Online ads are in trouble

Advertising is in deep trouble. A number of media companies reported their results last week, and the revenue side was ugly. Digital media was somewhat brighter than traditional print but there wasn’t much in it. For newspapers moving to the web, this is bad, bad news. It is bad not just because the money won’t be there but because it is emblematic of why this is all not working.

Print advertising was already in deep trouble, with a multi-year structural decline under way. Figures from the Newspaper Association of America, for example, show that print ad revenue never recovered to its levels of 2000. It picked up to 2005, but then dropped off steeply as both display and classified moved online. (for non-inkies: display is the quarter-page or half-page ad for a company; classified is houses and cars for sale).

One of the industry’s hopes had been that online would take up much of the slack, and until the middle of last year you could see some light at the end of that tunnel. Online advertising growth has been a powerful force. This study from the Interactive Advertising Bureau and PWC shows the numbers for the UK.

But this conceals even more bad news for newspapers and many online media. By far the largest chunk of online advertising – Sixty per cent of in the UK – is search advertising, with the rest split between online display and online classified. Search advertising is owned by the search firms, and especially Google. Online display is the slab of colour above, below or next to the story on the web.

The problem here is not just that advertisers are slow to shift to the web. It is that the right sort of ads aren’t moving to the web on newspaper sites because they don’t work there. Display ads need to be looked at for a while, they need to make an impact on the viewer/reader, and they need to be memorable. “While the Web is working fine for search and direct response advertisers (“What’s your credit score?”; “Rent from Netflix!”), it has yet to blossom for products that aren’t regularly searched for or purchased online,” says John R. Burbank, CEO, Nielsen Online in a good column for Adweek. “This latter type of advertising, called “brand” in the lingo of the Web, relies on compelling, memorable creative to open the hearts or minds of consumers… Combined with a crappy economy, this presents a very bleak situation for great sites like Yahoo, AOL, Facebook and The New York Times. These sites must profitably cover their investments in content and innovation, yet they can’t compete with Google for search dollars, and what they earn from direct response advertisers typically comes in the form of pennies-on-the-dollar…”

In any case, the downturn is now making things much worse. Search advertising is dipping, with Google reporting that  US search advertising spending fell 8% year over year in Q4 2008. Online display looks to be hit even harder, according to TechCrunch. “The online advertising business is in for a rough patch, especially for display advertising,” it says. And it noted that things were worse at the NYT. “Total advertising revenues were down 13.1 percent in the quarter to $1.8 billion. Of that, its total Internet advertising revenues (from NYTimes.com, Boston.com, and About.com primarily) was only $$81.9 million, down 3.5 percent.”

What happens next? Forrester Research has released its latest forecast, and it is not happy reading. “As the economic recession starts to bite into advertising budgets, growth in online advertising will slow: European online ad spending will grow just 10% in 2009, down from 30% annual growth in 2007. Search will fare best as interactive marketers focus on highly accountable direct response advertising, while display advertising will be hardest hit in this recession just as it was in 2002.”

Henry Blodget, financial analyst and guru, says things will be even worse and he may well be right. “It’s time we woke up and faced reality. Online display-ad spending will fall in 2009, probably sharply. It will probably fall again in 2010.”

There are some signs of things to come:

  • People are experimenting with new types of advertising they hope will be more targeted and more attractive to advertisers, using new technologies to make the ads appear where they are wanted. “To prosper during the downturn, interactive marketers should look for value in highly targeted display ads and seek opportunity in the improved performance of contextual ad networks like Google’s AdSense,” says Forrester.
  • The ad market may well be in for a shakeup. At the low end, many of the ads are sold through ad networks, which bundle together and inventory and sell it in bulk. This end of the market is suffering badly as rates collapse, and so major publishers may take ad sales in house to achieve greater control of the market.
  • There is at least one suggestion from MSNBC that more non-standard ads might be useful, and that part of the problem is that the wretched things are so unmemorable.

In my view, there are deeper structural problems with how advertising gets produced, valued and sold that need to work themselves out before news sites online see much benefit from all of this. Online advertising is treated as a hybrid of TV advertising – I want to buy access to a large chunk of the right sort of people – but also direct response: I will pay whenever someone clicks my ads. If you can get through it, this piece in Advertising Age explains why this isn’t productive. Translated: if you are a writer, your golden words are now being sold like French fries in MacDonalds. If you are an ad guy, the writers are churning out nineteenth century novels when you want zippy, snarky, pop and crack.

Take a step back here. News content of the sort produced by most newspaper writers is designed to support traditional newspaper display advertising (and vice versa). You spend time with it, read it all the way through, linger on the page, come back tomorrow at the same time. That doesn’t fit with new media models. And advertisers don’t want to be just a tiny illustrated window on a page that someone might look at randomly for fifteen seconds if you’re lucky.

End result: the technology guys can’t understand why the content people can’t produce content to work on their lovely platforms, nor why the BD people can’t make any money off it. The advertising and sales people can’t get the journalists to write copy that might sell to advertisers and the journalists hate the sales people for not making any money.

There is, in short, a series of massive mismatchs: between content and advertising strategies; between technology and content; and between the commercial strategies pursued by the publishers and what companies want. Maybe – just maybe – the coming collapse of all three will help.

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