Magna has released an updated forecast for advertising in the US. For Q1, Magna forecasts that US media suppliers will collectively generate 3% less ad revenue on a normalized basis than they did when compared to the prior year period. With continued improvements in expectations on economic recovery, Magna forecasts Q1 will represent the last quarter of decline for the US advertising economy during this recession.
Among major economic measures, Industrial Production (IP) and Personal Consumption Expenditures (PCE) have the highest correlations with advertising, and forecasts of these variables inform their predictions of ad revenue growth and decline. As expectations for IP have improved and should post positive year over year growth by Q2 of this year, Magna says this will mark the turning point in media suppliers’ recovery.
As a result, Magna is modestly upgrading their 2010 full year forecast and now expect normalized ad revenues (excluding local TV political and national TV Olympic revenues) to effectively be flat this year, only -0.1% below 2009 levels. This compares with their previously published expectations for a decline of 1.3% during 2010. In total, they expect suppliers to generate $161 billion of normalized advertising revenue this year.
For the Q1, Magna forecasts that US media suppliers will collectively generate 3% less ad revenue on a normalized basis than they did when compared to the prior year period, even accounting for the very weak economy experienced in early 2009. Industry revenues will fall from $38.0 billion in Q1 2009 to $36.8 billion during Q1 2010. These figures reflect a moderating pace of decline compared to estimated revenue reductions of 7% during Q4 and a 15% decline during Q3 2009.
In 2010 the advertising economy will also benefit from the presence of political and Olympic advertising. They include these figures separately to avoid skewing their analysis of year-to-year underlying trends. Magna estimates that political advertising will account for approximately $2.7 billion in ad revenues for local television suppliers (both broadcasters and local cable) during 2010. This contrasts with the $2.4 billion in revenues the sector generated in 2008 and 2006, and represents a 15% increase over those years.
They also measure the impact of Olympic advertising on an incremental basis (supplier revenues which they estimate would not have otherwise occurred were it not for the Olympics – an important distinction as many advertisers alter their creative to represent Olympic themes but would not otherwise change their budgeting) and estimate $488 million in incremental revenues this year. This compares to the $650 million incremental total they estimate was generated during the 2006 Winter Olympics.
Their longer-term forecasts have also been modestly increased to reflect higher confidence in economic recovery. Magna now forecasts total normalized media supplier advertising revenues will rise by a compounded annual growth rate (CAGR) of 2.3% between 2010 and 2015.