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| Media economy | |
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| Media economy | |
a whole new game Torrid growth in ad spending has come to a halt Oct 16, 2009 The booming category of local online advertising has finally slowed after years of double-digit percentage growth, but don't blame the recession. Though that's hurt spending to some degree, there are other, more important reasons for the slowdown, according to a new report from Borrell Associates, the Williamsburg, Va., research firm. Borrell predicts that local web ad spending will slow to just 12 percent growth this year, to $14.2 billion, and 2010 will see just 5 percent growth, to $14.9 billion. That comes after increases of nearly 50 percent each year for the past four. The bigger factor is that the web is maturing. The internet has a 13.8 percent share of all local spending, and Borrell says that it has nearly maxed out, competing against other local media including newspapers, TV and radio. Too, there are a lot more players competing for local advertising these days compared to just a few years ago. Gordon Borrell, chief executive officer at Borrell Associates, talks to Media Life about the reasons for the slowdown, when double-digit growth will return, and how competitive local sales have become. In a year when nearly every category and subsector of advertising fell, local online is still growing. Why? It’s pretty simple. Businesses still need to advertise in tough economic times, but they tend to get more frugal. They look for lower-priced, performance-based alternatives. A flight of radio commercials or quarter-page newspaper ad isn’t exactly low-priced, and the results are never guaranteed. So those forms of advertising, while effective, tend to be unaffordable luxuries in tough times, while advertising that generates email leads, phone calls, or even measurable clicks to a web site is preferred. While it is growing, that growth rate has also slowed substantially. What is the biggest single factor causing the slowdown in local online advertising? Online media currently accounts for 13.8 percent of all local advertising, which means it’s approaching the maximum share that we’ve seen any local advertising medium get. With 11 media categories (newspapers, radio, TV, online, etc.) competing for local advertisers’ dollars, it’s very difficult for any one of them to get more than an 18 percent to 20 percent share. What are the secondary factors? A secondary factor is an omnipresent condition that I call the John Wanamaker Syndrome. Every advertiser feels like Wannamaker did 100 years ago when he complained that half his advertising worked and half didn’t – and he couldn’t tell which was which. When an economic trigger occurs, like we’ve seen in the past 18 months, those businesses are forced to act on that nagging syndrome. It’s the reason local businesses began abandoning their traditional marketing during the 2000-2001 downturn and started rushing to the internet. Well, guess what? The Wannamaker Syndrome has begun to hit the internet, and many advertisers are beginning to shift back to some form of traditional media that once worked for them. They’re merely adjusting the dials to find the appropriate mix. How much of the slowdown is recession related? It’s difficult to tell, but our models show that it’s not much. Obviously things slowed down considerably this year for local internet advertising – from 45 percent growth in 2008 to about 12 percent this year – so a big drop like that in a down year probably reflects some cycle. For 2010, we’re expecting a very small increase, 5 percent. If we were looking at a return to double-digit growth, I think we could say that the 2008 slowdown was due mainly to the economy. But as I said before, I think the slowdown is due mainly due to the internet reaching its maturity as an advertising medium. After years of huge growth, local online advertising growth will level out over the next five years, then start rising more sharply in 2013. Why? That’s due to mechanics more than anything else. At that point our model is factoring in natural economic cycles like population growth and shrinkage, job creation and loss, and related trends in retail sales and advertising. I don’t want to dwell on predicting what will happen in 2013 and beyond because it becomes a lot less reliable and a lot more opinion. (I’m not a futurist and hope nobody every calls me one.) You say that in 2010, "the game will center more around stealing market share than growing the market." Can you give an example? We interviewed 100 locally based businesses last June and found that 38 percent of them were getting at least one call per week from someone trying to sell them internet-based marketing. Two-thirds of them were hearing one pitch per month. So what’s happening is that most advertisers today seem to have some sort of internet presence – whether it’s a yellow pages listing, a banner ad somewhere, some pay-per-click program on Google. They’re already settled into an internet buy, which means the local furniture store or car dealer is set when it comes to internet advertising. The only way a media company is going to get more interactive dollars in 2010 is by convincing the advertiser they’ve got a better product – stealing the business away. I rode with a sales rep for a newspaper company last August who basically stole a $3,500 online-advertising contract from the yellow pages by convincing the business owner his product worked much better than the yellow pages’ online directory product. What trends in terms of types of online advertising are you seeing at the local level? Does it mirror nationwide trends (as with the decline in banner sales), or are there subcategories that are more popular with local? Why? The macro trends at the local level are really tied to future declines we see for two print categories – yellow pages and direct mail. Macro trends in national really don’t apply locally because national buys are more branding-related, while local tends to be more tied to driving immediate sales. What’s happened to newspapers is pretty much done; we see a very mild bounce-back for them over the next five years – more of a dead-cat bounce than anything else, but a bounce nonetheless. Yellow pages and direct mail are on the chopping block right now. Advertisers who have a propensity to buy half- and full-page ads in the yellow pages or buy coupons or inserts in direct mail will be the ones migrating more dollars toward online. We strongly suspect they will be buying something similar online – not banners, but something that more resembles a direct mail or yellow pages buy. That means email and online directories, and to a great extent paid search, will probably be the biggest beneficiaries. General run-of-site banners are really a tough sale and frankly don’t get results. Whenever I speak, I ask for a show of hands from people who have visited the web in the past 24 hours. Everybody raises their hands. Then I ask if anyone can recall a single banner advertisement they saw. In a group of 100 people, I might get one or two hands. People don’t see banners, so there’s a lot of trouble ahead if you’re selling basic banner advertising and not able to offer some of these online products that are in high demand.
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