The inventory flood, unfortunately, also happens to coincide with a downward economy, which has put further pressure on advertising prices, not just for online media, but for the entire advertising marketplace. While some believe these pressures are cyclical, and demand and upward pricing pressure will rebound with the economy, J.P.Morgan is at least wondering whether there is something more fundamental going on here - something "secular."
Noting that there currently are more than 236 million host names currently publishing on the Internet, and that the advent of social networking and the "ease of Web site creation," has expanded the supply of online display advertising "exponentially," the J.P.Morgan team wrote, "This growth has created concern over the sustainability of CPMs."
Since the impact on the online advertising marketplace is unprecedented, the J.P.Morgan analysts looked at the comparable impact on television CPMs, when cable and multichannel television dramatically expanded the supply of TV commercial advertising opportunities. The equities researchers say the found that TV's "premium property CPMs were sustainable during these periods," but stopped short of assuring that the same might be true for the online marketplace. Though hey did speculate that the problem may have less to do with the laws of supply-and-demand, and more to do with the way some online publishers have been managing their online advertising sales.
"As such, display ad CPM pressure in recent years could be execution based," J.P.Morgan wrote. "We think if TV can sustain pricing (especially at the premium level) despite inventory increases, then internet display advertising should also be able to do so. We believe that advertisers are looking for scale (i.e. a large audience) and the right context to promote their brand. We believe bigger sites are better positioned to leverage their content. As such, we think some of the CPM declines are due to weak execution and sales messaging by large publishers."
The analysts implied that based on the history of TV and other media, the anxiety surrounding the influx of online display inventory may be "overstated," and that better sales and inventory management will lead to improved yields and prices over time.
"With trends shifting towards more open platforms and easy inter-access, we think premium sites may be beneficiaries of extensive inventory levels as these smaller sites turn to them for traffic and monetization help," J.P.Morgan concluded.
The report even touts online display advertising king Yahoo as J.P.Morgan's "top pick" in the online display space.
"Yahoo display advertising is outperforming its peers. In the first quarter, Yahoo display advertising declined 13% year-over-year vs. AOL's display advertising which was down 18% and Microsoft whose display advertising was down more than 20% ," the analysts noted.