Advertising budgets get slashed in the US

The prospect of war in the Middle East is casting a lengthening shadow over Madison Avenue as worried advertisers postpone media-buying decisions, threatening to derail the industry's nascent recovery after one of its most difficult periods since the Depression.

In recent weeks, advertisers like the Gucci Group and Merrill Lynch have informed agencies and media companies that they may cut ad budgets or scale back commitments even before a war breaks out. Scores more have put into place contingency plans in case of war, which require the immediate suspension of campaigns or the shifting of commercials and print ads away from any coverage of hostilities. And some marketers, media executives say, are signaling that they would stop all spending until a war ends or the crisis abates.

"The war seems to be putting a fog in front of their eyes," said William D. Holiber, the publisher of US News & World Report in New York. "They all seem to want to wait until there is more clarity."

The cutbacks and slowdowns are hurting radio, monthly magazines, newspapers and local television stations the most. The broadcast television networks, which have been leading the ad-spending resurgence, have been less affected.

"The business in general is holding its breath," said Mel Berning, president for US broadcast at MediaVest Worldwide in New York, a large media services agency that is part of the Starcom MediaVest division of the Publicis Groupe.

"The one question everyone in our jobs has to answer," he added, "is, what would this do to advertising budgets over the next 18 months?"

Most forecasters, heartened by continued strong demand for television commercial time from movie studios, packaged-food companies and retailers, are predicting an increase in ad spending for 2003 of 3 percent to 7 percent. Last year ad spending showed a modest uptick of 2.6 percent compared with 2001, when spending fell 6.5 percent, the largest decline since 1938.

The problem is "the Iraq overhang," said David Doft, an analyst for CIBC World Markets in New York.

"Why make a decision to go ahead with launching a new campaign or a new product when you can wait a couple of months and play it safe?" Doft said.

"The caution comes from not wanting your ads to show up on TV next to dead bodies."

Even before any possible wartime disruptions, many advertisers have already trimmed their budgets, particularly in categories like airlines, energy and petroleum products, financial services, insurance, lodging, luxury goods and travel.

If a war were to begin, there would be little or no opportunity at the onset to advertise on most broadcast and cable networks, which under standard procedure would limit or eliminate commercials if they are presenting war coverage.