Economy Accelerates Shift To Digital Advertising

by Laurie Sullivan, Feb 27, 2009, 7:34 AM

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The struggling economy may force companies to reduce investments in local advertising through 2013, but more ad dollars will go toward digital rather than traditional media, according to the U.S. Local Media Annual Forecast (2008-2013) by BIA Advisory Services and division Kelsey Group.

U.S. local advertising revenue will decline from $155.3 billion in 2008 to $144.4 billion in 2013, representing a negative 1.4% compound annual growth rate (CAGR).

Companies will continue to increase the amount spent on interactive ads, from online to mobile to digital out-of-home that relies on IP platforms to transmit targeted messages. The Kelsey Group estimates the amount spent on interactive ads will more than double from 9% in 2008 to 22.2% in 2013.

Mobile, Internet Yellow Pages and online classifieds, local search, voice search and e-mail marketing are included in the interactive revenue that the research firm said will grow from $14 billion in 2008 to $32.1 billion in 2013.

In contrast, ad media investment in newspapers, direct mail, television, radio, print Yellow Pages, out of home (non-digital), cable television and magazines will decrease from $141.3 billion in 2008 to $112.4 billion in 2013, at a CAGR of -4.5%.

"If this would have been a modest recession, the trend lines would have been softer, but we believe the softness in the economy will accelerate the transition," said Neal Polachek, CEO, Kelsey Group. "If you go back and look at post-recession growth numbers for all traditional media, you'll see they bounced back well ahead of inflation and GDP."

Polachek said this forecast recognizes the importance the Internet plays, and that this time traditional media will not bounce back as it did after prior recessions.

Television aimed to create awareness; radio, sales through promotions; newspapers, geared toward retail; and Yellow Pages helped consumers find things to buy. "The Internet can do all those things, and that's the fundamental shift," Polachek said. "It's not just another media. It's all media rolled into one. That's very confusing for many people. You can't say newspapers will be fine because it can do something no other media does. Not true."

Polachek finds the acceleration of the shift from traditional to digital media surprising, rather than the shift. Experts expected the change, but the economic meltdown is driving it faster.

While Internet television doesn't put brands in front of 300 million consumers watching the Academy Awards or the Super Bowl on PCs or smartphones today, many of them could in three to five years, Polachek said. Some won't have a television hook-up either. "While we have been watching the industry make that profound and remarkable shift, the economy will force that change much faster," he said.

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