Economist: Online Ad Spending To Fall 8%-9%

by Erik Sass, Monday, March 23, 2009, 3:41 PM

HOLLYWOOD, Calif. -- The economy is very much in the toilet, and the near-term outlook is not improving as unemployment jumps, corporate profits plunge, and credit markets remain frozen.

But what about online ad spending? While not exempt from recessionary trends, it probably won't suffer as badly as traditional media because it's more cost-effective -- but it's still going to take a substantial hit, according to the lead speakers at OMMA Hollywood on Monday morning. Still, there are some glimmers of hope that certain recessionary trends have already bottomed out.

Online ad spending will probably fall 8%-9% in 2009, according to Dr. Paul Kedrosky, an economist and the editor of Infectious Greed, a financial blog -- but that looks good compared to the rest of the media. While noting there aren't many data points to draw on, Kedrosky said an overview of economic downturns from the Great Depression to 2001 suggests an even bigger drop for overall ad spending, powered by a 4% or 5% slump in GDP.

This prediction is considerably more dire than, for example, the recent forecast from Magna's Robert Coen -- who has ad spending declining 4.5% in 2009. But Kedrosky recalled that what's now known as the "traditional" media was the worst-performing sector in the Great Depression, which some economists have said is the most comparable scenario for today's economy. This time, he said, "there's two things going on -- the depressionary or recessionary pressure, and the original upheaval" caused by the rapid growth of online advertising at the expense of print and broadcast.

Kedrosky and the other speakers agreed that the secular shift from traditional to online media will continue through the recession, although it may be camouflaged somewhat by deep, transient cuts in overall advertising spending. Noting the continuing growth of online media consumption and its basic advantages in terms of accountability, Mark Mahaney, an Internet analyst with Citigroup Investment Research, said: "You'd have to screw things up massively to interrupt the influx of money to online." Gian Fulgoni, the chairman and co-founder of comScore, agreed: "Online is capturing more share, and all the evidence indicates it's going to continue capturing more share... The question is, how do we continue to grow? Where are the soft points in traditional media?"

On a much-needed positive note, Fulgoni said in his keynote address that data suggests the decrease in e-commerce activity, at least, may be bottoming out; search marketing is also going strong with about 40% of online ad spending. Fulgoni added that other areas of online media and marketing, like display advertising, could also thrive despite the economic downturn -- provided that agencies can demonstrate the branding and offline sales impact to clients, and develop more accurate targeting.

"There's been a focus on measuring the online sales impact, but the end of the click is clearly not the right metric," said Fulgoni, adding that "display drives site visitation, trademark search queries, online sales, and offline sales. We've done over 200 of these studies, and I think the evidence is clear."

However, "we just need to improve targeting." Fulgoni recalled one major client whose campaign mandated that "none of these display ads are supposed to be landing on people outside the United States, yet more than half the ads were landing there."