By Suzanne Vranica
Encouraged by significant advertising growth in developing markets and a surge in online ads, Madison Avenue's prognosticators are once again raising their global ad-spending forecasts.
Zenith Optimedia said global ad spending—a barometer of economic confidence—is expected to rise 4.9% from last year to $449.6 billion in 2010. Owned by ad giant Publicis Groupe /zigman2/quotes/207669560/delayed FR:PUB -1.26% SA, Zenith has upgraded its 2010 predictions five times over the past year.
"We see a market that is much stronger than we were anticipating and much stronger than we had in all our forecasts," said Maurice Levy , chief executive of Paris-based Publicis.
On Monday, ad companies including WPP PLC, Publicis and Interpublic Group /zigman2/quotes/203101491/composite IPG -0.15% of Cos. are expected to present their forecasts of major media ad spending during the UBS Global Media and Communications Conference in New York. Evidence of the uptick will likely come from a group of media companies, including Time Warner Inc. and CBS Corp., which are also expected to be presenters at the conference.
While many ad and media executives have been surprised at the quick pace of the rebound—given the massive decline the market experienced during the recession—the ad business isn't completely recovered.
Ad growth for 2011 isn't expected to keep pace with 2010, and the industry will likely have to wait until 2012 for outlays to return to pre-recession levels, according to Zenith. (Publicis has been tracking ad spending since 1987).
"The rate of recovery has been more subdued than in past recessions," said Steve King , CEO of Zenith. He blames the slow pace on the lack of consumer confidence and the poor job market.
Forecasters said a lack of big events such as a World Cup will tame growth next year. Dublin-based WPP's GroupM is forecasting global ad growth of 5.9% for 2010 and 5.8% for 2011.
Zenith expects global ad spending to grow 4.6% in 2011, less than its forecast for this year.
Still, ad conglomerates are growing more confident, and are considering increasing dividends and spending more on hiring and buying companies.
"We want to be very active" on the acquisition trail, said Publicis's Mr. Levy. Publicis has "something close to $4 billion of liquidity, which is in cash or available funds," he said.
The company, Mr. Levy added, is focusing on buying small companies but hasn't ruled out large acquisitions down the road.
He said, however, that he has yet to identify "some big large acquisitions, which would make sense."
When asked if he would consider buying New York-based Interpublic Group, Mr. Levy declined to comment.
The two companies are widely viewed as potential partners and have talked in the past about combining.
Ad executives said there is a lack of consistency in the ad rebound.
"It is really a bifurcated ad recovery, and it is mirroring the economic recovery around the world," said Brian Wieser , global director of forecasting for Mediabrands, an Interpublic unit, which is also upgrading its ad forecast.
Mr. Wieser said markets such as Greece and Portugal are still hurting while countries such as China and Argentina are seeing double-digit percentage growth.
The surge in spending in markets such as China has fueled many of the ad holding companies such as Publicis and New York-based Omnicom Group /zigman2/quotes/209996569/composite OMC -0.43% Inc. to step up their acquisition plans in those markets.
Mr. Levy said he wants to double Publicis's revenues in China. Publicis, which declined to disclose its revenues in the region, trails rival WPP there, analysts say.
In the U.S., media companies and ad companies have been benefiting from an uptick in spending on TV and Internet ads. Spending on TV ads in the U.S. is expected to climb 7.7% to $56.5 billion in 2010, while outlays on Internet ads are expected to grow 13.8% to $23.1 billion, according to Zenith.
Spending on digital ads remains one of the bright spots in the business, ad executives say. GroupM said it expects global ad spending on Internet ads to overtake spending on newspaper ads at some point in 2012.
Write to Suzanne Vranica at email@example.com