Advertisers are inserting "war clauses" into contracts to buy television airtime, allowing companies to cancel promotions if fighting with Iraq breaks out, according to WPP.
Reporting a halving of 2002 pre-tax profits, Sir Martin Sorrell, WPP's chief executive, said in the US some advertisers had put the clauses into airtime deals. Unlike normal contracts, which allow deferral of slots, the new stipulation allows outright cancellation. American Express is one of the advertisers using the clause.
Sir Martin said companies were worried about the "propriety" of having their commercial running in the middle of rolling war coverage. He did not think it would have a significant impact on the advertising market unless the war, which is expected to be short, went on for an extended period.
A spokesman for Carlton, one of the two main ITV companies, said such clauses were not being written into its ad deals. A source at a major media buyer said that for "sensitive" industries such as airlines, he would expect media companies to allow cancellations, whether or not it is specifically written into the contract.
"In my experience, people like ITV are pretty understanding about these things and they would be as conscious of the bad publicity for themselves coming from ads that may not be considered appropriate," he said.
The acquisitive WPP took a £146m goodwill impairment with its 2002 numbers, along with a £20m write-down on the value of technology investments. That dragged pre-tax profits down 50 per cent to £205m. Before exceptionals, profit before tax was 19 per cent lower at £401m.
Analysts said Sir Martin was being noticeably more upbeat about prospects. WPP pointed out that the four quarters of last year saw an improving trend, with its revenues down 9 per cent in the first three months of 2002 but that had become minus 3 per cent by the last quarter. The fourth quarter saw North American revenue grow for the first time in seven quarters.
"If you look at the trend, it is a bit encouraging but the comparatives are getting easier. The best news has come from the North American market," Sir Martin said. "Any recovery [in 2004] will be mild. The bath-shaped analogy has not been a bad one."
Sir Martin has long argued that, when it comes, the advertising recovery will be gradual, producing a bath-shaped recession.
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