J. Walter Thompson CEO sees TV spend plummeting

By Jeffrey Goldfarb, European Media Correspondent

CANNES, France, June 25 (Reuters) - The head of the biggest U.S. advertising agency expects to see a staggering decline in spending on network television commercials, even worse than most of the negative expectations for the medium.

Bob Jeffrey, the chief executive of J. Walter Thompson -- the largest U.S. ad firm by revenues according to Advertising Age -- told Reuters he expects the share of dollars spent by advertisers on network TV could decline by half over the next five years.

"I think companies that now spend 70-80 percent in network TV, in five years I think you could see it go down to 30-40 percent," Jeffrey said in an interview with Reuters this week during the International Advertising Festival in Cannes.

"I think it's a foregone conclusion that network TV will decline if it continues to operate on the same model," he added. "If you're running a piece of business and you're losing market share, you're either going to charge more money to make your profit objectives or you're going to change the way you do business to get more customers."

Forecasters generally expect that growth in spending on other media, such as outdoor, cable television and the Internet, will outpace that of network TV, but few predict as dire a scenario as Jeffrey does.

One recent outlook from researcher TNS/CMR forecast U.S. network TV spending would rise 9.8 percent in 2004, versus nearly 16 percent for Internet advertising and a 9.9 percent gain for cable.

J. Walter Thompson, a unit of London-based WPP Group , helped its biggest U.S. client, Ford Motor Co, try different ways of advertising on television with product placement for its vehicles in the hit Fox shows "American Idol" and "24".

J. Walter Thompson is one of many top U.S. agencies seeking to beef up their non-traditional advertising credentials by hiring new creative staff with Internet and other media experience.

"I would never hire a creative person now who only had a great TV reel," Jeffrey said. "That's still important, but I want to know they're much more passionate about innovation with other communications."

U.S. television networks boosted prices this year in the annual upfront market to make up for the diverted spending. They also held on to more of their commercial inventory hoping to see price increases in the shorter-term market.

But Jeffrey said if the resurgent U.S. economy did not hold up, those tactics would not work.

The hefty U.S. deficit, the prospect of rising interest rates and the unknown outlook for gasoline prices has Jeffrey worried about his own industry, too.

Because of the uncertainty for 2005, Jeffrey said landing such big assignments as the $600 million HSBC Holding account earlier this year were critical. The world's second-largest financial services group chose WPP agencies for all its creative work, media buying and planning and direct marketing.

"You have to get as much as you can now," he said. "It's almost like the bear getting ready for winter. I'm an optimist, but I'm also paranoid. If something negative happens next year, we have to be prepared for that."