• by Diane Mermigas , December 18, 2007

The reinvention of advertising form and value--media's most formidable and exhilarating sea change--will intensify in 2008 as an unintended consequence of the writers' strike. The Internet has been the catalyst for advertising's seminal moment--making it active and transactional. The lingering strike has stripped TV's vulnerable ad-supported framework of any semblance of normality: the fall prime-time season and its attendant upfront. The combination of the two is lethal.

The two-month walkout, with no sign of resolution, could be a disruptive force at the worst possible time for conventional television. The inability to deliver the new scripted series sold in the upfront is forcing all networks to compensate advertisers with cash (a virtually unheard-of practice), since their commercial inventory is tight. Even if the writers' strike was settled tomorrow, it would take months to ramp up original programming worthy of premium ad pricing, and hopefully attract a declining viewer base.

At the same time, the accelerated transfer of creative and commercial value to the Web that has occurred during the protracted strike is permanent. Frustrated writers taking their craft to interactive platforms are receiving support from advertisers, venture capitalists and other investors to establish virtual production companies. This support will endure long after a new union pact is achieved. That's ironic, since talks stalled over the issue of new media compensation.

Unlike past strikes that have debilitated the television industry, marketers and investors have seen the future, and they like what they see. The Internet can shift ad resources away from slower-growing traditional media. Plus, the medium is changing consumer spending. The art of marketing is being permanently altered by the ability to locate and exchange data with target customers. By making advertising and commerce active and instant, digital interactivity is transforming media's core revenue stream. When the digital dust settles, product and service providers will be spending more money in more places and in more new ways. Not only to market, but to transact and to mine an ongoing virtual relationship with patrons.

Changing consumer habits and attitudes, as well as advertisers' willingness to shift dollars to new platforms during the strike, are showing up in barometers from Online Testing eXchange, Magna Global, Nielsen Media and others. Where consumers go, advertisers follow. Merrill Lynch confirms that despite being down 10% year-over-year this season, prime-time ratings among key age 18-49 viewers could drop another 9% from January to May if the writers' strike continues throughout the TV season. Merrill Lynch analyst Jessica Reif Cohen said she believes the strike could last "indefinitely." That possibility throws off what remains of the scatter market and makes it impossible for cyclical political ad spending in an election year to make up any of the difference. Even more extreme is the distinct possibility that the upfront ad market and the September-to-May prime-time TV season will be scrapped for a complete revamping that would include continuous content launches and ad sales. Nothing would be financially healthier for commercial TV.

Overall, this unprecedented upheaval in advertising dynamics and economics will prove to be a lucrative realignment in the future. There is no going back. While television and the Internet will coexist for years to come, the economic writing is on the wall: The potency long hoarded by one is being transferred to the other.

The ability of late-night series producers such as talk-show host David Letterman's Worldwide Pants to negotiate its own pact with striking writers to jump-start production--or for NBC's "Tonight Show with Jay Leno" and "Late Night with Conan O'Brien" agreeing to return to the air without professionals writing jokes--is shaking television to its core. They join a surprising and enterprising counter-establishment array of options: Vuguru's abbreviated "Prom Queen," the MTV-inspired "MyDamnChannel," the NBC Internet series "Quarterlife" and Will Ferrell and Adam McKay's "Funny or Die" Web site. All are representative of the snowballing virtual ad-supported creative efforts counterbalancing turmoil on the small screen, and likely to generate less costly, more effective advertising. Once locked into target consumers, advertisers launch horizontal campaigns to tighten the grip. Program and issue-oriented Web sites lead to social networks, buying services and search engines. As they voraciously feed on each other, television and print become more ancillary.

These arrangements are the cracks in the foundation that ultimately will change the way content and advertising are produced and sold for television and new media. While alternatives from social networks to user-generated advertising deliver double-digits results, their overall revenues are a fraction of domestic ad spending totals. The collective draw of so-called new media platforms and devices looks attractive in light of traditional media's helpless slide.

Merrill Lynch released its lower bottoms-up forecast for 2008 is U.S. ad spending growth of 2.3%, "suggesting downside risk" even before factoring in a possible recession. The culprit is not simply flat spending by the embattled auto, retail, financial, media and telecom advertisers. Merrill Lynch analysts expect Internet advertising to grow $24% to more than $21 billion in 2007 and double by 2011, despite general economic uncertainties, which will make targeted marketing and e-commerce look like safe havens. The digital opportunity will increasingly reach beyond the Internet to mobile digital devices, such as cell phones and PDAs, not necessarily reflected in the growth forecasts.

Another point that analysts are beginning to make: Despite meticulous estimates for DVR, VOD and streaming video extended viewing, the television universe is struggling to keep up with other content viewing, data, entertainment and communications options. Given the writers' strike and increased broadband use, it's difficult to precisely determine TV's future. But one thing is certain: Consumers and advertisers are increasingly scattering to new media places where the makers and brokers of television can only hope to be.