By David Sterman of StreetAuthority
NEW YORK (StreetAuthority) -- The economic downturn was brutal for the advertising industry. Advertising is the first thing to get cut when companies grow cautious, and ad budgets are only now beginning to thaw out. Investors have spotted the turn, bidding up shares of key players. But if you have a three to four-year time horizon, you've only missed the first stage of the multi-year sector rebound.
I attended a recent UBS advertising/media conference and couldn't help notice the broad-based bullishness coming from the various industry executives at the podium. Revenue across the ad industry is rising at a 7% to 8% clip this year. That's a surprising figure when you consider that the broader economy remains in a deep funk. The bounce back is simply a function of really weak ad spending in 2009.
As a general rule of thumb, industry revenue grows or shrinks at twice the rate of broader economic growth. So if the economy grows 3%, the industry should grow 6%. In that context, industry sales may grow at a more modest 5% next year if the economy stays in a funk.Yet looking out over the next few years, the ad industry may do even better. Many firms have beefed up their skills in the areas of social networking and mobile advertising, both of which are becoming a bigger focus among corporate marketers. And the biggest ad spenders are springing back to life:
- Auto makers, which historically account for 15% of ad industry revenue, are boosting their budgets now that they are financially healthier and have many new models to peddle ;
- The wireless phone services sector, which is the second biggest source of ad spending, according to market research firm Kantar, will be pushing hard to sell 4G phones and data service plans in 2011 ;
- Financial services firms are also starting to bounce back, and have also comprised upwards of 15% of total ad spending
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