Ad spend outlook: ‘robust but not dramatic’

While broadcasters and media buyers are upbeat about Canada's ad industry, they aren't necessarily taken by recent reports indicating it is poised to surpass the U.S. in terms of growth rate. Some experts suggest there are other market conditions to be factored into the equation.

While broadcasters and media buyers are upbeat about Canada’s ad industry, they aren’t necessarily taken by recent reports indicating it is poised to surpass the U.S. in terms of growth rate. Some experts suggest there are other market conditions to be factored into the equation.

While Sherry O’Neil, director of broadcast buying at OMD Canada, based in Toronto, reports that budgets are widening, albeit not radically, she is skeptical about how Canada’s ad industry performance can beat that of the U.S.

‘Most Canadian advertisers bemoan the rate of investment versus in the U.S., so I don’t know where that comes from. It’s not like pharmaceuticals are suddenly allowed to market, where we’d see some growth.’ She adds that thus far the automotive category has been responsible for a ‘decent’ summer.

According to the Royal Bank of Canada’s most recent outlook, the Canadian economy will increase by 4.1% next year, while that of the U.S. will improve by only 3.3% through 2002 and 2003. Furthermore Statistics Canada reported that the unemployment rate fell to 7.5% in June from 7.6% in May. In comparison, the latest jobless data from the U.S. relayed that its unemployment rate inched up to 5.9% in June from 5.8%.

Mirroring that is a forecast on international ad expenditures by London, Eng.-based Zenith Optimedia Group, which implicates domestic spending will rise 2.2% by the end of this year, while, south of the border, it will decrease by 1.2%. According to the study, the surge in Canada will stem predominantly from growth in Internet advertising (11%), followed by out-of-home (8%), radio (4%) and TV (3%).

Similarly, a PricewaterhouseCoopers report says Canada is expected to be the fastest-growing market in terms of entertainment and media spending over the next few years, and that it will top $31 billion by 2006, thanks to an ad industry that has survived the global economic downturn relatively well.

Peter Lyman, a partner at PricewaterhouseCoopers in Toronto, says Canada fared better than the U.S., in part because its economy wasn’t entirely impacted by the dot bomb. In the next few years, the emergence of new TV outlets, including the diginets, will help stimulate the overall media industry, Lyman explains, although not necessarily from an advertising point of view.

‘The [TV] market won’t increase relatively faster than the rest of the world just in straight advertising expenditure, but the total revenues to broadcasters may be going up faster because of higher digital growth and more digital services,’ he says, adding that advertising spending in Canada will at the very least parallel that of the rest of the world and looks ‘robust but not dramatic’ for the future.

Globally, the firm predicts media expenditures to hit the $1.4-trillion mark by 2006. ‘Canada stacks up quite well from an advertising spending point of view,’ says Lyman. ‘There’s no showstopper that would put us off that trend-line.’

Doug Brooks, chief marketing and sales officer at CBC Television, reports a ‘favourable’ upfront season, and suggests the optimistic outlook makes complete sense for the TV market. ‘If you look at the economy, Canada has outperformed other countries. You can draw the analysis that if TV spending is akin to consumer spending and growth in GDP, Canada will be well positioned.’ Brooks says most of the increase is coming from the automotive sector, which he calls ‘critical to TV ad spending.’

Alliance Atlantis Broadcasting’s SVP of broadcast sales, Brad Alles, agrees the scene is buoyant: ‘We’re seeing a vibrant fall, and we’re establishing new records every month. Advertising paused during the dramatic events of last fall, but now [it is] back to normal.’ Alles attributes a strong up-front period in part to the progress of specialty channels, whose audiences continue to enlarge as programs improve in quality.

Gerry Mackrell, VP of sales at Corus Entertainment in Toronto, also points to specialty TV as a key driver. Growth rates sit at about 18% on an annual basis, he says, and specialty channels gobble up 40% of all ratings, but have only nabbed 20% of ad revenue. ‘Specialty TV continues to be an underdeveloped area,’ he says. ‘We’re playing catch-up in terms of revenue growth and that’s certainly buoying the performance.’

But Mackrell cautions that ‘a blanket statement that TV looks robust is a bit misleading.’

He points out, for instance, that there are other factors to consider when deciphering the Zenith report.

‘It suggests Canada’s media will grow about plus 2%, versus the U.S. expectation of minus 1%. That sounds like, ‘aren’t we spectacular?’ but I think we need to dig deeper.’

Given that the U.S. market is 10 times the size of Canada, population-wise, he explains, the American TV industry should also be 10 times the size of its Canadian counterpart. But in reality, [the American TV market] is 20 times the size of Canada’s, says Mackrell, and when you adjust the dollar, it’s 30 times larger.

‘You have to take into context the fact that the U.S. has a far more robust, developed TV industry. I suspect [those differences] would be similar for magazines and newspapers.’

As far as media buyers are concerned, the current market looks relatively positive, if not drastically so. ‘I’d just say clients are being cautiously optimistic,’ says John Tarantino, a media buyer at Cossette Communication-Marketing in Montreal. ‘Spending is continuing to grow, but sales are being closely monitored to ensure momentum is continuing.’

Adds Florence Ng, director of broadcast services for Optimedia Canada in Toronto: ‘I don’t think there will be any major increase. We have a lot of clients in packaged goods, automotive and the movie business and they seem to be spending similar dollars to last year.’

And while some of the soothsayers predict growth in the Canadian ad industry to surpass the U.S., at least one advertising industry forecaster sees an equally bright future for our southern neighbours. According to CMR in New York, a division of researcher Taylor Nelson Sofres that tracks ad expenditures in major media, ad spending in the U.S. this year will rise 2.5%.