Oh the advertising it’s a’ changing

Michael Hedges November 16, 2008

It’s not good enough to say the ad spending trajectory – down – is carrying with it the old media lions, or lions’ share thereof. Online advertising changed everything. And online advertising is changing, too.

Recent financial reports from two media lions Bertelsmann and Axel Springer point to the less than positive trend for big – and old – media. Keeping the house profitable means selling assets. Bertelsmann sold Sony BMG. Axel Springer sold its stake in ProSiebenSat.1. Telegraaf Media Groep (TMG) wants to sell everything not on home turf and some that is.

Raising cash isn’t what it used to be. Media companies, even in the public sector, are finding it neigh on impossible financing current operations by borrowing against future cash flow. By the time the Great September Financial Crash passes its first anniversary much of old media will be in tatters. Yes, the old lions will be chased to their death by jackals, ripped to shreds by contextual ads, keyword ads and search ads.

Online advertising, in one short decade, has ripped the heart out of ad dependent old media. Most gruesome has been how much of old media kept laughing as weasels ripped their flesh. The revolution has been televised…on YouTube.

Searching constantly for “accountability” media buyers and advertisers found in online advertising the key to narrowing the gap between promise and performance. Click on ad to buy now. No more airy-fairy meetings about brand loyalty. Show me the money! Media budgets have been “rearranged” toward return on investment, “qualitative analysis” and “conversion optimization.”  

“2009 is going to be an interesting year,” said internet marketing company Strange managing director Paul Honey on releasing a forecast for internet advertising. Predictably, Strange expects spending on digital marketing to increase driven by current economic insecurity, more and better internet access and advances in technology that allow advertisers better targeting.

All the big ad spending segments – retail, automobiles, telecoms and travel - are cutting back in the short-term, says JPMorgan’s Imran Kahn. The cut-backs will “bleed through” to online advertising. Kahn lowered global online ad spending growth rates to 25% for 2008 and 13% in 2009. Those growth projections are still in double digits unlike negative estimates for old media, save outdoor.

Search and keyword ad spending, says Kahn, will grow a robust 34% globally in 2008. Keyword pricing is moderating as high-bidders put on the brakes. Online display advertising continues to fall out of favor, hurt by falling sell-through rates and the correlated cost per thousand. The ad people consider search and keyword ads better ROI than display ads because money returns faster.

Google’s share price briefly sank below $US300 last week (November 13) causing yelps from the betting parlors. As the dominant global beneficiary of search ad spending Google – bless them – depends on folks clicking on the search ads. If, analysts speculate, folks are putting any spending on hold search advertising will generate less sales prompting advertisers to spend less trying to hook them. Granted, short-term retail sales prospects look grim in Western Europe and North America but the ‘Christmas Cancelled’ headlines from the ad trades are over the top.

The accountability factor is the plague upon the houses of old media. When economic recovery bubbles to the surface, perhaps in 2010, advertisers will still demand a closer and closer connection between ads placed and sales registered. Online advertising does this best... so far.

The advertising people have their sights set on mobile advertising, arguing that the mobile phone is always on and offers the ultimate in targeting. The sweetener is that target: 15 to 25 year olds, people most easily shaped for new purchase behavior. The looming questions about mobile advertising that the ad people cannot avoid are consumer resistance to intrusiveness and the broader privacy issue.

Broadcasters, however, have a unique opportunity from the convergence of digital and IP technologies. Ad targeting at the ‘micro’ level is not limited to web users and mobile phone owners. The ‘two-way’ communication advertisers demand can, through IP technology, come to the kitchen or automobile digital radio and the digital TV in the living room. But it’s yet another structural change, less speculative than expensive, and, for broadcaster, it could be the last chance.

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