These two change agents will unavoidably shape this spring's upfront and scatter markets, which the Big 4 have used to artificially boost pricing and demand. Their consummate game of supply and demand will not survive much past the end of the decade as interactive advertising becomes the norm, and online becomes the biggest ad-supported medium. That only gives television broadcasters several years to more dramatically alter their advertising tactics against some stiff headwinds.
The ravages of a recessionary economy (which eventually will abate) are being compounded by Google's intensified assault on traditional advertising pricing and practices (which are permanent). Given historical trends, a national ad slowdown will become apparent in the second quarter and remain negative for six to 12 months after the "official" end of the recession and the resumption of real GDP growth, according to Bernstein Research.
During that same period, online advertising will continue to accelerate--partly because of its formative growth curve and also because of Google's intensified efforts to transform the advertising paradigm. Unlike a recession, even the most powerful traditional media players cannot rebound from these changes. Advertisers will continue moving dollars online because it is less expensive, less risky, more measurable and provides higher returns on investment. Online advertising will grow about 23% to more than $26 billion this year, crossing the threshold of 10% of all ad spending just ahead of broadcasters' mandated digital conversion and the wireless remake of their analog spectrum.
Google's heavy hand in all of this cannot be underestimated. It is determined to monetize its $3.2 billion DoubleClick acquisition by leveraging its relationships on the buy and sell side of online advertising to grow its display ad and AdSense business. For DoubleClick to generate up to $60 million in earnings on $300 million in revenues in 2008, Google must capitalize on "a perfect storm" driven by advertisers' increased demand for measurability and search, general economic turmoil, and its own "enhanced quality initiatives," according to Lehman Brothers analyst Douglas Anmuth. That makes this open season on every national, regional and local advertiser doing business with online rivals, such as Yahoo and Microsoft, as well as cable networks, broadcast networks and their affiliated TV stations. If it successfully captures the remaining "white space" spectrum as it intends, Google will get its own wireless spectrum to package and sell to advertisers.
The numbers support what is ahead. Streaming online video growing from $1.3 billion this year to $2 billion in 2009 represents the swing spending that once buffered conventional media in challenging economic times. The broadcast networks are limited in the online ad dollars they can recapture with repackaged streams of existing programs, since page views are declining. Google's high-tech automated media planner rationalizes the pricing and related placement on across-the-board online and offline media. It can create and then seize on the mounting friction between agencies and their offline and online clients. Google can gobble up market share because it launches its quest from the interactive space where traditional media needs to end up.
Advertising budgets will remain steady and continue to shift spending from traditional media to digital. The movement is exemplified by General Motors' plans to move half of its $3 billion ad budget online over the next three years. By 2012, a three-tiered ad market will materialize with online topping television, and all other traditional media at the bottom, according to Screen Digest. While television players scramble to stem the decline of their 33% share of overall ad spending, Google is grabbing business--not only from TV and online but increasingly from mobile platforms. Yahoo CEO Susan Decker has aptly described that in five years, online video playing across every kind of mobile wireless screen "will make where we are today look like black-and-white TV." It will be accompanied by a new foundation of engagement and behavioral targeting metrics that will buttress transactional advertising.
Although that transition is underway, it will be barely noticeable in the $9 billion in upfront advertising commitments the Big 4 networks hope to snare. The closest they will come are Nielsen Media's viewing estimates C3, the average commercial minute ratings within three days of the initial program broadcast. With growing portions of TV viewing occurring on time-shifted platforms and devices like DVRs, Magna Global has called for Nielsen to measure and report commercial pods of two to four minutes as an improved estimate. Although cable TV will continue to benefit from the continued deterioration of broadcast TV audiences by any measure, online's exacting metrics and targeted consumer connections will prove more formidable leverage with advertisers.
Broadcast networks and stations must earnestly engage in original online content, social networking and other interactive ad-supported endeavors to get comfortable with targeted metrics. That's because next year, a broadcast industry turned digital, without the safety net of quadrennial Olympics and election spending, will see a real-time high drama: a shrinking ad base that's worse than 2007.