Firms Slash Ad Budgets in 2009

Affordability and accountability will matter a lot more in advertising strategy.

By Tosin Mfon, Researcher-Reporter, the Kiplinger letters

December 19, 2008

The recession will have far-reaching effects on all advertising formats. Businesses will spend less, changing their marketing strategies and slashing their ad budgets. Even after the economy recovers, advertising isn't expected to rebound quickly and some sectors simply will never return to the booming heydays of the past decade.

"It's going to be a longer [recovery] period for media than it will be for the rest of the economy," says Kip Cassino, vice president of research at Borrell Associates. "We are not going to see media making major increases."

Traditional ad mediums, print and TV combined, are headed to lows not seen in more than 10 years. A drop of 5% in revenue is expected in 2009, as shrewd media buyers favor affordability and accountability.

Even online, touted as the consumer's new stomping ground, growth will not come easy. Online advertising will decline by 1.3% in 2009 after years of double-digit growth. And while local online ads will show revenue gains, the rate of growth will slow dramatically to only 7.8% next year, after accelerating 47% for the year in 2008, according to Virginia-based Borrell.

Granted, the Web advertising boom was headed for a bit of a slowdown anyway, but the economy's woes will expedite the cycle, delivering a body blow to advertising revenue growth.

"Nothing grows forever, even in the best of times," says Cassino, explaining that the economic downturn combined with the credit crisis have had significant effects. "What that piling on has caused is that events which we thought would take place in 2010 and 2011 are taking place next year."

Declining display ad revenue will drag down the online sector as more small businesses opt for search ads that offer measurability and a greater return on investment, a trend also mirrored in national ad-buying patterns.

"In this economic environment, the most accountable ads are the ones that are performing the best, especially search," says Jeff Lanctot, senior vice president at Razorfish, a Seattle-based interactive media agency.

Many firms will find the answer in online videos ads. It's a small medium that is gaining momentum as companies scramble for cost-efficient means of publicizing brands and products. Advertising spending for online video, which makes up 2% of internet ad revenue, is expected to quadruple by 2011, hitting $1.9 billion, according to eMarketer.com.

Small businesses will promote their products on their own sites, shunning the expense of ads on media sites. With prices starting as low as $99/month to produce a video, small firms have easier and more affordable access to video solutions on their own sites.

"They know that the consumption of online video is rising dramatically," says Benjamin Wayne, CEO of Fliqz, a video software company. "It's an extremely powerful means of engagement." And businesses that tap into this consumer behavior can stand out as innovators, increase site traffic and retain repeat visitors. The key here is ensuring that content is well-positioned to the audience.

Free options -- those available on Web sites such as YouTube.com -- work for small firms that are still trying to decide how video fits with their audience. But the YouTube logo will be seen on the frame of the videos.

On the other hand, for an average price of $250, companies can buy video player software that has no company brand name anywhere on them from firms such as Fliqz. It offers a more sophisticated approach to the audience. Both options enable firms to track the effectiveness of the content and then reposition ads or video accordingly.

"Online video is growing very, very quickly and in the future, it's going to take over the share that is being lost in displays [ads]," Cassino says.

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