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Ad Giants Say Client Spending Is Holding Up, With Best Chance For Pick-Up Coming Late-Year.

National advertising has been a soft spot for radio in recent months, and while there is no major flood of dollars likely on the horizon, the heads of three of the biggest ad agency conglomerates say the second half of the year looks like the first half with the best potential for their clients to spend more coming during the fourth quarter.

“The economic environment does remain uncertain,” said Mark Read, CEO of WPP – the parent of media buying agencies GroupM, MEC, MediaCom and Mindshare. “And while there's more positive signs in the U.S. regarding the control of inflation, there are also issues around consumer spending as COVID savings get spent,” he said during a conference call with analysts. Even so, Read said they saw revenue at its media agency GroupM grow six percent during the second quarter which he says reflected “strong client spending” despite lots of questions swirling in the economy.

“Whether you look at the GroupM advertising spend forecast or the recent Citi CMO survey, you can see the advertising expenditure paid media is continuing to hold up well,” Read said. “We don't see this as a broader pullback. These clients understand the importance of supporting their brands.”

The most recent CMO Survey showed 85% expect the amount spent on advertising to go up, while just a small number said they expected cuts. And despite a slow start to the year for advertising, ad agency GroupM forecasts total U.S. ad spending will grow 5.1% this year.

When national ad spending growth returns, radio can expect short lead times. Omincom CEO John Wren told analysts that their clients are not cutting budgets, but rather looking to avoid being locked in too much.

“What I've seen that has been a constant so far throughout the year is clients wanting to create flexibility,” Wren said. “That doesn't mean that they want to cut back at all on their spend, but they want to have the flexibility to react – so they're not committing.” Wren also expects to see budgets loosen as the year progresses with a traditional “budget flush” that happens every fourth quarter.

Ad executives say the technology and telecommunications sectors are among those that have seen the most softness in spending so far this year.

“We’ve seen some slowdown in spending from technology clients on marketing – this accelerated in the second quarter,” Read said. He said not all WPP clients have cut spending and explained the reasons for cuts differed among its various clients. Some are focused on cost controls, others are seeing tier growth slow, while others are at a different stage of their product development cycles. “We've also seen delays in decision-making on some technology-related projects,” he said.

Interpublic Group CEO Philippe Krakowsky agreed the tech sector is “under a lot of stress” compared to its growth run in recent years. But he also cautioned analysts on his company’s earnings call that it makes up a small part of the ad market, although the cuts that have been made have been harder on their digital ad budgets.

“We're talking about a relatively small group of large companies,” Krakowsky said. Still, he thinks little has changed in the tone of the ad market since the start of the year. IPG’s roster includes media buying shops Initiative, Magna, and The Martin Agency.

While Read said that most brands are still spending, it is clear to him that WPP clients are facing an ever more complex environment with more opportunities and challenges.

“First there are many new ways to reach consumers from Netflix taking advertising to Uber also building an advertising business. These present new opportunities to advertise, but also more fragmentation and complexity for clients,” Read said. “It is also a more political environment where positions taken a year ago on social issues that may have felt right are now coming under question. And there's a whole topic of AI and how that may impact marketing and where clients need to invest.”

Krakowsky thinks that artificial intelligence, which already plays a role in IPG’s data media performance business, will begin to have an impact on the ad industry as a “catalyst for creativity” as technology provides new canvases for brands to work with.

“Given that every competitor will have access to these same kinds of tools, it stands to reason that great creative ideas will remain essential for brands to stand out and win in the marketplace,” he predicted.

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