Seven Predictions for 2009: eMarketer

Geoff Ramsey – CEO, Co-Founder

JANUARY 5, 2009 – As we step tentatively into the new year, prospects look pretty grim. With unemployment predicted to top 9%, industry bailouts looming, a massive retrenchment in the stock market and a generally accepted view that things aren’t likely to get better any time soon, it will be all too easy to slide into a state of cynicism, or even despair.

Uncertainty and pessimism color attitudes toward predictions, too, particularly those that dare to suggest resumed growth ahead. Some will have a tendency to regard such forecasts as wishful thinking, or, worse, woefully out of touch.

Shall we throw all predictions out the window?

Certainly visibility is low right now, and it’s probably better to err on the side of stone-cold sobriety than blithe optimism, but I think we can count on several things in 2009. Not all of them are positive, mind you, but there can be some comfort in quantifying the pain we all know is coming.

1. No doubt about it, marketers will be cutting back on advertising spending this year. All the industry pundits, media firms, Wall Street analysts and bloggers are predicting slashed budgets across the board. A look at the latest projections for total US ad spending growth in 2009 reveals a consistently downward trend, and that’s after negative growth in both 2007 and 2008.

It’s worth noting in the chart below that the lowest number, the -10% growth rate from Barclays Capital, is also the most recent prediction. Previously, Barclays had forecast a decline of only 5.5%.

2. Among traditional media, newspapers, radio and magazines will see the worst declines. There is a double whammy in effect here, too. The economic recession, while severe, is only exacerbating an existing trend. The ad buying, measurement and reporting systems of traditional media are being systematically rewired for the digital age. As I wrote in Digital Marketing Now (my recent white paper about the strength of digital in a downturn), even before the financial meltdown started, analog media was undergoing wrenching changes. Reasons included audience fragmentation, the fundamental shift in power from marketers to consumers and a slew of digital technologies enabled by the Internet.

Consider the plight of newspapers, whose collective revenues will plummet nearly 16% in 2009, after an even more brutal 16.4% decline in 2008, according to eMarketer.

While advertising on television has held up remarkably well so far, the cracks will begin to appear in 2009, with most researchers predicting a 5% or greater decline in spending.

Similarly, radio is expected to see an ad revenue dip of between 5% and 8%, depending which source you look at.

3. Advertisers’ pull-back in overall marketing spending, coupled with a serious re-examination of traditional media, will set in motion a series of permanent changes that will affect how media is planned and measured, as well as the media mix itself. In short, things will not revert back to “normal” in 2009, 2010 or whenever the economy pulls out of its current malaise.

Look at the recent layoffs taking place at large media firms such as Viacom, Gannett and NBC Universal. Under the smoke screen of an obviously troubled economy, many traditional media companies have pre-emptively slashed their head counts-even while profits are still coming in. While the press releases point to the economy and the need to downsize in preparation for worse times to come, I can’t help but wonder whether some selective pruning is going on to remove the digital laggards, thereby making room for new talent with digital chops.

There is also a relentless fixation on accountability and measurement. As an old colleague of mine, Steve Lanzano, chief operating officer at MPG, recently said in an interview with Jack Myers, “The best we can do is deal with reality…and not put our heads in the sand and just do what we have in the past. We need to see what is driving the most return-on-investment and identify where we think the communications business is going.”

4. Throughout all this economic shrinkage, the Internet will continue to grow, though at a far more constrained pace. eMarketer projects online ad spending will rise 8.9% in 2009, after an already ratcheted-down rate of 11.3% in 2008. That’s considerably lower than 25.6% growth in 2007.

eMarketer’s 2009 growth estimate of nearly 9% is relatively conservative; projections from many researchers, analysts and media shops are far more bullish.

With the online advertising growth rate dipping below 10%, many will declare 2009 the end of the Internet’s glory days. That would be a mistake. Compared with the double- or single-digit declines seen with newspapers, radio, magazines and broadcast television, the Internet will continue to outperform. As they say, “Flat is the new up.”

With online, some ad formats will fare better than others. Marketers will continue to use search and e-mail heavily this year, because of both their familiarity and ease of measurement. eMarketer estimates growth of nearly 15% for search and 3.5% for e-mail. Growth for online video, a nascent but hot area, will be even steeper, though it will slow from 81% in 2008 to 45% in 2009.

5. Despite the general consensus that online will ride out the storm, expect to see a growing contingent of bearish forecasters disparaging its prospects. Ironically, many of these doom-mongers will hail from the Internet space.

By November 2008, we had already begun to hear scary, almost apocalyptic predictions from the fringes of the blogosphere, which were soon echoed by more-mainstream analysts such as Silicon Alley Insider’s Henry Blodget and ThinkEquity’s William Morrison. They argue that not only is traditional media tanking (due to the aforementioned double-whammy effect), but the Internet is doomed to see a free fall as well. These naysayers almost seem to be trying to outdo each other with negative predictions-“I’ll see your number, and lower it by 5 percentage points.”

Of course, if enough of us in marketing departments and ad agencies listen to these downbeat forecasts, and take heed through our own actions (or rather lack of action), we will end up fulfilling their prophecy. We must try to resist the siren’s call.

“How bad will the online display ad market fare over the next couple of years? At this point, we would estimate at least a 10% drop next year and probably more.”
-Henry Blodget, CEO, Silicon Alley Insider, October 20, 2008

6. Growth in online display advertising will languish-but only in terms of absolute-dollar spending, and the effects will be temporary. While eMarketer predicts display ad dollars will grow by a relatively anemic 6.6% in 2009, behind the scenes there will be much innovation as the industry figures out how to creatively deploy, integrate and measure the value of display ads for branding purposes. New data is providing solid evidence for what we already intuitively knew, but couldn’t before measure: When display ads are combined with search, marketers can expect a significant increase in sales conversions, whether those take place online or offline. And beyond conversions, display advertising can boost brand awareness, purchase intent and the likelihood of a person to visit a Website or take other actions that indicate engagement with a brand.

comScore, for one, has released study results showing conclusively that the combination of search and display ads leads to a greater sales lift. Specifically, search and display ads together produced a 119% sales conversion increase, versus 82% for search alone and 16% for display alone.

“The only reason we have the focus on clicks is that they can be measured.”
-Gian Fulgoni, chairman, comScore, speaking at the University of South Australia, December 2008

7. E-commerce, already hammered in 2008, will see growth slip even further, from 7.2% in 2008 to a measly 4.1% in 2009. There likely won’t be a decline in the number of online buyers, but rather a pronounced decrease in their average annual spend as consumers cling ever tighter to their purse strings. Look for retailers, as a result, to whack prices, push deals and flood the Internet with digital coupons.

According to comScore, coupons were the fastest-growing Website category in November 2008. Unique visitors to coupon sites were up 32% over October 2008, way ahead of the next-fastest category, jewelry and luxury goods, which grew only 25%, and toys, which grew 24%.

A study by Packaged Facts found that 87% of consumers now prefer to shop at retailers that offer coupons, and 89% said they’re more likely to use coupons in a recession. Expect mobile to get in on the digital coupon craze, too, as consumers seek deals on their phone right at the point of purchase.

Beyond the seven predictions discussed above, the most important theme to keep in mind is that things will get better, eventually. Whether the curtain lifts in late 2009 or some time after, the economy will most assuredly come out of hibernation. And when it does, it will be the stronger for it.

Many companies will emerge stronger, too. As Penn State research professor Gary Lilien put it, those that have “the skill, the will and the till” will be able to market their way through these tough times and end up on the other side with a stronger market share and a more powerful brand position.

“‘The skill’ means they have the marketing expertise. ‘The will’ means they have a culture to go against what seems to be a tough trend. And ‘the till’ means that they have some resources to be able to invest.”
-Gary L. Lilien, research professor of management science, Pennsylvania State University, as cited in Knowledge@Wharton, October 29, 2008

eMarketer, for one, will be pushing hard up that hill-I hope you’ll join us on the climb.

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