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Global Uncertainty Abounds, But Ad Agency Execs Say Media Budgets Are Holding.

The pandemic’s impact continues to contract, but there are no shortages of things to put advertisers on edge But with radio now in its traditionally strongest revenue billing months, the heads of the three big ad agency holding companies have some welcome news – budgets are not being cut as marketers still see plenty of opportunities in 2022.

“We are at a moment of elevated global uncertainty across multiple dimensions, whether geopolitical, macroeconomic or in terms of public health. These are part of the current reality facing every company today,” said Interpublic Group CEO Philippe Krakowsky. “Despite these uncertainties, the tone of the business remains positive.”

At IPG, with a roster that includes media buying shops Initiative, Magna, The Martin Agency, Campbell Ewald, and Hill Holliday, Krakowsky said during a conference call with analysts that they had “very strong growth” during the first quarter in their media segment and that is likely to continue.

Krakowsky said each subsequent wave of the pandemic has been “less disruptive” to advertisers. “We’ve spent time with clients,” he said. “The environment for the moment -- with the caveat that there are some uncertainties out there -- is still very active.”

At WPP, the parent of media buying shops GroupM, MEC, MediaCom and Mindshare, CEO Mark Read agrees that clients are no longer slashing ad budgets as they face uncertainly, unlike when the pandemic began. Instead, he told analysts during a conference call that although clients will likely be “cautious” for the remainder of this year, he sees no sign of fewer media investment dollars as long as consumer spending holds up.

“Clients reserve the right to change their mind, but I don't think that they want to go backwards and forwards. I don't think they want to start and stop activity. So I'd say my overwhelming impression to date is that they're looking to protect their budgets,” said Read.

Meanwhile at Omnicom -- the parent of media buying shops OMD and PHD -- CEO John Wren said there are plenty of reasons to be nervous. Yet his company has raised its outlook for stronger growth this year than earlier planned.

“I've spoken to quite a few clients across the U.S. and Europe, and we recognize the uncertainty that's out there,” said Wren. “But they're not stepping back from their spending or their commitment to the brands at this point.” Wren said he is most confident in their U.S. outlook, with fewer hurdles here than in Europe or Asia.

“Overall, we haven't seen any reductions in the spending plans of our clients at this point, and clients need to continue to sell stuff in an inflationary environment or in a non-inflationary environment,” added Omnicom CFO Phil Angelastro. “They want to continue to sell stuff, and they're going to continue to invest.”

‘Too Early To Call It An Ad Recession’

Wells Fargo Securities analyst Steven Cahall said there is no denying some “mixed data” in the marketplace, but on the whole second quarter ad growth “remains very strong.” Cahall said his conversations with media companies during the NAB Show pointed to sports betting and professional services as strong ad categories, with a softer performance for consumer packaged goods and QSR/fast food.

Cahall says auto spending was also “unsurprisingly weak” with tier one manufacturer spending especially lackluster. The good news for radio is that unlike TV, radio gets more auto buys from regional associations and local dealers. Among those categories that are soft, Cahall said it is mostly due to “idiosyncratic” category weakness tied to either supply chain hurdles or high gas prices, or to a “particularly volatile” March and April when advertisers took a wait-and-see approach when faced with inflation, higher gas prices, and the Ukraine war.

Cahall thinks it is “too early to call it an ad recession” based on the data points. “We think consumer strength is trumping economic risk in the eyes of most marketers,” he said in a note to clients. But Cahall also said he did pick up on “some signs of slowing” in national radio, noting the shorter sales cycle makes it easier for buyers to delay radio spending if they face uncertainty.

Wells Fargo currently projects the total ad market grew 13% during the first quarter versus 2021 and is on track to increase 8% in Q2. It estimates increases will shrink to more normalized growth rates as the year progresses.

“We think advertising demand remained strong in the first quarter,” Cahall said. “We don't think there have been any indications of slowing advertising demand, and expect a continuation of recent momentum for now. While we presume there to be pockets of weakness, particularly in areas still impacted by supply chain, these are likely offset by other areas of growth.”

Cahall also thinks Wall Street’s negativity toward broadcast stocks is “overblown” since even if there is a pullback in ad spending, political dollars will help make up the difference.

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