Is Digital Media Recession-Proof?

Digital marketers may be crying over their personal 401(k)s, but they’re not even close to slashing their ad budgets — at least not yet.

The online ad industry did suffer a slight setback in 2008, the last time recession fears swept over the American consciousness. Display ad spending actually slipped in 2009, the first down year since the dot-com bust. But most observers feel the Web will be an even safer zone this time around.
Right now though, making any firm predictions about where the online ad industry is going is a “fools game,” said David Hallerman, senior analyst at eMarketer, which predicted in June that online ad spending would surge 20 percent this year. “Even the top economists don’t know what’s going to happen.”
That hasn’t stopped digital media companies from suffering mightily in the markets, of course. AOL’s stock is down 36 percent. Demand Media is off 8.75 percent. Even Google is down 5 percent. (Yahoo is an outlier, with its stock flat.) The parade of digital media IPOs could easily come to a halt.
But there’s reason to believe that this downturn, whether it turns into a double-dip recession or just a prolonged period of lame growth, won’t rattle the economy and the media business, like a few years ago.
“This isn’t ‘08 or ‘09,” said Jordan Rohan, managing director at Stifel Nicolaus. “The balance sheets of top companies, including the big banks are so much better.” And unlike that period, “corporations [and advertisers] have a lot of cash,” added Hallerman.
Plus, even during the scariest days of late 2008, marketers didn’t start slashing budgets immediately. Marketing budgets, even in traditional media, didn’t take a hit until 2009.
“You won’t see a general knee-jerk reaction from the whole industry because there’s no one single way to market,” said Eric Bader, chief digital officer at Initiative. “Advertising and media budgets are committed well in advance, upfronts being one example, and can’t easily be pulled or reduced at moments of stock market fluctuations or federal debt crises.”
The same pattern could hold true this time around, Rohan noted, meaning that current budgets may be ok for now, but next year’s dollars could be in jeopardy.
“There are only certain periods where marketers allocate budgets,” said Rohan. “They don’t shift budgets around instantly. If the market uncertainly persists, 2012 could look a little different.”
Steve Minichini, president of interactive marketing at TargetCast, agreed. “This is almost like a quiet period right now,” he said. “I don’t think this is long enough in the making yet. I’m sure that all of these different brand managers are huddling right now and making contingency plans. But they’ve got to look at their sales figures. One thing we’ve got going for us is that we are so measurable.”
That’s what everybody said prior to the recent recession. But in reality brand advertising on the Web took a hit as performance advertising took share. Yet observers are generally in agreement that this time is different, since brands have a better understanding of what value the Web delivers.
“Brand spending is more secure today than in 2007,” said Rohan. “It’s fortified by metrics that clarify its value.”
Rohan opined that social media spending might be less secure, given its newness. Hallerman said local online advertising could also be on the chopping block, since it’s less proven.
But others contend that less mature channels such as social and mobile are so integral to people’s lives that most brands would have a hard time justifying abandoning them. Indeed, with Google, Apple and others entering the space, mobile commerce is nearing a watershed moment, argued Minichini — one that brands will flock to because it’s so trackable.
“Social media is so connected to many brands’ overall strategies,” said Minichini. “And mobile is almost a way of life for people. As time goes by, brands feel more confident about both.”
However, there will probably be some clients that overreact, or penalize one media over another.
“Shifts [in media mix] may happen, but they’re not really rational,” said Bader. “When the economy goes bad, consumers don’t just stop paying attention to any one particular channel, so it doesn’t make sense for brands to pull back in any one place. With lower budgets or more conservative approaches marketers need to make tough choices and make their money go as far as possible, but loading one channel at the expense of another rarely compensates.”
In the meantime, Mincini predicted that online ad sellers will agressively push to close business during the remainder of this year, upping the ante with added value and pricing drops.
“Vendors will make a big push to lock down deals,” he said. “Of course, this is not a problem for the Googles of the world.”
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