• by Diane Mermigas , September 5, 2008

The challenge of realizing a digital content payday just got tougher.

Although the popularity of Internet video is booming on all devices, content producers and aggregators are anxious to unlock the secrets of monetization. That may become increasingly more difficult as many marketers consider double-digit reductions in campaign media budgets and ad production for next year, according to a new survey by the Association of National Advertisers. The boom could be lowered on video advertising--on TV and online.

Nearly one-fifth of U.S. households that use the Internet view TV content online (double the number from 2006), according to the Conference Board. But those programs generally are accessed on the originating TV networks' ad-supported home pages. Those usually include some version of the broadcast commercials--a no-brainer. The online ad revenues do not yet offset declining TV ad spending--which may grow only 2% in this quadrennial Olympics and presidential election year, by some accounts.

Selling advertising online has been a mixed bag, even with the steady shift of dollars from television and print media. Now, there are clear signs that macroeconomic weakness will especially soften online display advertising in the U.S. and abroad into next year.

JP Morgan analyst Imran Khan now sees domestic online display advertising growing only 14% to $8.2 billion in 2008 (compared with his prior forecast of 20% growth to $8.6 billion), and growing 16% to $10 billion in 2009. Search ad spending also will grow at a slower 27% rate, down from an originally forecast 32%. International online ad-spending rates have been similarly lowered. In trying economic times, conservative advertisers are shifting more of their online budgets from display ads to performance-based channels, such as search and cost-per-action (CPA) models.

That will pressure profitability at AOL and cause Fox Interactive Media to make it only halfway to News Corp.'s 30% growth target, Kahn said. Display advertising represents 70% of FIM's revenue and 37% of AOL's advertising revenue. With less than 3% of its 4 billion monthly video carrying ads, Google's YouTube could do even worse, of it were not for the user-generated Web site following MySpace's lead by selling pricey ad space on its home page. YouTube attracts about half of all online video views. More broadly, the growth rate of Google's revenues from display advertising-dependent network sites--such as YouTube, AOL and eBay--is expected to slip from last quarter's already lower 22%.

Slowing growth rates in online video suggest that not even influential forces like social networking can save the day during this economic squeeze, even as MySpace and YouTube struggle to crack that code. And that doesn't leave much else to rely on.

Although eMarketer predicts that 44% of Internet users in the U.S. will be social networking this year, other survey conclusions vary widely. Universal McCann in April reported that only about one-quarter of the U.S. population uses social networking at least every other day, while a recent survey by Synovate found that 45% of domestic social network users are losing interest.

All of this could spell trouble for ad-supported online content providers who place stock in bullish 2009 forecasts from organizations such as Interpublic's Magna, which expects online video to grow 45% to $805 million, mobile advertising to grow 43% to $298 million, and social media to grow 37% to $1.5 billion next year.

That content producers and aggregators may not realize more of an advertising boost online or on other digital platforms when they most need it may prompt them to aggressively seek solutions. Ultimately, what will be needed are accountable and credible measurement standards that can be used to determine the value of target consumers, platforms and reach. They must also concentrate on the creation of advertising and marketing that is suited to interactive devices, such as mobile phones and PDAs. Fundamentally, those who create and distribute advertising and content must acclimate themselves to an interactive world in which exchanges with the consumer are completely integrated, responsive and ongoing.

It is difficult enough to pry dollars from the hands of advertisers, as the broadcast and cable networks are about to realize in collecting the first wave of their $9.1 billion upfront prime-time commitments. But it is an impossible task if you cannot credibly demonstrate who they are reaching specifically, and their return on investment.

For decades, television ratings have been a multibillion-dollar guessing game about who saw what at any given point in time. Generally speaking, we still don't really know. Interactive technology is not being utilized to make Web video measurement much more meaningful. Too many of the most important interfaces with consumers are not measured. There is still no consistent, qualified collective cross-platform reporting of the connections made with specific individuals. Solve that, and you create a sound, sustainable financial base for what could be a flourishing digital economy.

But even the smartest metrics will not support a marketplace in which content producers and advertisers do not completely comprehend--or can exploit--interactivity. Much of today's content and marketing is just thrown into the online grinder as an easy first step.

Most companies on Madison Avenue, in Hollywood and everywhere in between are consumed with slashing costs in their 2009 budget plans. But they should take time to consider stripping away the inefficient and expensive processes that support doing things the old, static way. You can't change the results at the top--even in better economic times--if you don't make changes from the bottom up.