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Dark Clouds Over Madison Avenue

Storm clouds are gathering over Madison Avenue. That's the conclusion of researchers who gathered yesterday at two media conferences in New York City.

Most attendees who spoke with TheNew York Times said that ad spending would rise anywhere from 2% to 5% from 2006, lower than last year's projection of 3% to 6% growth. But that's not as bad as it might seem: There isn't a national election or the Olympics next year.

Still, bad is bad, and there's some awful news in how quickly advertisers are abandoning newspapers. According to the Morton-Groves Newspaper Newsletter, ink-stained dailies across the country could see a 2% drop in ad spending during 2007. That would be more than the 1.8% decline predicted for this year, the Times reports.

Naturally, Web advertising will be the benefactor of this Madison Avenue malaise. Steve King, CEO of researcher ZenithOptimedia, told the Times that he expects spending on digital pitches to rise by 29% next year.

What's more, King said, Internet advertising could account for 7.1% of all ad spending during 2006. He expects that ratio to expand to 10.4% in 2009.

That's a ton of lost revenue: American ad spending is expected to reach $285.1 billion for 2006, according to agency Universal McCann, which is a member firm of conglomerate Interpublic Group (NYSE: IPG  ) .

With such a crystal-clear prognostication, you'd think that the leading players such as Interpublic and Madison Avenue rivals such as Omnicom (NYSE: OMC  ) , Publicis Groupe (NYSE: PUB  ) , and WPP Group (Nasdaq: WPPGY  ) would be well-prepared to take advantage of the shift to online advertising. Analysts, however, say otherwise.

Here's a view of how each of these firms' stock is priced relative to its expected growth prospects for 2007:







WPP Group


Publicis Groupe


Source: Capital IQ

Paris-based Publicis might be considered fairly valued on this basis, but all the others are more than a little pricey, with low growth expectations factored in due to their heavy dependence on print advertising. In other words, as bad as yesterday's news is for the print world of New York Times (NYSE: NYT  ) , Gannett (NYSE: GCI  ) , and Tribune (NYSE: TRB  ) , it's just as bad, if not worse, for the Mad Ave. crowd. Need an umbrella, guys?

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Fool contributor Tim Beyers, ranked 1,391 out of 14,940 in Motley Fool CAPS, hates to admit that he owns shares of Interpublic. Bummer, eh? Fortunately, he has plenty of winners in his portfolio. Get the skinny on all of the stocks he owns by checking Tim's Fool profile. New York Times is a Motley Fool Income Investor pick. The Fool's disclosure policy always adds up.

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10/28/2016 4:02 PM
OMC $79.65 Up +0.53 +0.67%
Omnicom Group CAPS Rating: *****
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IPG $22.30 Up +0.26 +1.18%
The Interpublic Gr… CAPS Rating: ****
NYT $11.05 Up +0.05 +0.45%
The New York Times CAPS Rating: **
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