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Published: March 2, 2009 at 05:46 PM GMT
Last Updated: March 2, 2009 at 05:46 PM GMT
New forecasts for total U.S. investments in advertising due to be released next week project that marketers will reduce their spending by 10.0 to 14.0 percent in 2009, compounding a 4.1 percent decline in 2008 and foreshadowing an additional 5.0 to 7.0 percent reduction in 2010. In the three year period between 2008 and 2010 the advertising economy, once a shining beacon of America's economic, technological and creative leadership, will lose as much as $50 billion, with projected 2010 spending declining to a projected $187.3 billion from $234.3 in 2007. There are many factors to blame, but could it be that marketers are just not that into the benefits of advertising anymore? Could it be that advertising is no longer valued as an important contributor to business success? Or, even more threatening, is it conceivable that marketers never really considered advertising to have any real value beyond a low-cost mass distribution vehicle for their ad messages? Is the steep descent of media costs, powered by the expansion of media options, enabling advertisers to lower their investments with little if any reduction in perceived value? And have marketers considered the long-term implications of their spending reductions?
As the American Association of Advertising Agencies meets in New Orleans this week for its annual media conference, attendance is reported to be down significantly year-to-year. One reason may be an agenda that fails to focus on the underlying threats to traditional media and advertising business models. The Magazine Publishers of America have downsized and moved their annual conference to New York. The Out-of-Home Advertising Association has canceled an annual event. Yet, the media and advertising industry continue to celebrate the advance of media technologies, even though these advances have directly resulted in a deterioration of the economic value of the vast majority of leading media companies. The dramatic increase in media supply has come at a time when marketers' demand for ad inventory is on the wane.
Although tech-based advances in the media industry promise enhanced quality of consumer communications, marketers continue to rely on media for essentially the same basic values they have for the past 80 years. The role of advertising throughout the industrial age has been to provide a foundation of exposure for the mass one-way distribution of advertising messages to consumers.
The process has been static: develop a creative messaging strategy; identify the best media vehicle to deliver that message (typically some combination of television, print, radio, outdoor and now the Internet); and then buy audience impressions from the media companies that offer the best package of mass reach and cheap impressions. Even in the emerging categories of online and mobile advertising, an estimated 90 percent of all spending by marketers is determined by this same traditional model, with value defined by the number of impressions and the cost-per-thousand people reached. Ninety percent!
Based on the projected $197.8 billion in total projected 2009 ad spending, only $175 billion will be invested with value metrics based on measures other than cost-per-thousand, or in the case of search advertising, cost-per-click. The traditional business models that have supported the media business for decades remain dominant, and they can no longer support either traditional media companies or the emerging media that offer far greater value beyond CPM.
Ironically, even as the industry has fostered the growth of social networking, user generated content, video on demand, content telescoping, interactivity and other advances that were considered to offer great value to advertisers, the economic support anticipated for these advances has simply not materialized. Behavioral targeting, once touted as the growth engine for AOL, Yahoo!, Microsoft and several of the more than 400 advertising sales networks that have grown up around the online ad business, is proving to be a powerful force for driving down online ad costs. Marketers have been extraordinarily slow to embrace new interactive offerings, solutions-based opportunities developed by DVR-leader TiVo, social networks, user generated content, conversational marketing techniques, new research that measures audience involvement and engagement, and innovative strategies designed to connect marketers' directly with their core consumers and potential new customers.
Although media companies charge forward with additional investments in new media advances, they are failing to invest commensurately in new business models to support them. Few media companies have developed the resources to tap into the 70 percent of marketers' communications budgets that are invested in trade and consumer sales promotion, direct marketing, event marketing and other below-the-line budgets. Few have invested in brand equity research to define the relevance of their content to marketers' overall consumer outreach initiatives. Instead, they continue to invest almost exclusively in traditional reach based, impression focused media tactics. Bottom line, marketers' message to media is don't bother to develop creative and innovative opportunities. It's only the price that counts in the end. We're just not that into you.
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