Is the adman’s long winter of economic discontent finally over? Quarter One findings from the Bellwether Report, which are markedly more upbeat than they have been for three years, suggest it may well be.
The Bellwether, which surveys 250 UK-based companies, and is sponsored by the Institute of Practitioners in Advertising and researched by NTC, enjoys a privileged position in the world of economic forecasting far transcending its status as a set of sector indicators. It is characterised as a lead sheep wearing a bell for good reason. Historical data support the notion that marketing budgets are an almost instantaneous mirror of the much more opaque trend in corporate profitability (the shepherd, so to speak). This in turn has an important bearing on whether gross domestic product is about to go up or down. It can appear, therefore, that an upturn in marketing spend is "leading" us into boom times or, alternatively, beating the retreat into recession long before more "reliable," or at least official, economic data becomes available.
In the present cycle, however, the normal historical picture has been strangely clouded. While the Bellwether has maintained a good track record in anticipating economic growth (particularly in the majoritarian services sector of the economy), the advertising expenditure element has been subdued. Despite the very visible signs of increasing prosperity around us since the beginning of the century – continuing property boom, a sustained stock-market hike after 2003, relatively benign low interest rates, and sharply rising corporate profits – media expenditure has gone against the trend.
The conventional explanation for this has been a so-called "paradigm-shift" in media expenditure or, to use simpler language, the internet. We all know how fast digital budgets have been growing. Only the other week, the IAB produced a set of figures suggesting online spend was achieving a "meagre" growth rate of 41%, which had just enabled it to overtake national newspapers as the second biggest spending media category (accounting for £2bn, or 6% of the total UK marketing budget).
This growth in spend has had to come from somewhere, so a degree of cannibalisation among such traditional media as television, press, magazines, outdoor, radio and cinema might be expected. What’s more curious, given the robustness of the general economy, is that this cannibalisation process has been no zero-sum game. The growth in online, in other words, has failed to fully compensate in real terms for the decline of the other media.
The explanation remains elusive and is conceivably to be sought in psychology rather than economics. Maybe marketers, enthused with the new, have kidded themselves that lower-cost internet solutions can be achieved without much recourse to "old", expensive media. Or perhaps, more prosaically, the migration to online (with its ethos of "free") results in an inexorable weakening of ratecards – great for clients, bad for intermediaries.
Whatever – the trend has at last reversed, according to the Bellwether figures. Budget-setting for overall advertising showed its first positive balance in two-and-a-half years, and incidentally the strongest uptick since 2000. This trend, conclude the Bellwether analysts, though weaker than the powerful upthrust in marketing budgets generally, is compelling evidence that the contraction of adspend has bottomed out and that the current Advertising Association growth projections of up to 2% (after inflation) are too "pessimistic".
Let’s see whether that turns out to be true.
Stuart Smith, editor