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TWST: Alexia, what in your view has been most striking about the downturn in spending on advertising over the past six to 12 months?

Ms. Quadrani: I wouldn’t characterize this necessarily as a downturn in spending. I would call it a deceleration in the growth. What we saw last year was a really exuberant year in the sense that advertising expenditures in the US grew by roughly 10%, which was really incredible. The Summer Olympics, the presidential elections, and a very hot economy enhanced overall growth in the industry. This year we’re seeing not only difficult comparisons but also a much softer economic environment, which has dramatically curtailed growth in advertising expenditures.

TWST: Has the impact of the demise of the dot-coms on the advertising and marketing services companies been overdone?

Ms. Quadrani: With regard to the advertising and marketing services companies, the impact has been overstated. But in terms of the overall industry, I think the impact was very powerful. We saw this emerging category come out of nowhere last year, or late the year before, creating enormous demand. They were able to pay anything they wanted for advertising space in a very hot economy, which then created a lot of demand in an already very tight market. To have that category completely disappear almost overnight is a big shock in an already lackluster environment. I think from a pricing standpoint it had a very strong effect on the price of media. But it is unclear how it actually impacted the advertising and marketing services companies; the top ones, the public ones, never really took on too many clients from the dot-com area. At that time they could afford to pick and choose. And therefore their exposure in terms of revenue concentration never was really much more than 2%-3%. So the disappearance hasn’t had that much of an impact on their revenues.

TWST: What impact has the deceleration in overall spending had on the agencies and the marketing companies to date?

Ms. Quadrani: To a certain degree, the advertising and marketing services companies are lagging indicators when it comes to the fundamental impact from a slowing economy. They have actually, for the most part, delivered very strong results, even up until the first quarter numbers, particularly Omnicom (NYSE:OMC), which beat expectations once again. Part of the reason these companies have been somewhat immune to the slowdown is because they’ve had this incredible backlog of new business that they won in 2000, which has largely offset the slowdown in the industry-wide growth. But I think that going into the second half of this year, particularly if the European outlook begins to soften, you may begin to see some impact on the numbers of these companies.

TWST: To what do you attribute Omnicom’s strong showing?

Ms. Quadrani: Omnicom has been viewed as sort of a safety stock in this market. I think people originally sold the stock in early 2000 in anticipation that it was going to suffer if we were to go into an economic downturn, but then the company kept outperforming in the delivery of their earnings. The outlook for them to continue to outperform is very solid, as the company has this great backlog of new business that is enhancing revenue growth. So we’re seeing a premium on Omnicom’s valuation that we haven’t seen for quite some time. I think that premium will continue to hold because it is such a strong company.