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Top advertising chief sees calm amid economic storm

By Paul Thomasch

NEW YORK (Reuters) - The stubbornly bad jobs and housing markets in the United States coupled with Europe's debt crisis have created fear that the advertising market could be headed for a major pullback next year.

But Universal McCann Chief Executive Jacki Kelley is not easily scared. In an exclusive interview with Reuters, she said that advertising budgets can withstand mounting economic worries and are not destined to experience the deep, nerve-rattling cuts that marked the 2007-09 recession.

Her view has been fortified by the fact that thus far corporations are remaining calm, betting that the best way to jump-start sales is to keep their brands in front of consumers with TV commercials, billboards and digital campaigns. That's a reversal from the impulse to abandon marketing plans that characterized the last recession.

"Advertisers are a bit more cautious, but they are not panicking and they are certainly not pulling dollars out of the marketplace," Kelley said.

Kelly, who serves as the global head of an advertising agency that counts Exxon Mobil, General Motors, Sony and Microsoft among its clients, said she is seeing a cautiously optimistic outlook across industries. Universal McCann, the division of Interpublic Group , commonly known as UM, is based in New York but buys and plans global marketing campaigns from offices in 130 countries around the world.

Advertising finally stabilized over the last 18 months after draconian budget cuts starting in late 2007 and culminating in 2009, when U.S. ad spending dropped by 16 percent to $163 billion.

Now, however, there are worries that the ad market could be headed for another major pullback in 2012, thanks to mounting macro-economic woes. But Kelly said those concerns are overblown, pointing to a forecast from sister agency Magna calling for U.S. ad spending to rise 4.8 percent next year.

"Many advertisers will self-diagnose and say they overreacted last time," she said. "They are working hard to ensure they don't do so this time."

Kelley joined UM after stints at Martha Stewart Living Omnimedia, Yahoo Inc and USA Today, three companies that depend on ad sales and suffered badly during the 2009 budget cuts. She was promoted to CEO of UM in January.

SPEND INTO IT

Advertising is often a leading indicator of an economic downturn and a lagging indicator of an economic recovery.

Those that can withstand the pressure and "spend into it, end up coming out of it stronger," Kelly said. "Intuitively, advertisers know that, though it can sometimes be hard for them to convince their organizations."

And it will only get harder, Kelley said, if consumer confidence continues to erode and automakers, telecoms or retailers see a significant drop in sales.

Absent that, however, she advises companies to stay as flexible as possible with their spending. "If you're unsure of the volatility of your spend, you really need to stick with mediums that allow you get in and out with a little more immediacy," she said.

That could mean more money flowing into media such as television, where commercials can be bought on a very short-term basis, or Internet search. Conversely, magazines, already-hurting, are likely to suffer more.

"When you get into these type of climates, the media that tend to be the most vulnerable -- which isn't because of their audience -- are the ones that require a longer lead time," she said. "If you are a monthly print publication, commitments happen three to four months out and you can't pull that."

For her part, Kelly is shaking things up at UM, moving the agency away from traditional client compensation agreements that typically pay agencies based on how many staffers worked on an account or how long they worked on the campaign. Instead, UM has instituted pay-for-performance client compensation deals, meaning that the agency has a financial stake in planning a successful campaign.

As a result, UM has invested heavily in data and analytics, and has contracts structured that pay it based on a host of different metrics, including sales, share price, brand preference and even Facebook "likes."

"We believe strongly that agencies should be compensated on the performance they deliver," said Kelley. "In any climate that's critical, and more so in this one."

(Reporting by Paul Thomasch; Editing by Peter Lauria and Steve Orlofsky)

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