Ad execs cautious about growth this year

Slower growth in once-hot China and Brazil, along with fewer major sporting events and other big opportunities, is leading to less demand for advertising this year.

By Leila Abboud, Reuters News Agency

June 26, 2015 at 1:53PM
CEO, WPP, United Kingdom, Sir Martin Sorrell speaks during a session at the World Economic Forum in Davos, Switzerland on Wednesday, Jan. 26, 2011. Buoyed by a burst of optimism about the global economy and mindful of the "new reality" that has framed it in the aftermath of the financial crisis some 2,500 business leaders, politicians and social activists will tackle an array of issues on the first day of the World Economic Forum. (AP Photo/Virginia Mayo)
Martin Sorrell, chief executive of WPP, the world's largest ad agency, in a 2011 file photo. (Evan Ramstad — ASSOCIATED PRESS/The Minnesota Star Tribune)

CANNES, France -- The reluctance of big companies to spend at a time of lackluster global growth and fewer major sporting events this year are dampening demand for advertising, said the chief executives of two leading ad agencies.
In separate interviews on Friday, Martin Sorrell of WPP and Maurice Levy of Publicis sounded cautious about the prospects for the advertising market, citing a lack of vibrancy in the U.S economy, weakness in Brazil, Russia and China, and Europe's continued fragility.
"There is a lot of uncertainty," Levy told Reuters. "Companies have cash to spend but are not in the mood to do so, and consumers are not feeling confident either."
Research firm Zenith Optimedia, owned by Publicis, recently cut its growth forecast for the global advertising market to 4.2 percent down from 4.9 percent earlier this year.
For his part, Sorrell said that the major companies served by WPP agencies such as Ogilvy and Mather and Group M were very focused on cost controls, sometimes to the detriment of long-term investment in their brands and products.
"Business is tough. Clients are very demanding in an environment where top-line growth is lower than it was before the financial crisis began," he said.
Against that backdrop, the world's top six ad agencies face upheaval because an unprecedented $27 billion in media buying and planning contracts are up for review in the coming months at companies including Coca-Cola, Procter and Gamble and L'Oreal.
That is requiring them to defend some major contracts, while trying to steal others from rivals.
Morgan Stanley estimated that Publicis was the most exposed, with 1.7 percent of sales at risk and 2.5 percent of earnings per share. It is defending seven contracts including P&G, General Mills, Twenty-First Century Fox and Coca-Cola.
For WPP, about 1.1 percent of revenue and 1.6 percent of earnings per share are risk as it seeks to keep nine contracts including Volkswagen and Unilever.
Both Sorrell and Levy claimed the reviews were an opportunity to win business, while acknowledging that the fees would be lower on the new deals than the old ones.
"The reviews are worrying for the agencies but their effects will also be felt on media owners because the price of ads will fall further," Levy predicted, referring to TV broadcasters, print outlets, and radio.
Levy said added the Publicis had already kept one contract with beauty products maker Coty with billings of $600 million and another with coffee specialist Keurig worth $500 million.
"If we lose all our current contracts and win none of the new ones we're going for then our sales could drop 2 percent," said Levy.
"But if we defend everything and win all the new ones, then they could go up as much as 3 percent."
Sorrell said that WPP's plan was to stress its technology and data expertise in pitches to clients. WPP has made a big bet on data with its Kantar unit, which Sorrell argues offers a competitive advantage although a lower margin business.
"We are differentiated from our competitors and that will help in the reviews," he said

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Leila Abboud, Reuters News Agency

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