Lacking visibility about when or how any of the economy's broken gears will begin to self-repair is one thing. Struggling to sort out the pricing, placement and creative quandary of advertising is another. And they are not unrelated.
In fact, when the economy and advertising revive, they won't look anything like they once did. Nobel economist Paul Krugman warns that it will take years to work off bad debt and rising unemployment while we reset the world's financial clock.
Historically, it takes as long as nine months after a recession ends for positive revenue growth to resume. In media terms, that means depressed ad growth will likely continue until mid-2010. In addition, "the potential of a deflationary upfront this spring with prices for commercials going down -- not up -- could also cause a wave of negative revenue trends for national broadcast and weaker-than-usual cable network growth," notes Bernstein Research analyst Michael Nathanson.
Economic stress and uncertainty will increase scatter ad buys closer to air time. Eventually, that will become an industry standard that relegates "upfront" commitments to events and special needs. Quality ad supply across all media that exceeds demand, even in better times, makes this a buyers' market. And it gives marketers extraordinary leverage. Cable operators' Project Canoe will further close the economic gap -- not only between broadcast and cable networks that share similar program quality, value and audience delivery, but between all television and the fragmented online world.
While traditional media is fighting for survival against declining overall U.S. ad spending, the Internet and other new digital ad platforms also struggle, albeit with slower, continuing growth. Despite the recession, total online ad spending in 2009 should hit a record $24.5 billion (growing only 4.5%) -- while grabbing at least 1% of overall market share annually through 2013, when it should total $37.2 billion, according to eMarketer. At the same time, total U.S. ad spending will continue to decline to as much as $240 billion by 2010, from nearly $280 billion in 2007.
This contraction will work against traditional media.
During that same time frame, emerging online advertising will become more formidable in dollars as well as in establishing new industry standards that will dislocate media's old guard. In the interim, the transforming impact of ongoing radical shifts in the economy and in advertising are too flippantly dismissed. The "uncharted territory" Schmidt referred to last week -- as Google reported its slowest revenue growth since going public but better-than-expected earnings on aggressive cost controls -- is as much about a business paradigm shift as an uncertain economic recovery.
For those nonbelievers clinging to the promise of the upfront, it's time to get real. The recession will surely impact spending commitments, pricing and overall marketing strategies. But just as important is the influence that online marketing is having on corporate thinking. eMarketer senior analyst David Hallerman says "the Internet both takes market share from competing media and alters what traditional media companies can charge their marketing customers." So while the Internet continues to gain share, its ROI-efficient business model is changing advertisers' expectations and traditional media's value proposition.
There is much more going on here than a grueling economic recession.
So far, media companies are generally behaving badly in response to this complicated situation. Many newspaper, radio and television players are taking a defensive posture, opting to salvage and reshape their broken business models rather than make the difficult but smart shift to digital. They will lose out when recovery finally comes.
The Internet can sustain the temporary lull in display advertising, since it has nowhere to go but up. Marketers can ride the wave of change by diversifying -- focusing their reduced budgets on fewer media, and experiment with creating best practices for new mobile, social networks and multimedia platforms, Hallerman suggests. But traditional media players can only continue on a downward trajectory unless they "accelerate initiatives to attract revenues from alternative sources," according to consultant Jack Myers.
The "structural break" in econometric terms is the point at which trends and patterns of associations change, requiring legacy to give way to enterprises that are better-suited to the times. Advertising dynamics are already slipping into a new mode, represented by Google's bidding and other algorithms on the one hand and Amazon's social e-commerce model on the other. Neither one dabbles in 30-second pre-rolls or quarter-page slots. Those media companies that still do are not doing so well, as witnessed by first-quarter profit declines at Gannett (down 60%) and NBC Universal (down 45%).
Yes, even Google's first-quarter revenues of $5.51 billion were down 3% compared to the 6% rise a year earlier -- although much of that drop is tied to shorter-term, spot market pricing that should bounce back in a recovery. Having identified 1 million advertisers that are generating $16 billion in revenues across all of its businesses, Google has broken old media's marketing approach.
But if it gets its way, Google will be monetizing big studio content on YouTube with advertising, subscriptions and micropayments while innovating an ad model for Twitter and other microblogs. "It could be a channel for product, marketing and real-time information on which you hang advertising products like text or video ads," Schmidt said last week, declining comment on prospects for a Twitter search deal.
That's called managing and monetizing change.