John

Recession for 2008=More Advertising $$?

In News on January 28, 2008 at 9:12 am

budget-cuts.jpg

(Pic from linusb4 @ sxc.hu)

So, it’s pretty much an accepted fact that we’re gonna go through some sort of recession this year: The only questions that remains are how long and how deep will the recession affect us. The Economist’s issue from Jan 26-Feb 1 gave a great insight to the upcoming recession, and predicts that it won’t be the slump of ’97-’98, cushioned partially by the “decoupling” effect between the US and the rest of the world, especially emerging markets. (Note: I could be talking out of my ass here, but that’s what I got from reading the article.)

But for those of us involved in media, PR and advertising, there’s one pertinent question that needs to be answered: How will it affect advertising budgets? In this story, The Economist points out that there is hope yet for 2008, with ad budgets actually increasing thanks to the Olympics and Euro 2008. Instead, it says, 2009 will be the year that advertising budgets will be affected deeper.

Another interesting point brought forward was the fact that the recession could actually be a catalyst for an increase in Internet Ad spending, with advertisers slashing budgets for scattershot traditional media like print and TV, and instead concentrating more on the more targeted medium of the ‘net.

In fact, forecasters disagree about advertising spending in 2008. UBS, a bank, predicts that expenditure on ads will increase by 5%, whereas Goldman Sachs, a rival, forecasts that it will decline by as much as 5%. Most, however, agree on one thing: underlying growth in ad spending will come mainly from emerging economies and from advertising on the internet.

Emerging markets now represent one-fifth of global expenditure on advertising, and are contributing ever greater sums. The price of ad-space has risen quickly in some emerging markets, such as Russia and China, and growth is slowing there. Even so, ZenithOptimedia expects developing countries will add $50 billion in new ad-spending in the next three years whereas developed markets will add only $38 billion—the first time that emerging markets have come out top over such a period.

In rich countries the internet is claiming a growing share of advertising—at the expense of traditional media, such as TV and print. There is still a gap between the time people spend online as a fraction of their media consumption (about a fifth) and the fraction of marketing budgets spent on the internet (about 7.5%). Many companies are trying to narrow the gap, which will sustain internet advertising during a downturn. Search advertising, the most effective kind of all, should be safest.

Indeed, some people say an economic slowdown is likely to accelerate the shift to the internet. Trevor Kaufman, chief executive of Schematic, an interactive agency based in Los Angeles which was recently bought by WPP, says that one of his clients, an American “big-box” national retailer, intends to devote more of its marketing resources to the internet as the economy slows.

The internet’s interactivity and wealth of product information make it the best means of generating short-term sales—whereas television is best for long-term brand-building. During a downturn clients see internet ads as easier to measure and hence easier to justify to shareholders, says Mr Kaufman.

So what are you waiting for? Get on the ‘Net. Now.

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