswires Wednesday following the company's half year
results. "It's not going to be in 30-second TV ads, it's not going
to be in newspaper or magazine ads, it's going to be in Russia,
India, China, Vietnam,...and digital."
Firms across a wide range of sectors have lowered media
spending, but for many big advertising holding companies, the
sharpest cuts have occurred in automotive, financial services, and
business travel.
Dublin-based WPP, whose clients include Unilever N.V.(UN),
Johnson & Johnson (JNJ), and Ford Motor Co.(F), Wednesday said
pressure continued on the group's advertising and media investment
management businesses in the second quarter, with clients demanding
greater value amid the difficult economic environment.
Sorrell said it remains too early to forecast an advertising
industry rebound, and he expects to growth next year to be flat.
Underscoring the continuing slump, pan-European broadcaster RTL
Group SA (RTL.BT) Wednesday said it expects no improvement in
advertising markets in the second half.
Still, ad industry executives have said the worst may be over.
Maurice Levy, chief executive of Paris-based Publicis Groupe SA
(PUB.FR), earlier this month said organic revenue declines hit a
bottom in June. New York-based Omnicom Group Inc.'s (OMC) Chief
Executive John Wren last month said that while he didn't yet see a
recovery, the industry had reached a trough. And Fitch Ratings
Inc., in a report Tuesday, said the sharp drop in European ad
spending appears to be easing.
But even as advertising methods become more complex, customers
don't want to pay as much for these services as they did before the
slump hit, and that could further delay a recovery.
"There is no one in the industry whose clients haven't said, 'We
are under pressure, so you have to cut fees,'" David Sable, vice
chairman and chief operating officer of Wunderman, a big
direct-marketing firm owned by WPP, told Dow Jones Newswires
recently.
Marketers have slashed fees by 5% to 30%, some retroactively,
meaning firms are being paid less for work they have already
done.
"The recession has forced us to recalibrate everything and we
are now looking at getting more value," Procter & Gamble Co's
(PG) Chief Marketing Officer Marc Pritchard said at the annual
Cannes advertising event earlier this summer.
ZenithOptimedia, a unit of Publicis, expects even by 2011 global
advertising expenditure will total $483.8 billion, still down from
the $499.1 billion spent in 2008, and Fitch doesn't expect a return
to the 2007/2008 peak for several years.
WPP reported a 48% drop in first-half net profit to GBP108.4
million from GBP208.2 million last year, hit by its
euro-denominated debt, with interest payments higher when
translated into weaker sterling.
Organic revenue, the closely watched metric in the advertising
industry that strips out the impact of acquisitions and exchange
rate movements, fell 8.3%.
The ad industry has responded to the downturn by cutting jobs as
salaries typically represent about 55%-65% of an agency's expenses.
As of June 30, WPP shed over 5,800 staff, or 5.2% of its workforce,
compared with staffing levels on Dec. 31, 2008.
WPP recently moved its headquarters to Dublin for tax purposes,
but it still reports in sterling.
Late Wednesday, WPP shares traded down 1.4% at 513p, while the
FTSE 100 was down 0.5%.
-By Ruth Bender, Dow Jones Newswires; +33 1 40 17 17 40;
ruth.bender@dowjones.com
