Home / Marketing/ Ad world’s bling days may be over

Ad world’s bling days may be over

Comments / {{hitsCtrl.values.hits}} Views / Tuesday, 19 September 2017 00:00

London (Reuters Breakingviews): The advertising world’s bling days may be over. Revenues are stagnant and could stay that way given agencies’ over-exposure to slow-growing developed economies. That would force ad executives to wear the same hair shirts as their consumer-goods clients.

Revenues at the six big agencies – WPP, Omnicom , Publicis, Dentsu, Interpublic and Havas – on average fell 0.3% during the second quarter of 2017 from a year earlier, figures compiled by WPP show. The chief culprit was budget cuts at big advertisers such as Unilever, which spent less on marketing soap, deodorants and the like.

But the problem is bigger than a spending squeeze at consumer-goods giants. A “new normal” of slower growth and lower inflation in major developed economies bodes ill for ad agencies, whose revenues typically fluctuate with the economic cycle. Annual GDP growth in the European Union and North America averaged 3% in the decade to 2006 but was roughly half that in 2016. And wage growth remains sluggish in North America and Western Europe, which accounted for more than three-quarters of the four biggest agencies’ combined 2016 revenue.

Bleak prospects in the West are pushing ad groups into faster-growing emerging economies. Britain’s WPP, which is ahead of peers on this front, wants to make nearly half its revenue from these markets in the next three to four years. That may be a tall order. WPP boss Martin Sorrell has failed to push the share up from around 30% since 2011, partly because the weakness of local currencies has depressed the sterling value of receipts. Worse still, rapidly growing economies will not necessarily spend as much on advertising relative to GDP as richer peers like Britain and the United States. For example, ad spending in India and China is broadly unchanged in the past decade as a proportion of output, according to Deutsche Bank analysts.

If revenues remain stagnant, agencies will be forced to boost margins to maintain earnings growth. Most have made scores of niche acquisitions over the past decade and have scope to slash costs and boost productivity by pruning their sprawling structures. They can also cut out ostentation, as France’s Publicis has done by skipping costly awards shows like Cannes for the time being. After all, their clients and consumers have embraced far harsher austerity.

Share This Article


Today's Columnists

Bringing beedi into tax net can yield Rs. 40 b in revenue

Tuesday, 24 October 2017

Last week, the Financial Times quoted an AFP article that stated Sri Lanka will start regulating the toddy industry to boost tax revenues from the informal sector. This same principle should be applied to the beedi trade, which has also grown unabate

Grade 5 Scholarship examination and the future of the country

Tuesday, 24 October 2017

The Grade 5 scholarship examination results have been released recently. Although this is known as the “Mothers’ exam,” the mentality of the children can be well articulated when children come from the examination halls after the exams. Today w

Need for tax reforms: Government should not lose it this time but go for them early

Monday, 23 October 2017

In the first economic policy statement, Prime Minister Ranil Wickremesinghe made a number of pledges related to taxes and tax reforms. One was that the Government would review whether the tax concessions given to investors have really delivered the e

Lessons from Geneva

Saturday, 21 October 2017

‘Mission Impossible – Geneva’ is an inspiring account of developments at the Human Rights Council in Geneva when Dayan Jayatilleka was our Permanent Representative there. It is written by his wife Sanja, which provides for fascinating insights

Columnists More