Ad agencies: 2009 will be tough

Posted by Erina Lin on October 29, 2008 at 7:16 PM

Three of the world’s largest advertising groups, Interpublic, Publicis and Aegis reported mixed third-quarter results, with revenue dropping in most of Germany, Spain and the United Kingdom. They also warned of a tough fourth quarter, and fears of a tough year in 2009 for the marketing industry, The Financial Times reported.

However, as marketing budgets are hit by the financial crisis, all insisted that they would control cost and cut staff in order to maintain or improve margins.

“We have entered a turbulent zone and it is very difficult to predict the intensity or duration of that turbulence,” said Maurice Levy, chairman and chief executive of Publicis, owner of Saatchi & Saatchi and Zenith Optimedia, the FT reported.

But the clients were “not panicking,” and making less drastic and sudden cuts to marketing budgets than in 2001, Levy added. In the quarter ending in September, organic revenues were up 3.9 percent. Full-year growth is expected to be ahead of 2007, according to Levy.

“If things still continue as they are today we will have growth in the fourth quarter,” as growth stays stronger in emerging markets and digital advertising, according to the FT.

Variable staff costs, which made up 8 percent of revenues, would help Publicis to maintain margins of about 16 percent, he said.

Interpublic, owner of DraftFCB, Lowe and McCann Erickson, reported a third-quarter net profit swing of US$45.7 million from a net loss of $21.9 million last year.

Organic revenues rose 7.6 percent but outlook for the fourth quarter was limited, said chief executive Michael Roth, FT reported.

“We’ve experienced a limited number of delays and cancellations in the fourth quarter.” Headcount reductions, or increases, would be made according to clients’ specific projects, Roth added, according to the FT.

In addition, Aegis media and market research group said it was “difficult to forecast accurate levels of client spend for the fourth quarter.”

Deutsche Bank predicted organic revenues in the ad industry will decline five percent in 2009, and dip 1 or 2 percent in the fourth quarter this year, according to the FT. According to Patrick Kirby, analyst at Deutsche, “Publicis’ forecast of growth in the fourth quarter was quite a brave assertion to be making, especially given Mr. Levy’s confidence in emerging markets. Aegis has been a lot more realistic.”

Kirby said that cost cuts would only aid margins next year. “This late in the year, it’s difficult for companies to fully offset revenue shortfalls of this magnitude,” he added, the FT reported.