Are You Positioned For Permanent Advertising Contraction?

Everyone’s talking about the looming recession, especially in the advertising business. I think there’s solid thinking about what the next year holds, but I took a stab at what the next five years may look like. My post below is also this week’s MediaPost column.

Are You Positioned For Permanent Advertising Contraction?

December 7th, 2007 by Max Kalehoff

Economic cycles are a fact of life in the advertising business. It’s been true since the beginning. But perhaps more predictable than advertising cycles are advertising forecasts. Hey, there goes another one!

The latest significant advertising forecast is from media agency ZenithOptimedia. According to Ad Age’s coverage of the report, marketers will spend $195 billion on North American advertising next year, 4.1% more than in 2007, while ad spending worldwide will near $486 billion in 2008 for a 6.7% gain. However, U.S. ad-spending growth this year will reach just 2.5%, far below the 3.7% growth it forecasted last summer and well under 3.6% inflation so far this year. That means that the respective growth of the entire pie is happening elsewhere, particularly in less developed advertising economies.

But that 6.7% growth for 2008 is not so significant when you consider three of advertising’s most important catalysts are colliding that year: the U.S. presidential election, the Olympics and a European soccer championship. Once that’s over, you can bet all eyes will be on early 2009, seen in many industry circles as a likely peak for the inevitable advertising cycle to begin its downward trend.

Not surprisingly, the Internet is seen as the bright light in this ultimately mediocre forecast. While newspapers, magazines and radio advertising are expected to lose share, “Worldwide Internet ad spending will climb to $44.6 billion from about $36 billion, increasing its share of the market to 9.4% from 8.1%,” according to the ZenithOptimedia report.

What’s my take on all this? Selfishly, I’m glad I’m positioned in the online subset of the advertising economy. I’ve been bullish in this area for the past thirteen years. I suffered through the dot-bomb crash like everyone else, but the fundamentals won out and are stronger than ever. But I’m really not an Internet cheerleader or industry groupie; there’s something bigger going on.

It’s critical to view online advertising not as a safe haven, nor as an advertising subset with solid fundamentals. Online advertising must be viewed as transformative. Sure, online advertising is a bright spot, but it’s really a pervasive entrée to digital media ubiquity. It means all of our silo-plagued concepts of media categories — like Internet, newspaper, television, stuffed into this latest ZenithOptimedia report — will eventually connect and blur onto the digital grid. That will lead us to adopt models based less on media formats and audience proxies, and more on actual people, content, behaviors, receptivity, relationships and performance.

As that happens, the advertising economy will achieve unprecedented predictive, delivery, and interactive efficiencies. In other words, when most everything is online and connected, the fat and waste will begin to shed, making shrinkage of the total advertising pie a likely scenario. Even the early-stage, overseas advertising markets experiencing the fastest growth will inevitably mature and face this reality.

Oh, about those inevitable advertising cycles? Successive downturns will facilitate long-term advertising contraction by shifting dollars and expectations to those more accountable digital media. Advertising cycles will alter as a greater proportion of marketing dollars circulate back into product, experience, and customer-management functions.

How are you positioned for advertising contraction?

Published by Max Kalehoff

Father, sailor and marketing executive.

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