Everyone is talking about a recession and how it could hammer those media companies and ad agencies that rely on advertising next year, curtailing opportunity for reinvention when the industry needs it most.
How severe the impact of a sinking U.S. housing market and may be a slowdown in consumer spending depends on many factors. I think we are at a 50/50 chance of having one. I really do not see a recession in the cards..no least with the indicators. With the presidential election going fast and the third quarter will come the summer Olympics in China while the fourth has the election midway through it, plus the holidays. Who knows what’s Federal Reserve Board is thinking, does anybody really think a recession will be allowed during election years? I would speculate that IF we are going to see two quarters of negative growth, it would come in Q1 and Q2.
If that happens, it could cause ad revenue for 2008 among traditional media companies to drop 10 %, compared with current estimates of 0 to 1% growth. The question that interests me most is how about the new media? I think the answer is probably not much. Even during recession (I personally don’t think we’ll get one), people spend more time at home and they have to do something, be entertained. YouTube is the best free entertainment and so are all other social networks and other online cool destinations. Search will continue to grow and expand into new areas. Online is looking bright.
Online ad growth across the industry is expected to rise more than 18-20% this year, fueling heavy investments. But consumption of new entertainment forms is very tiny compared to traditional viewing habits so there are plenty opportunity for growth. Video viewing on the Web from the likes of YouTube relative to television watching is currently about 0.01% to 0.02%. Google can definitely weather an recession, but other novel types of advertising could be vulnerable. Electronic gaming is another sector that is relatively recession-proof and is more vulnerable to industry-specific events, such as game console cycles, than economic ups and downs. Growth will continue into the current console cycle. In-Game advertising will be a bright spot in additional to mobile video. You migh find the photo below funny, a digital ad placed next to a wrong story but it is contextual.
Unlike the periods leading up to the last two ad recessions, advertisers have not been increasing their budgets faster than warranted by economic growth. During the last few years, ad spending has roughly tracked the economy, remaining 0.92% to 0.93% of GDP, whereas before the last two ad recessions, that proportion increased rapidly and peaked at 1.08% in 1989 and 1.06% in 2000. U.S. advertising is expected to grow 1-2 (probably lower1%) to $294.4 billion in 2008, and worldwide, advertising is expected to rise 4.6% to $653.9 billion, thanks to Summer Olympics, U.S. presidential elections and European football championship. We need all three of them.