• by Joe Mandese  @mp_joemandese, August 2, 2007

Digital may be more fashionable, but industry economists aren't giving up on the traditional role of media.

Last June, after more than half a century of presenting twice annual estimates for the advertising economy, Universal McCann's director of forecasting Bob Coen did something unusual and, in some ways, very symbolic. For the first time, Coen was joined by a co-presenter, Brian Wieser.

The move was telling for several reasons. For one, Wieser, a bright young economics turk who is director of industry analysis at sister Interpublic unit Magna Global, is known by insiders to be Coen's heir apparent. Not that Coen is showing signs of retiring anytime soon, but the move seemed to be Interpublic's first public acknowledgment that Wieser is at least waiting in the wings to become Madison Avenue's official scorekeeper. More to the point was what Wieser presented: Interpublic's first-ever forecast for "emerging media."

Talk about studies in contrast. Coen, a white-haired, soft-spoken octogenarian gave his assessment - a fairly tepid one at that - for the economic health of the traditional advertising economy, including such media as TV, radio, newspapers, magazines, outdoor and Internet banner ads. Wieser, a 30-something with jet black hair and swarthy good looks, offered his view for the emerging media marketplace, including search, online video, social networking and mobile marketing, which are all growing at healthy double-digit rates, and which many see as the future of the advertising business. But somewhere toward the end of Wieser's presentation, something equally revealing happened. It became apparent that Coen's forecasts have not been capturing many of the newest and most dynamic sources of media - the kind that many people believe are transforming the underlying relationship marketers have with consumers.

By Wieser's estimates, those emerging media are still relatively small, totaling less than $12 billion in 2007 advertising budgets. Some might argue with the absolute size of Wieser's estimate, but the reality is that ad spending in emerging media is a mere pittance when compared with the $630 billion marketers will spend this year on the media Coen has historically defined as advertising in his tallies, which are the basis for most official estimates for the advertising economy, including the U.S. government's.

A final significant thing occurred as Coen and Wieser fielded questions from a group of reporters and Wall Street analysts who attended the presentation. They agreed it might be time for the industry to finally revise how advertising is defined to reflect the growth of new media platforms, and new ways that marketers use to communicate their brands, products and service messages to consumers. It was a significant inflection point for the advertising industry and the media world, coming just six months after Coen made a presentation at which he went to great lengths to remind the industry about what is included - and excluded - in Madison Avenue's official advertising pie (Media, March 2007). During that presentation, Coen flashed the cover of a 1942 academic tome - The Economic Effects Of Advertising, by Harvard professor Neil H. Borden - that has served as the gospel defining the advertising business for 65 years.

Contrast that with the presentation Wieser made in June, in which he flashed an image of his own computer-generated avatar from virtual community Second Life to illustrate the kind of new media platforms that have been falling below the radar of Coen and other industry analysts, but which have become an important source of marketing spending and strategy. They may also be part of the reason why the growth of the traditional advertising world has failed to keep pace with the overall economy.

The New Math

Last year, U.S. ad spending fell to 2.13 percent of the gross domestic product, down from 2.25 percent in 2004, according to Coen's estimates. If the kind of newer media platforms tracked by Wieser are factored into the equation, the picture looks a little better, but the reality is that even new media are still small relative to the broader economic effects of established media. To really account for what's happening to the advertising economy, Wieser says, the industry needs to redefine advertising to include other forms of "non-media marketing" such as promotion and customer relationship marketing, that have been taking greater shares of the budgets of many big marketers.

"Change is happening in places where we're not looking," Wieser asserts, adding that the perception that marketers are simply shifting advertising budgets out of traditional media like television to online isn't entirely true. For one thing, TV advertising spending continues to grow, albeit at a slower rate than online and other digital media. The growth in online ad spending, he says, is coming primarily from new advertisers, or e-commerce marketers who are "endemic" to the Internet.

"It's a different group of advertisers that are driving the growth of online ad spending," he says. "The perception that TV is a declining medium is wrong. That's not the case at all." At least not yet.

The reason, Wieser says, is that television advertising continues to work for big marketers, and is still more efficient than emerging media platforms. Not only does TV usage continue to grow, but TV remains the dominant media platform among most consumers.

Comparing TV to online video - currently the rage among Madison Avenue's digerati - Wieser says there's no contest. Although usage of online video grew nearly 40 percent in 2006, it barely registers relative to traditional TV usage. Using what he describes as aggressive assumptions, Wieser predicts traditional TV will remain "90 times more popular" than online video through 2011, the end point in his current forecast. Reasons include the quality of content, the technological and economic hurdles associated with making online video universally accessible, and the fact that TV is simply far more "convenient" for most people to use.

Convenience is the same reason why Wieser doesn't believe traditional marketers will abandon television any time soon. Although online video ad spending - $366 million this year - is growing at a much faster rate - 56 percent for 2007 - than traditional TV advertising budgets, Wieser estimates it is a mere fraction of the more than $60 billion U.S. advertisers will spend on television this year. Most of the growth in online video - like most of the other emerging media platforms Wieser tracks - is coming not from the big, traditional advertisers, but from new advertisers. In effect, he says, the economics of new media - everything from online video to search to social networking - is causing the "advertising pie" itself to grow by attracting new brands, products and services that were not able to establish themselves with traditional media.

In some ways, that's always been true about the advertising economy. Traditional marketers may have been among the first to support cable TV networks during their pioneering days in the 1980s, but the reality is that cable attracts thousands of brands that aren't big enough to buy the major broadcast networks.

To illustrate how these economics have been impacting new media, Wieser divides the world of online banner advertisers into two buckets: traditional advertisers; and those that are either new or endemic to the Internet. The data shows that the top 100 TV advertisers represent only 24 percent of online banner advertising; of that traditional advertiser total, "brand-based advertisers" account for only 20 percent.

On the other hand, endemic online marketers also are once again some of the biggest customers of traditional media. E-commerce, or so-called "dot-com" businesses, have re-emerged as one of the largest advertising categories for traditional media. Coen estimates dot-com brands will spend $4 billion on traditional media to drive traffic to their sites, nearly twice what they spent in 2001, the year following the dot-com crash.

Branching Beyond TV

Some might think Wieser's view - coming from a big traditional advertising organization like Interpublic - might be biased. After all, Interpublic, like the other big agency holding companies, still derives the majority of its revenues from traditional forms of advertising. But they also are investing heavily in digital media startups, as well as in growing their own digital media operations. Interpublic has invested in Facebook and Spot Runner, and has acquired the search firm Reprise Media). WPP Group also invested in Spot Runner and has acquired 24/7 Real Media. Publicis has acquired Digitas.

Those investments are part of a Madison Avenue diversification strategy that acknowledges the traditional view of advertising is evolving into new forms of marketing communications that include a variety of new digital media services.

Something else appears to be changing along with them: the underlying models the ad industry uses to define what it does. Even Coen concedes that Borden's 1942 treatise needs revision. The problem is that, like digital media itself, the definitions and business models governing advertising are beginning to blur across some lines. Not surprisingly, this disruption is becoming most evident within the online advertising world, where some industry leaders have already begun redefining advertising.

Ads of the Future

"The industry is crossing an inflection point, passing from the conventional mass media 'interrupt and repeat' model for advertising to a family of advertising models centered on relevance," asserts Steve Rappaport, director of knowledge solutions at the Advertising Research Foundation, and one of the authors of the recently published Online Advertising Playbook. The playbook, based on knowledge gleaned from the past 10 years of Internet advertising, was intended to serve as a guide for traditional marketers to understand online advertising. It's proving to be a guidebook for new approaches to advertising that could have import well beyond the online world.

The reason: Concurrent with the emergence of new media and new forms of marketing communications, is a sense that the traditional model no longer works in an anywhere, anytime, on-demand world. In fact, one of three new advertising models identified by the playbook has been dubbed the "on-demand model," and is based on a consumer's ability to choose content and interactions with brands.

The other two models identified by the playbook include a "permission-based" or opt-in approach to advertising, and one that has been defined as "advertising as a service to consumers." These new models are still somewhat subject to interpretation, and Rappaport says the lines between them can also blur. He also believes other new models will evolve from them as marketers and agencies begin to understand new ways of interacting with consumers via new platforms. Social networks, for example, provide an entirely new framework for brand marketers, which many believe could transform consumer marketing much the way it is transforming how people socialize.

"Certainly, it's not stopping here," says Rappaport, a Madison Avenue vet who first began writing about how digital media would impact consumer marketing in the late 1970s when he was an executive at Interpublic and such changes were purely theoretical.

"If you look at it over the long view, we have gradually been shifting away from a probabilistic exposure of an advertising model to one that is very deterministic, and on-demand," Rappaport says. "It's been happening slowly over time, but what's happened is that the sudden growth in broadband access is accelerating the process, and now you can see very clearly that this is going to fundamentally change advertising in ways we never thought about."

Interpublic's Wieser agrees with Rappaport's assessment. He just doesn't think it will happen as soon as some online evangelists are saying, because they're not properly accounting for the entrenched organizational cultures that are built around traditional media models.

"At some point, we are going to reach that inflection point, but it's like trying to predict when the stock market is going to crash or when the housing boom is going to come to an end. You know it's going to happen eventually, you just don't know when that will be."

One thing Wieser is pretty confident about, is that when that shift finally does occur, it will be the most profound change ever to impact Madison Avenue: "The longer this goes without correcting, the more significant the change will be when it occurs."