The dollar equivalent of TV advertising is vanishing from the media-run ad market. In our opinion, asking when ad growth will return is actually asking the wrong question.

Important Details: The news this past six months has been chock full of data about slowing advertising spending, the disaster in print in particular, and vocal opinions about what's secular change vs. cyclic change and how the two may meet. Just last week Steve Ballmer, speaking at the Cannes Lion International Advertising Festival, said that advertising is permanently resetting to a lower level, that ad revenues will not bounce back, and that media companies will have to plan business models around a smaller share of the ad market.

While we agree with Ballmer's opinions, Outsell data on the topic speak volumes about the degree of change that is underfoot. Outsell's Chuck Richard has been saying for four years that enterprises are moving ad spending to their own web sites, as shown by Outsell's annual surveys of 1200+ marketers and advertisers. (see the most recent report, Annual Advertising and Marketing Study 2009: Market Report Headlines, April 1, 2009). Just how much is moving? A picture is worth a thousand words and the chart below illustrates the staggering trend:

Chuck finds a big takeway in this data: there is nothing like $65 billion dollars being removed from the media-run marketing pot to knock the legs out from under the whole media sector. In 2009: $65 billion will be spent on enterprises' own sites, dollars NOT spent on TV, magazines, newspapers, billboards, etc. To scale that, compare 2009 total U.S. TV ad revenue (cable + broadcast) at $66 billion, and total 2009 U.S. Newspaper ad revenue at $42 billion. So corporations spending marketing dollars on their own sites is equivalent to (a) wiping out all TV ad revenue or (b) wiping out one and one-half newspaper industries!

Implications: Four years ago we not only predicted this downward trend on advertising, we also said the 'all things ad-funded' model wouldn't prevail because as ad spending was decreasing, the places to advertise were proliferating. In the short term, this led to commoditization and prices falling through the floor. The recession upped the ante and accelerated this trend. Companies can reach their consumers directly these days, and investments in social software, community building, and a company's own online promotions will continue to suck the air out of the room. In the long term, this means a continuing shake-out, and saying "get used to lower market share" is, in our opinion, inadvertently trivializing the situation. We will see more media consolidation, more firms going out of business, more firms using the equivalent of online couponing, and word of mouth marketing to build what's-in-it-for-me loyalty to consumers and professionals using these websites.

Publishers that hold the number one or two brand position, provide marketing services support, build and deliver online communities, and provide tactical lead generation will survive and thrive. Simply moving to paid content is not going to be a significant answer - more on that in my next post. For now, many more publishing companies will hit the cutting room floor, as the advertising industry gets a significant makeover and the shakeout continues.

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