Internet Advertising Rises While Traditional Advertising Shrinks

Consultwebs.com, Inc., September 18, 2007 — The first two quarters of 2007 showed a 3 percent drop in total advertising expenditures, the first time this has happened since 2001. The weakness in ad spending is predicted to continue across a wide range of traditional media – newspapers, radio, magazines and TV. One industry, however, has recorded persistent, record growth: Internet advertising.

Print and television advertising’s loss is clearly the Internet’s gain. For the first time since 2001, the amount of money spent on advertising declined for two quarters in a row. At the same time, there was a sharp increase in Internet advertising expenditures.

The decline in ad spending is predicted to continue through the remainder of the year. Some statistics culled from a flurry of recent reports:

• Total advertising expenditures in the first half of 2007 slipped by 0.3 percent to $72.59 billion versus the same period in 2006. It was the first time since 2001 that media advertising expenditures declined for two consecutive quarters.
• Internet display advertising maintained its growth leadership position, registering a 17.7 percent increase to $5.52 billion. In contrast:
  • Consumer magazines posted a 6.9 percent gain
  • Outdoor advertising was up 3.6 percent
  • Cable TV ads were up only 2.8 percent
  • Network TV expenditures fell 3.6 percent
  • Spot TV adds dropped 5.4 percent
  • Syndication TV was down 5.3 percent
  • Newspapers plunged 5.7 percent
• Radio advertising dropped 2.7 percent

Experts say that the advertising industry itself hasn’t changed, but consumers have. By all appearances, the advertising industry is not prepared for the coming collapse of the traditional (read: “old”) advertising model.

A May 2007 Newsweek article showed how effectively Virgin Atlantic Airways promoted it’s new, first-class flat-bed seats directly to its target audience – business travelers – through a 10-minute video available for voluntary viewing on hotel pay-per-view networks. In six months, Newsweek reports, more than 1.2 million hotel guests viewed the commercial.

Thanks to new technologies such as digital video recorders (DVRs), video-on-demand services and Internet broadband, consumers can speed right past commercial spots – and 70 percent of DVR owners do so.

Private equity firm Veronis Suhler Stevenson projects that spending on Internet advertising will reach $62 billon, surpassing newspapers to become the nation’s leading ad medium by 2011. The firm cites changing consumer behavior as the reason behind this prediction, including:

• A migration to the less time-consuming digital media (YouTube clips versus 30-minute TV shows)
• A migration from ad-supported media (TV, newspapers) to consumer-supported media, such as the Internet and video games

Veronis Suhler Stevenson adds that national Internet advertising – which includes search, display, sponsorships, etc. – is projected to remain the dominant dollar-generator with $38.897 billion forecast for 2011, representing an 18.2% CAGR from 2006-2011. Other areas of digital media ad growth: pure-play Internet sites; traditional media-based Internet sites; and blog, podcast and RSS advertising.

Newspapers, specifically, are still trying to recover from major losses in classified advertising, which traditionally make up about 35 percent of revenues. Competitors such as Craigslist and online job-search sites are increasingly draining newspapers of what was once considered their “bread and butter” advertising categories. Now, newspapers are facing yet another threat: the loss of real estate ads.

Although it has been difficult to measure, real estate executives have been quoted as saying that they are moving their advertising dollars from newspapers onto the Internet, specifically because of its usefulness as a tool customers use to research available homes.

In July 2006, Tribune Co. – owner of the Chicago Tribune and the Los Angeles Times, and several other media properties – posted a 24 percent drop in real estate advertising in its second quarter. Other major newspaper companies reported losses as well.

There is a bright spot: Advertising expenditures for newspaper websites increased by 35 percent in the fourth quarter of 2006 versus the same period a year ago, according to preliminary estimates from the Newspaper Association of America.

However, the declines in newspaper industry advertising are expected to be permanent, according to rating agency Standard & Poors (S&P). The agency warned that declining ad revenues will probably force it to continue downgrading newspaper debt. S&P rates 13 newspaper companies and it already has three placed on CreditWatch with negative implications, and has rated three others with negative outlooks.

Article by Consultwebs.com, Inc., © Copyight 2007