• by Diane Mermigas , June 3, 2008

The quest for ad dollars is going to be a grueling, inefficient exercise until interactive solutions connect advertisers with their individual target consumers. It is a doable, but there is no quick or easy fix.

There may be some resolution in the development of a value data profile for every person. It will be used and updated to interactively connect consumers with the products, services and content they desire. This permission-based data bank would slash through the clutter of Web sites and blogs, video streams and social networks. The rise of this "implicit Internet"--that captures and leverages personal data and preferences across the digital universe--will require consumers to compromise some privacy in exchange for getting more actionable value from Web resources.

This concept, which would finally bring consistently quantifiable meaning to ad spending, topped the list of 10 leading tech trends recently discussed by a panel of industry gurus at The Churchill Club's annual meeting. They included Vinod Khosla of Khosla Ventures, Roger McNamee of Elevation Partners and Josh Kopelman from First Round Capital.

Such a universal system of quantifiable connections would also solve other problems. Although search is an anchor for online advertising, finding information and conducting research on the Web can be time-consuming and inefficient. So is online ad buying and placement, despite the enterprising use of algorithms and auctions. Because viewing commercials on television and reading advertisements in newspapers is random, the more than $207 billion spent on domestic advertising is largely based on estimates, audits and educated guesses, compared to the more precise measurements that current technology makes possible.

Until an individual consumer value system and other solutions are created, there will be some craziness, inconsistencies and lost values.

Viacom warned about its second-quarter cable TV scatter ad revenues being off by half, or about $40 million from initial forecasts--and the company's stock price dropped 6.5% over three days, wiping out $1.5 billion in equity value. Now multiply that lost value over longer periods of time and more media companies. The weakness Viacom reported is not isolated to one company or period. Such weakness will continue to play havoc with ad spending as a result of digital tech and economic shifts. The economic weakness, and the structural change looming large beneath the headlines, will translate into permanent change.

For instance, there is no way that global airlines rack up more than an anticipated net loss of $6.1 billion this year, due to the rising price of oil (compared with making $5.6 billion in profits in 2007) and not have it adversely impact all spending, including advertising. It's the same story for automotives, the single-largest domestic ad category.

Consumer packaged-goods giant Procter & Gamble has shifted its dominant annual advertising budget to short-term media placements to better meet immediate product sales goals. It may show up as a major dent in the status quo $9.1 billion upfront the networks are struggling to achieve this year. Such changes in spending, which cannot be camouflaged by manipulating upfront and scatter TV inventory or by creating a deluge of ad networks, will also impact the Web.

Although major brand and smaller advertisers will allocate increasing percentages of their budgets to the Internet, experts are tempering their forecasts to $26 billion--up 23% this year and headed toward 11% of total ad dollars by 2010, according to Lehman Brothers analyst Douglas Anmuth.

But here's the kicker: If advertisers make more cautious short-term buys--on platforms from broadcast and cable networks to search engines Yahoo and Google to digital mobile devices--media companies will not know how to accurately gauge changes in their income to support their budgets. They will reduce spending and forecasts, especially as they also are squeezed by a pullback in consumer spending. As overall revenues are adversely impacted, so are companies' earnings and valuations.

Even before AOL has effectively joined forces with Bebo to bolster its online advertising proposition, Time Warner CEO Jeff Bewkes has conceded the $850 million price tag is too much. Valuations are off; so are metrics. In short, everything is changing. The urgent need for exacting metrics in the new digital world has rendered the inexact metrics of the traditional media world inadequate.

This protracted disruption in ad pricing and spending, as well as the redefining of all values, will have a more profound impact on industry economics and individual companies than seems possible at the moment. However, this confluence of forces may have a noticeably disruptive grip on media finances in 2009--a year in which ad spending already is forecast to be down for national and local broadcast television, newspapers and radio.

The good news is there are smart people at companies, universities and think tanks working to build a multi-functional interactive infrastructure that will support the emerging digital economy. The bad news: it will take time. Consumers, businesses, affinity groups--all have to buy into the new framework for it to be effective.

Until there is a better mousetrap created for a ubiquitous digital media universe, there could be as many ways to lose money as to make it.