BUSINESS BLOGS
BUSINESS BLOGS
category: business
30 Dec 2008

The Grinch Who Stole Q1

Tech Crunch has been making the rounds and the projections for Q1 2009 online advertising are bleak:

Display advertising revenue is going to fall of a cliff in January according to a number of content sites I’ve spoken with who rely on advertising for revenue. “Sales through December were mostly strong as advertisers used up their marketing budgets,” said one sales exec. But, he added, “there are few buyers for this next fiscal quarter, and those few that are buying are looking for steep discounts.”

Just how bad will it be? I’ve heard estimates of 30%-80% revenue drops over the next three months from companies that serve a variety of content (games sites, tech news, celebrity news, political news, etc.). The median pessimism point is around 50%. The people I’ve spoken with work at large public companies and small one-person blog shops. Absolutely no one I spoke with said they expect an up quarter.

Negativity Begets Negativity

At some point (and we’ve passed that point, folks), the bad news becomes a multiplier effect for more bad news:

- a media buyer sees this kind of article, uses it to lowball a publisher,
- the publisher sees little bright news, so they give in,
- the rates fall downwards, the bookings become rarer and rarer,
- next thing you know, indeed, we’re in a down quarter.

D stands for Deflation…

The web economy and online advertising sectors represent tiny pieces of the bigger picture.  The buzz word in 2009 will go from subprime to deflation… so if we operate in a climate (or think that we do) of falling prices, then I wonder why we’re shocked to realize that ad rates and overall ad revenue might fall.  I think at the macro level (all marketing) this might - and will - happen.  From AdAge, via MediaMemo:

… and Display Advertising!

But as we outlined in our 2009: The Year in Online Advertising, yes, display will be weak, but I think publishers are buying into the glass-is-half-empty outlook because of bearish reporting.  The truth is, my gut says things will go down a bit differently:

- marketers will push for video ads (and rich media ads in general) in display advertising real estate,
- the definition for video advertising will move away from purely instream ads (pre-rolls or overlays, for example) to include in-banner video ads,

and by mid-year, the actual display advertising figures will be fine (when you include the video / rich media units).

I do agree that traditional display ads will be weak… mainly due to a horrible Q1.

Let’s be honest: CPA and CPC are for suckers

While many are using the downturn to suggest that performance-based advertising units will see a boom, I’d like to point out a truth that most publishers fear admitting: CPA and CPC ads don’t really work for publishers, so even in horrible CPM times, I don’t think you will see a boom in performance priced ads in a downturn.  For more on the entire CPC, CPA and CPM and other online ad terms, click here.

CPA and CPC revenue does not pay the bills, and quality publishers generally reject giving up prime real estate to CPC and CPA inventory.

But don’t take this from me, just follow the market: why else do you think Doubleclick, Blue Lithium, aQuantive and Right Media all got bought out (they all pay out largely in CPM terms even if on the back end they arbitrage inventory on a performance basis) whereas Valueclick remains standing, with no one to partner up with.  At its peak, Valueclick was worth $3B with talks that it could fetch more.  Even before the market meltdown, it was trading at $1B.  Today, in the post media meltdown market, it is trading at $562M in market cap, with an enterprise value of $460M.  The point being: in my experience dealing with of all the ad networks, from the publisher’s perspective, Valueclick was the most exposed to CPC and CPA and thus, most expendable.

Now this is all just my gut, but my gut has been right before: here’s one example of CBS buying CNET.

All Things Are Relative: At Least We’re Not in Radio, TV or Print!

If online advertising sentiment is this bad, even if the outcome is half as bad, then imagine what the radio, TV or print outlook is right now.  Can you really imagine a media buyer paying $1M - let alone $50M, as Dell balked at - to be in print?  What about radio or TV, which represent a black box in advertising where you don’t get to even track or target anything?

Newspapers like NYT and Tribune are - or are at risk to - defaulting right and left.  TV companies like CBS are seeing declines in revenues.  Radio companies are not faring better.

The point I am making is: there is a bull market somewhere at all times - even these times - and that market is online.  It’s time to balance the reporting, too.  I find it appalling (alright, strong word) that a site like Tech Crunch inflated the bubble on the way up, and is now ringing the bells of doom in the downturn… but that is publishing… and Tech Crunch does it well.

Who does the doomsday scenario thing best?  Henry Blodget.  Reading his Alley Insider, you’d think he and his talented staff of writers were typing on a ledge somewhere, choosing between the Publish button and jumping out of the window. For a great piece on his comeback, read this Wired piece.  Mind you, in all honesty, I am technically guilty of this as well, the title of this piece should be “Will Online Ads Fall by 50%”, and not “What Happens if Online Ad Revenue Falls by 50% in Q1?” - but when I started writing it, I was thinking more of the impact on print… but then I started to ask myself, can this even really happen?

Well, maybe.  At the end of the day, we just saw a major evaporation of wealth throughout 2008 in the housing, financial and automotive sector, to think that online advertising will go on unscathed is foolish, but to alternatively expect a 50% decline in what is the only bright spot in all of marketing is equally foolish.