Bogus Ad Spending Forecasts from Robert Coen and Others Mislead Wall Street

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Isn't it about time the trade press and Wall St. stopped reporting on Robert J. Coen's ad spending forecasts as if they were gospel? The fact that he's been the industry's leading forecaster for more than 50 years is argument enough that his methodologies and econometric models are outdated. But Coen, who is SVP Director of Forecasting for Universal McCann, a part of the Interpublic Group of Companies, has consistently failed in recent years to match his initial annual predictions to actual year-end results and should no longer be trusted as an accurate prognosticator of market trends. Stuart Elliott, in his New York Times report on ad spending forecasts last week, commented, to his credit, that Coen "reduced for a third time his prediction for ad spending growth this year, compared to 2006." Those who follow Coen's predictions are familiar with this refrain. The Times agreed: "Continuing a recent trend, Robert J. Coen, a leading forecaster, has cut his estimate for United States ad spending for this year and next."

As The Times pointed out, Coen's initial 2007 forecasts issued in June 2006 called for 5.8% growth in domestic U.S. ad spending; he followed in December 2006 with a downward adjustment to 4.8%, which he reduced to 3.1% in June of this year. Last week, he again revised his 2007 estimate, this time to a stunning 0.7%. He has already begun manipulating his 2008 forecasts: from 5.0% growth estimates last June to 3.7% last week. Why should the markets and the industry give his forecasts any credibility at all? If the 0.7% forecast had any connection with reality, we could accept the quarterly adjustments. But by any measure, Coen is way off base.

By comparison, Group M last week held steady with its 2007 and 2008 forecast of 2.8% and 3.7% respectively. Zenith Optimedia issued its year-end forecasts, projecting 2.5% U.S. ad spending growth for 2007 and 4.1% for 2008. Zenith Optimedia had predicted 2007 ad spending growth of 3.7% last June and 4.3% a year ago. BMO Capital Market's Lee Westerfield reduced his 2007 ad spending forecasts from a previously released 3.4% to 2.6%. For 2008, he lowered his forecast to 3.6% growth from 4.3%.

In October 2006, Jack Myers Media Business Report issued our annual 2007 ad spending forecasts, projecting 3.7% annual growth for 18 media categories. Other forecasters typically limit their projections to 12 media categories. In October 2007, we updated our forecasts, revising 2007 ad spending from 3.7% to 3.1% year-to-year growth. The primary change was a more substantial decline in newspaper ad spending, although we also adjusted network television ad spending data upward.

For 2008, we are projecting robust 6.9% increases for domestic U.S. ad spending. This growth includes more than $3 billion in total political ad spend, increases due to the Olympics, a generally strong network television marketplace, and low single digit growth in most traditional media. The Internet, we estimate, will expand by 24% in 2008.

What Coen and several other forecasters fail to acknowledge or account for are dramatic increases in mobile advertising, cinema, videogames, satellite radio, branded entertainment, and custom publishing. A significant share of this additional spending is being transferred to media from trade and consumer sales promotion and below the line marketing expenditures. They are, therefore, not yet fully impacting traditional media revenues.

Combined, these categories represent $5.567 billion in incremental 2008 ad spending, more than one-third of the $16.0 billion growth we're forecasting for 2008. Myers recognizes media categories that are gaining popularity among marketers but still not acknowledged by many forecasters. Because these ad expenditures are often not tracked by any official trade association or by Nielsen or TNS, not reported in public media company accounting statements, and not included in federal government reports, they are not incorporated into most comparative analyses. Eliminate these incremental categories, and Myers' total 2008 growth forecasts would be 4.5%, still more bullish than other forecasters.

Similarly, content producers who generate incremental revenues for advertising placements in programming are not included in ad spending measurements and formulas. More and more traditional ad dollars are moving into integrated marketing campaigns that incorporate media-hosted events, promotions and cause-related activities; these investments are often managed by separate promotion and event agencies and, although the revenues accrue to the benefit of media sellers, they are not reflected in the analyses of media agencies such as Universal McCann.

With regrets for this commentary to the excellent management team at Universal McCann, and with acknowledgement to the long years of leadership and valuable industry service Bob Coen has provided, it's time to finally update ad spending forecast models from the days of FDR, when Coen began his tenure, to the new media world.

Myers full annual data and forecasts for 18-advertising media and six-marketing/promotion categories for 2006 to 2009 are available at http://www.jackmyers.com/commentary/media-spending-forecasts

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