::Online Estimates Are Actually Treading Higher
Say what you want about downward revisions issued throughout 2008, the fact is, the revisions for online advertising are higher. Just two years ago, these were eMarketer’s projections:
Then two years - and a financial meltdown later - here are the revised figures:
In the first, eMarketer breaks down the online advertising pie by percentage from 2005 to 2010, in the second one, it is by absolute figures for 2008 to 2013. But if you look at the boldfaced totals, you can see that the three common years (2008, 2009 and 2010) have all been upped in the past 2 years, despite the meltdown that has withered away valuation of traditional media companies. The key term is traditional, as in “largely offline”. While new media players like Yahoo! (YHOO) and Google (GOOG) have been hit, as well, the broader online media remains well-positioned to bounce back quickly whereas traditional media’s outlook remains more bearish than ever.
So, to start off our preview of 2009, it should be stated that while some of the “think-tanks” revised the 2009 estimates downwards, these were adjustments made to higher estimates that were coming one after another earlier this year. Once people really understood the scope of the "clusterf*ck to the poorhouse", then naturally they had to do something.
The bottom line: the secular new media trends are more bullish than ever. All the economic meltdown will do is accelerate the migration from offline to online.
:: So Online Will Continue to Win, But At Whose Expense?
In fact, here is what we suggested recently:
- Print being the biggest loser: Why? Look no further than backwards lawsuits. But seriously, no one reads print and it is a very archaic distribution method, facing massive asset value drops (hmm… all of them) and steep debt (NYT, Tribune) they will also have to cut resources at a time when they should be investing more and more digital media and in digital distribution. Print’s only salvation will be the fact that you don’t need to be connected and can take it on the go.
- Followed by TV: Even more expensive as audiences fall, marketers will have a disdain for untracked media
- Then Radio: Satellite radio saw that better technology does not translate into success, terrestrial radio is free and the local flavor is hard to beat. Radio will be smaller and smaller for sure, but it won’t be as decimated as some expect.
- Then Outdoors: The only real way to reach people when they’re outside, not connected to anyone of the other media. Plus, as more and more digital screens proliferate, the options for outdoors begin to get better and better. Still, this will be small relative to the Web. I should note, WatchMojo.com’s videos reach 15M consumers across 2,000 screens in North America in digital networks outdoors…
:: The Case Against Search
Conventional wisdom is that paid search is more resilient to a downturn, because it is an ROI-based form of advertising, whereas banner display ads will soften up. As a result, the Google Bulls would say this doomsday scenario is impossible.
I am not so sure. This is why even Google can technically see a decline in revenues next year. But, don’t count on it. If there is even a chance, I think it boils down to basic economics.
I agree that search is a better way for ROI-sensitive advertisers to market themselves compared to display banners, but the problem is that paid search is powered by individuals, small and medium-sized businesses who will have a higher propensity to reduce their ad budgets in a downturn. In aggregate, this will add up to quite a loss of revenue. Could it represent the missing $3-5B? Possibly.
At the other end of the spectrum, while Fortune 500 marketers will reduce their ad budgets too, they will continue to shift dollars away from untracked, offline media to online, tracked media.
When it comes to the biggest marketers and global ad agencies, this means a shift to display banners (in the form of rich media) and video advertising, not paid search. Yes, paid search will remain a major part of online advertising (it’s 40% now), but this is not where ad agencies and marketing executives want to play in: marketing remains a “soft science” so don’t expect the Web to devalue intangibles like branding and brand equity.
Brand equity, my friends, is not measured via text link. Only display banners, rich media and video advertising will really increase brand equity (though text links can play a role there, too).
I know what you’re thinking: display banners will also move towards a performance-based model. Hmm… not sure, not so fast. Yes, crappy sites with crappy inventory will have to accept advertisers’ requests for performance-based pricing models (CPC, CPA) but the premium sites will never accept this. They don’t have to.
:: Outlook by Category
Before the economy got hit with the housing, financial and automotive meltdowns (good things do come in threes, no?), the traditional breakdown of advertising online by category was as follows:
Let’s assume that in a worst case scenario, all three sectors go down to $0 and 0%, then you are in effect taking out roughly 25% from the pie. This would be dire, but in the second eMarketer graph, you see that the other categories are growing by more than enough to offset any loss.
According to Jupiter Research, between 2006 and 2009, advertising will grow fastest in the categories of:
1. Health (19.7%)
2. Travel (18.3%)
3. Household Goods (15.1%)
Then again, that specific report came out before the financial meltdown, as it projected that by 2009, in the US, the biggest total dollar amounts will be spent in the following categories:
1. Media and Entertainment ($2B)
2. Financial Services ($1.7B)
3. Automotive ($1.4B)
4. Travel ($1B)
Yeah, not sure about #2 and #3, Jupiter. But the point is, those two add up to $3B, and it’s hard to imagine that advertising by those marketers will go to $0, anyway.
:: Search vs. Video
One day, video-related advertising will surpass search. There is one catch: I am not referring to video ads how we define it now. After all, search includes contextual text ads. As such, I believe that display ads that are served around videos should make their way into the definition and tally of video advertising. Otherwise, under YouTube’s existing ad units, $0 of YouTube’s revenues would fall under video advertising. But regardless of whether or not you include display ads that are served next to video, the numbers - and growth rates - reinforce this argument.
It is worth noting that eMarketer revised downwards the online video advertising estimate. So in October and December of 2007, I projected that by 2018, video could surpass search. Using the latest figures from a number of sources:
We come up with a) an average figure per year and b) a growth rate per year:
We feel that these are a good metric to use for instream video advertising growth. Instream being defined as pre/mid/post roll and overlays, but excluding companion display, which we believe is a major fundamental shortcoming of any analysis of online video, since (once again) this would exclude 99% of the revenues generated on YouTube - the world’s largest video site.
But now that we have a) an average figure per year and b) a growth rate per year, we can start to forecast where video will be relative to search down the road.
For search revenues, we will use eMarketer’s search projections from November 2008, here, we then project growth rates after 2013. Again, we see that by 2018, video advertising has a very good chance to surpass search advertising:
:: 2009: Display Advertising is Dead; Long Live Video Display Ads!
Another major trend we expect to see next year is the death of video-less display ads. Let’s look at a few facts:
- Social networking sites will continue to see eroding sales from advertising: Marketers have firmly rejected this notion that social media and advertising go hand in hand. As we have long said: yes, social media has changed publishing, but no, social media is not an advertising friendly trend. Social media is ultimately an oxymoron, we think, social networking is a form of communications, and like email, chat and message board communication, this will not be embraced by advertisers.
- Traditional display ads won’t cut it: Display banners - the ones and the kinds we’ve become accustomed to - are anything but interactive. Expect more interactivity, namely, more video in it. This bodes well for a player like Klipmart.
- Ad networks under pressure: A lot of the wheelings and dealings in display ads came from ad networks, who will all have to change their business model and adapt to a search and video driven web economy where the value of a traditional display ad will plummet. I stress that a traditional display ad, in my definition, is one next to text content… versus either a a) display ad with a video embedded in it or b) a display ad next to a video player, because a traditional display banner goes unnoticed pretty quickly.
- Marketers will ask for more from publishers, and the one asset publishers have is to start including video, either straight video content or video ads embedded in display advertising real estate.
If you are a Fortune 500 marketer looking to get out your message, TV, print and radio won’t be your first choice, but online will be. And when it comes to going online, search does not build a brand or give a marketer the control they want, and nothing will replace video.
:: Video-Powered Display Ads + Video Ads Will Surpass Search Ads by 2010
When you consider the size of TV advertising:
You realize just how big video-related online advertising will be. But the more time I spend working in this space, the more I realize video advertising (as in instream) might be small relative to video-related (as per defined throughout this piece). In this context, I think the sum of all video related advertising is much, much larger than we anticipate and expect.
So to conclude, despite the gloom and doom prognosticators, I think the online media space is going to blow up after February, when a new administration will be swept in and people look ahead to the promise of a new year after the 2008 financial meltdown.